Federal Bail-Out Bill Includes Beefy Tax Benefits for Solar by admin
The $2000 Federal Tax Credit for residential solar energy installations was slated to disappear at the end of this year. Many times Congress has attempted to pass a bill to extend those credits and many times the bills have failed. It was looking pretty bleak until some tax incentives for renewable energy were added on to the Emergency Economic Stabilization Act of 2009 this Friday.
There were many tax benefits for solar energy but here are the most important ones applicable to the residential market and what they mean:
(Keep in mind we are not tax professionals and please don’t act on any of this information without consulting a tax professional.)
1. The 30% Tax credit was extended for 8 years, and the $2000 cap was removed for residences. That means huge things for the residential market and your pocketbook, as well, if you install solar energy on your home. Let’s say the average solar installation is $30,000, well now you’re talking about $10,000 in tax benefits vs. the old $2000… it’s a big change. The new way starts on Jan 1st, 2008, and the demarking event that decides when it was “placed in service” is the interconnection by the utility.
2. AMT filers can now get the credit. This used to kill a lot of projects on small commercial applications when the owners or partners were paying AMT… now they can still take advantage of the 30% investment tax credit for solar.
October 7th, 2008 at 5:10 pm
is the 30% on the gross installation costs, or the installation cost net of CSI and SFPUC rebates?
October 9th, 2008 at 11:56 am
This is great information. I have learned more looking at your website in the past 20 minutes than I have in the past year since I began lookiing into this seriously a year ago.
Thank you so much – you have really energized our hopes for this again!
October 9th, 2008 at 3:10 pm
Alex, it’s 30% of the basis price. If you assign a state or city rebate to the installer and that comes off of your out of pocket, you cannot take the credit on that. As a result you will see more people assigning the rebates to themselves and coughing up extra cash. Again, consult your tax professional please before acting on any of this.
Deidra -
Thanks!
October 11th, 2008 at 2:11 pm
What if I want to do both solar hot water AND photovoltaics? Can you help me with that, too?
December 21st, 2008 at 9:23 pm
Can you give a simple example how much money is a 30% credit?
Assume; $70,000 yearly income
System cost: $30,000
Taxed rate: 22%
make any other assumptions needed.
January 3rd, 2009 at 8:49 pm
Hi gus,
the tax credit is 30% of your out of pocket cost (please consult a tax professional before acting on this).
In that case, you would have a $10000 credit. The rate you are taxed at would not matter since it is a credit, not a deduction…. essentially as good as cash assuming you have that much tax liability, which you probably would in the case you mention.
January 12th, 2009 at 11:12 am
[...] Llorens agrees. “We are the rubber hitting the road, we are exploding the market for solar energy in these cities, and we are creating demand for jobs.” The solar companies selected for both 1BOG’s pilot program and the current campaign hire installers from city workforce development program, which offers a bigger rebate through the San Francisco Solar Tax Incentive Program. [...]
January 27th, 2009 at 6:07 pm
Q. Does the 30% tax credit apply to residential that is off the grid. I am building in a rural area of n.California, with no PG&E connection…that is the primary purpose of going solar. My initial searches of financing discuss tax credits for solar which have the dual capability of being connected to the utility!
January 28th, 2009 at 12:27 pm
pretty sure the ITC applies to off-grid use, but not 100%.
The CSI rebate is another thing, you need to be interconnected to get that.
April 13th, 2009 at 1:57 pm
If the tax credit you’re eligible to receive is higher than your tax liability, can you extend the creit to the next year?
What about extending the credit multiple years, if that would be necessary.
Thanks!
May 15th, 2009 at 9:20 am
I think it can be rolled over 1 year for residences. I’m not 100% on this and I’m not a tax professional, but I think that’s the case.
June 29th, 2009 at 8:15 am
US Energy Star website had detailed information about new tax credits:
http://www.energystar.gov/index.cfm?c=products.pr_tax_credits
July 1st, 2009 at 4:07 pm
I receive a Veteran’s Disability check and Social Insecurity Disability check;Having no tax liability, does the 30% credit come to me as a refund? I have been told yes by the company selling the solar panel company doing the install but would like confirmation. Thanks.
July 2nd, 2009 at 10:32 am
Looks to me Obama’s Recovery Act removed the “reduction of tax basis”. See below:
(D) was added as a result of the law.
Anyone else read this as the Fed Tax Credit is now allowed on the GROSS amount?
(4) Special rule for property financed by subsidized energy financing or industrial development bonds.
(A) Reduction of basis. For purposes of applying the energy percentage to any property, if such property is financed in whole or in part by–
(i) subsidized energy financing, or
(ii) the proceeds of a private activity bond (within the meaning of section 141 the interest on which is exempt from tax under section 103, the amount taken into account as the basis of such property shall not exceed the amount which (but for this subparagraph) would be so taken into account multiplied by the fraction determined under subparagraph (B).
