Solar Energy Tax Credits – Learn How to Save Money on Solar Installation
You’ve heard about solar energy tax credits and are curious. However trying to figure out if your new solar project is eligible for a tax credit can be confusing. Part of this is due to the way the laws have been written and what restrictions have been placed on solar projects.
The good news is that solar energy tax credits are still available to those who are looking to get started with renewable energy. However it is important to make sure to read the fine print before purchasing any renewable energy system. Installation companies and manufacturers are often able to help figure out the details of tax credits and how much you will be able to save.
History of Renewable Tax Credits
Tax credits for renewables have seen their ups and downs over the years. Despite this, the industry has seen much success and growth since its humble beginnings. Here’s a quick look back at renewable tax incentives since the 1970s:
In 1978 the Energy Tax Act was passed by Congress in response to the energy crises of the 1970’s. As part of the act, homeowners were encouraged to invest in renewable energy technologies as well as energy conservation techniques. Tax credits were offered that include a credit of up to $2000 for wind and solar electric devices installed on people’s homes on or after April 20th, 1977 and before January 1, 1986. Incentives were also included for solar thermal devices and energy conservation technologies such as insulation.
Despite the great start that solar and wind power had seen due to the tax incentives, in 1985, Congress allowed the incentives to expire. Many solar companies were forced to shut down or find other ways to stay afloat. While federal tax incentives were brought back in 1991, it was only 9 short months until they were set to expire again.
The Energy Policy Act of 1992 was created to mainly to support wind and certain bio-energy resources. On June 30th, 1999, the PTC set forth from the Energy Policy Act of 1992 was allowed to expire. It would take Congress a few months before things were set right again. In December of 1999, the credit was extended until December 31st, 2001.
January 2002 came without an extension of the credits until March 2002. In December 2003, the credits expired for a third time since the Energy Policy Act of 1992. From late 2003 through most of 2004, attempts were made to extend and expand the tax incentives. It was not until early October 2004 that a one -year extension (retroactive back to January 1, 2004) of the PRC was included with a larger package of tax incentives.
A few weeks after this extension, a second bill extended the PTC through 2005 and expanding the list of eligible renewable energy technologies that could receive tax credits. In 2005, a two-year extension of the PTC was included in a large package of tax incentive in the Energy Policy Act of 2005. These tax incentives were set to expire on December 31st, 2008, however they were extended as part of the Emergency Economic Stabilization Act of 2008 signed on October 3rd, 2008.
On February 17th, 2009 the American Recovery and Reinvestment Act of 2009 extended and expanded the tax incentives for renewables. This legislation is the most current in regards to solar energy tax incentives.
Production Tax Credits vs. Investment Tax Credits
Solar energy tax credits are broken down into two types – Production Tax Credits (PTC) and Investment Tax Credits (ITC). There are different rules are restrictions for both PTC and ITC.
Production Tax credits are designed towards companies that generate renewable energy including wind, solar, geothermal, bio-energy & biomass, incremental hydropower, landfill gas, small irrigation system and municipal solid waste. Investment Tax Credits are geared towards individuals and businesses who buy renewable energy systems such as solar panels.
It’s also important to remember the distinction between tax credits and tax deductions. A tax credit reduces the amount of tax you pay dollar-for-dollar. So a $1500 tax credit will reduce $10,000 in taxes owed to $8500 in taxes owed. On the other hand, tax deductions lower your taxable income which is percentage based.
Solar Tax Incentives Available Today
Photovoltaic power systems and solar hot water heating systems placed into service by December 31st, 2016 are eligible for a tax credit of 30 percent of the cost with no maximum (as opposed to other energy efficiency incentives with a cap of $1500). The 2016 deadline gives home owners plenty of time to install systems. However some restrictions still apply:
Systems must be placed in service from January 1st, 2009 to December 31st, 2010. The IRS defines “placed in service” as the time the property is ready and available for use.
Solar water heaters and solar panels may be placed in second homes and still qualify for the incentive.
Solar systems must have a Manufacturer’s Certification Statement in order to qualify. This is basically a statement from the manufacturer that certifies that the product qualifies for the tax credit. Tax payers need to keep a copy of the statement for their records, but do not have to submit a copy with their return.
Although not a requirement, it is a good idea to keep any receipts from solar installations and purchases that you claim on your taxes. This can help in case of an audit.
If you are building a new home, you can qualify for the tax credit for geothermal heat pumps, photovoltaic’s, solar water heaters, small wind energy systems and fuel cells, but not the tax credits for windows, doors, insulation, roofs, HVAC or non-solar water heaters. This is important to keep in mind and take into consideration when deciding on a budget for home building.
For solar water heaters
At least half of the energy generated by the qualifying property must come from the sun. Homeowners may only claim spending on the solar water heating system property, not the entire water heating system of the household.
The credit is not available for products purchased for swimming pools or hot tubs.
The water used in the solar water heater must be used in the dwelling.
The system must be certified by the Solar Rating and Certification Corporation (SRCC).
For photovoltaic systems.
Systems must provide electricity for the residence
Must meet applicable fire and electrical code requirements.
It is important to note that these rebates are offered on a federal level meaning that they are available to citizens of the United States and its surrounding territories. Incentives are also offered on a state level. For more information on solar energy tax incentives, a great website is the DSIRE database of renewable incentives.
Future of Renewable Incentives
The 2009 bill was a big boost to the solar industry and will allow the industry to gain a more sturdy footing. However the up and down nature of renewable tax incentives can be confusing for consumers and frustrating for industry advocates. Long term credits are needed to truly support the move to solar energy. In the meantime, project planners and home owners need to stay informed and be ready to act quickly to take advantage of incentives.
