- New Solar Energy Users and the 30% Tax Credit
Americans love a good bargain, and the federal government offers a handsome one for those who invest in a solar energy system for their homes. The Residential Energy Efficient Property Credit is a tax credit for consumers to offset the costs of purchasing and installing alternative energy devices in their homes. At present, this credit is available to taxpayers through 2016. It is applicable for 30 percent of the total purchase and installation cost of qualifying photovoltaic equipment.
A typical home in the United States uses nearly half of the energy it produces for heating and cooling the home, more than is spent on all other energy expenses for the residence. Find a way to cut these costs to make this work in your favor.
- What is Covered
Installing a solar energy system with panels on either a new-build or pre-existing residence qualifies the consumer for the full 30 percent tax credit. In order to meet the program requirements, the home’s photovoltaic system (solar panels) must convert the sun’s light into energy for the electrical supply for the home. Additionally, the system must comply with all state and local electrical and fire code regulations.
Many consumers are surprised to learn that, under most circumstances, labor costs for the installation can be included along with the cost of the solar energy system. Unused portions of the tax credit can also be carried forward to the next year(s) if the credit will exceed the taxpayer’s liability for a single tax year.
To qualify, approved solar equipment must be purchased and installed. Qualifying manufacturers include a tax credit certification statement in with the packaging of the equipment or, in some cases, on their website. The structure being modified must also be used as a residence for the taxpayer, but it does not have to be their primary home. Outfitting a ski chalet or summer beach cottage with solar panels still qualifies consumers for the tax credit. The installation must have been done between January 1, 2006 and December 31, 2016 in order to be eligible for the credit.
- What is Excluded
Leases and PPAs do not qualify the taxpayer for the 30 percent tax credit. Actually, the company doing the leasing qualifies for the investment tax credit instead of the homeowner.
- Calculating and Applying the Credit
Consumers first deduct any available utility or state rebates for which they may qualify to arrive at the net installed cost. They then multiply that value by 30 percent to arrive at the tax credit. Here is an example:
Mr. Jones spends a total of $18,000 on the purchase and installation of his solar energy system. In his home state, he qualifies for $2,500 combined rebates from all sources. This lowers his total expenditure to $15,500. When the 30 percent credit is computed, it comes to $4,650 that can be applied toward Mr. Jones’ tax liability for that tax year. Monies in excess of the yearly cap are then carried over and applied against the following year(s) tax liabilities until the credit amount is exhausted or the tax credit program ends.
Many consumers are confused about this aspect of the program and think that a tax credit is the same as a deduction. But while tax deductions are subtracted from a taxpayer’s gross income to arrive at the taxable base income, a credit is applied against what is actually owed to the Internal Revenue Service after all deductions have already been applied and the amount owed is calculated.
Complete IRS Form 5695 and submit with your tax return, along with the Manufacturer’s Certification Statement and the receipt from the purchase of the solar energy system.
- Carrying Over Credits
If you don’t need the credit for this year’s taxes, no worries. It can be applied for up to five years post-installation and used in toto or partially in the coming years. So while you won’t be able to hound the mailman for your refund check using this program, you still may be able to profit financially from it.
- Worth the Expense?
Even without the obvious advantages of the federal tax credit, this is one home improvement that will pay for itself over time. Homeowners who make the switch experience a huge reduction in energy costs for their house. Solar panels can last for up to four decades, and many manufacturer’s provide warranties for as long as 30 years. A solar energy system also increases the resale value of a property.
The other obvious benefit to going solar is that it is produces green energy naturally without any greenhouse gas emissions that are so harmful to the environment.
Please consult with a tax professional to learn more about your specific tax liability.