Solar Energy Tax Credit

Dec 01
2011

 

Català: Planta de concentració fotovoltaica a ...

A solar energy tax credit is subtracted from your tax liability at the end of the year in which you earned it. This is an increasingly common type of government subsidy, but you must buy specific systems and absorb the upfront cost, waiting until year's end to enjoy the solar power incentives. Because of this, you could wait more than a year to receive the benefit of this solar power tax credit, depending on when you file taxes.

To make a solar energy tax credit more attractive, the Investment Tax Credit (ITC) in 2008 set solar power incentives at a whopping 30% of your tax liability after solar system cost. And tax credits are better than tax deductions. If you pay the national marginal 28 % tax rate, and your deduction is $1,000, you save $280. But a solar energy tax credit comes out of what you owe, your tax liability, so a $5,000 tax credit puts $5,000 back in your pocket. Those are 5,000 solar power incentives to get started solar powering your home.

You may be fortunate enough to qualify for both tax credits and deductions. In many instances, both Federal and state governments provide solar power incentives, and you can effectively double-dip. All this may sound confusing, so let's explain it in numerical examples.

The U.S. government gives a 30 per cent solar energy tax credit for Photovoltaic (solar) systems, with no max placed on system size. So if your PV system cost $30,000 to install, and you receive a state refund of $5,000, your net cost is now $25,000. You then apply the Federal solar power tax credit of 30 percent of this cost, or $7,500. So now your solar system only cost you a total of $17,500. In actuality, the government is “co-signing” 41.6 percent of your total solar system cost. Not too shabby.

And if you are lucky enough to live in one of the more liberal solar-incentivized states, you may not have a property tax increase. Many states allow for an exemption to property tax increases for up to the amount of your solar project on top of any solar energy tax credit you may have received. If you spend $25,000 on solar powering your home, the next $25,000 of property tax increases are ignored. Talk about your solar power incentives, this is one that has the government effectively paying your property tax.

And the business incentive is even greater than residential. Many businesses use power during the peak hours, so net-metering (we'll explain later) makes solar power attractive. Also, the conscientious 'green effect” thinking that leads to many solar projects usually does not exist with most businesses. So if you have a home office, you can reap all kinds of financial and ecological rewards, and businesses have depreciation schedules. Things can get very attractive, and complex, for the business owner, so check with your tax representative to receive max benefits.

Utility companies are not so ready to give incentives for you going off the grid. It would be cannibalizing themselves, and the government realizes this. That is why, in 1978 the federal Public Utility Regulatory Policy Act (PURPS) was born. PURPS dictates that local utility companies pay wholesale or avoided costs for energy to those manufacturers that want to sell it. This is what is called “net metering”, and provides even more solar power incentives than a solar power tax credit.

In California, the state even has to pay you the same rate that they charge! If you are on a Time Of Use (TOU) rate schedule, you can really clean up. Since power companies charge more during high-use periods, like the middle of the afternoon and during summer, you can get paid for any power you create that you do not use during those periods of time. This can be even more attractive than a solar energy tax credit, because it pays every day. Just ask your local power company about their inter-tie PV requirements.

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