(B) Determination of fraction. For purposes of subparagraph (A), the fraction determined under this subparagraph is 1 reduced by a fraction–
(i) the numerator of which is that portion of the basis of the property which is allocable to such financing or proceeds, and
(ii) the denominator of which is the basis of the property.
(C) Subsidized energy financing. For purposes of subparagraph (A), the term ’subsidized energy financing’ means financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.
(D) Termination. This paragraph shall not apply to periods after December 31, 2008, under rules similar to the rules of section 48(m) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990).
Reference:
http://www.dsireusa.org/documents/Incentives/US02F.htm
July 5th, 2009 at 1:20 pm
Have you a solution for tax payers who can’t take advantage of the 30% federal tax credit because they don’t enough or any taxable income?
My thought was to find someone who could use the tax credit. Have them buy the system and lease it to me. They would pay an amount equal to the credit and I would pay the balance. They would get the tax credit and the tax depreciation deduction (100% in year 1 under sec 179) as their incentive. I would get the benefits of the reduced utlitiies cost and reduced energy use.
Any thoughts?
Lew Halpert
480.422.2111
July 5th, 2009 at 1:41 pm
This is much of what SunRun’s PPA and SolarCity’s lease does. I’ve never heard of an agreement between friends, but I don’t see why not. These third party ownership options only exist in select places right now but will exist most places soon, so depends on where you are
-Dave
July 20th, 2009 at 1:32 pm
why is my comment #13 still awaiting moderation?
Thanks.
August 12th, 2009 at 2:46 pm
hi kevin, i seem to concur with that finding that the gross basis is now used for solar tax credits after 12/31/08, which means the CSI rebate will not reduce the basis for 30% reduction, is that correct?
thx, peter
August 12th, 2009 at 2:56 pm
Peter, we are not tax professionals so please consult yours before acting on this…. But I very much believe that NOT to be the case. Cash rebates should lower the basis price for the system and accordingly, the tax credit. The installation company can speak with you about this in detail, but someone always owes tax on cash subsidies. If you receive it, it wouldn’t lower your basis price but you’d have to pay tax on the incentive, so it could be near a wash. If the installer receives the credit, you don’t pay the tax on it but it would lower your basis price for the system and the tax credit along with it
-Dave
August 13th, 2009 at 2:16 pm
Dave,
I agree with you that if it seems to good to be true, it probably isn’t true. We are not tax professionals, and as everyone states, including the solar company installers, contact your tax professional. The problem is the law is unclear and guidance isn’t expected until the end of the year when the IRS gets around to publishing its official tax forms.
I have called the IRS twice (for two separate opinions)for guidance and they have confirmed (over the phone by help desk employees) that ITC basis does not have to be reduced by the energy company subsidy.
Which leads us to your second point, that if the subsidy is assigned to the homeowner, it should be added as gross taxable income. I think the following tax code confirms this under the heading of denial of double benefit.
Computation of Taxable Income.
TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter B > PART III > § 136
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§ 136. Energy conservation subsidies provided by public utilities
(a) Exclusion
Gross income shall not include the value of any subsidy provided (directly or indirectly) by a public utility to a customer for the purchase or installation of any energy conservation measure.
(b) Denial of double benefit
Notwithstanding any other provision of this subtitle, no deduction or credit shall be allowed for, or by reason of, any expenditure to the extent of the amount excluded under subsection (a) for any subsidy which was provided with respect to such expenditure. The adjusted basis of any property shall be reduced by the amount excluded under subsection (a) which was provided with respect to such property.
This tax code and the tax code I posted earlier seem to contradict each other. I guess the grey area is, at least here in Texas, if the installer is assigned the subsidy and pays the corporate income tax on it, does the homeowner have to pay income tax on it as well?
Thanks.
November 23rd, 2009 at 2:08 pm
So the credit is not monitizable then?
With a $60K income and 3 kids, my federal taxes are pretty low as it is. With the tax credit a system might be afordable. Without it not so much. To clarify, you need to have enough tax liability to offset the credit?
November 23rd, 2009 at 2:11 pm
Remember, we’re not tax professionals so don’t act on any of this info without consulting one. If you have very low tax burdon you have two options. One is I believe you can roll it over and take it piecemeal if you can’t get it all in teh first year. Second, you could use a third party financing option like a lease or a PPA (if you are in a location that allows it) in which case THEY claim the tax advantages and pass the savings to you, since they own the system.
December 29th, 2009 at 9:32 pm
One way is to create enough tax liability. I have about $5000 tax credit on my system, so what I did was withdraw enough from my IRA to create a $5000 tax liability, then rolled that amount into a Roth IRA. If you have appreciated stocks ( I don’t) you could sell some for a capital gain.