Photo:Flickr/ AnnCleaver 2000
The end of the year brings the thought of the Spring yet to come. And with that Spring comes the taxes yet to pay.
Me thinks this is why we’ve been getting a lot of emails about the 30% Federal Investment Tax Credit (ITC) for solar. Some claim that one should calculate the 30% tax credit before any state or utility rebates; i.e., the gross installed cost. Others claim one should calculate the 30% after deducting state rebates; i.e., the net cost paid to your installer, who typically collects the rebate on your behalf. Which is right?
Before I answer that excellent question, please read the following 3 important caveats:
1) We are solar geeks, not tax geeks. Please, Lord, we pray that ye will consult thy personal tax geek before following our unprofessional tax guidance. Amen.
2) As of 12-15-09, the IRS and its tax lackeys have yet to write clear guidance on this issue. Instead, they have left it up to interpretation, thus far. This may be their idea of tax accounting sh$ts & giggles. We are not amused (but please don’t audit us.) Nevertheless, as noted below, we have consulted an authority on the subject.
3) Please Re-Read #1 and #2. You have been warned. Cross your fingers and read on.
So, which is right? The short answer is that both are right, but one method applies to residential solar (homes) and the other applies to commercial solar (businesses) –but with a catch.
For Residents:
- Calculate your 30% Federal tax credit after any state or utility rebates. That’s how we do it here on SolarPowerRocks.com. In other words:
- If the cost of your solar power system was $35,000 before any rebate, and you receive $15,000 in state rebate money, then we suggest you calculate the 30% off $20,000.
- Thus, your tax credit would be $6,000, bringing your net system cost to $14,000.
- Solar Fred Important Note #1: This $6,000 tax credit is not refundable. So, if you owe $3,000 in taxes for 2010 to the IRS, you’ll pay no taxes on April 15th, but Uncle Sam won’t be sending you a $3,000 refund check. Instead, you must apply this to next year’s taxes….or the next.
- Solar Fred Important Note #2: If you get your solar system through a solar lease or a solar PPA, you DO NOT get the 30% tax credit or any REC payments, if applicable. The solar leasing or solar PPA company gets it. Too much to go into now, but this is why buying is better in the long run. That reminds me to shamelessly plug the fact that you can get a free solar quote now from one of our local partner installers to see if solar makes financial sense for you…or not. Moving on.
For Commercial Solar Installations:
- Feel free to calculate your 30% Federal ITC tax credit before any state or utility rebates. But there’s a catch.
- The catch is that Uncle Sam sees you as a profit making venture. Consequently, if you get a rebate of $15,000 rebate from the utility, that’s seen as income/revenue, and therefore, they’re going to tax that $15,000.
- So, in the same example, you can subtract $15,000 off your $35,000 gross cost, and also apply another $10,500 (30% x $35,000) to your quarterly tax bill, making your pre-taxed net cost $9,500.
- However, that $15,000 will be taxed as income, and thus….could take away any gain over the residential net benefit. Bummer.
- Solar Fred Important Note (again): If you finance your solar system through a solar lease or a solar PPA, you DO NOT get the 30% tax credit or any REC payments, if applicable. As with residential, the solar leasing or solar PPA company gets it. Once, again too much to go into now, but this is another opportunity to shamelessly plug the fact that you can get a free solar quote now from one of our local partner installers to see if solar makes financial sense for your business…or not.
- Solar Fred Important Note: Solar companies and developers who are creating solar products or large industrial installations for can apply for 30% “grant.” Yes, cash. This is part of the stimulus package, but it doesn’t apply to non-solar businesses. Bummer again.
- Solar Fred Important Note #2: If you sell your commercial property within 5 years of installing solar, there may be some tax consequences. Please see the comments section of this post for more clarification.
And what is our source for the above? We have divined this tax guidance from the Solar Energy Industry Association (SEIA), mere mortals, but ones with connections to tax gods. Please see this SEIA FAQ and the corresponding explanation from our other mortal friends at the Database of State Incentives for Renewables and Efficiency (aka DSIRE.)
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Ok, I do’t mind being called a Tax Geek (actually I’m sorta proud of it!) Your advice to solar companies is essentially correct, except, the rebates and credits aren’t per se taxable, they are applied to reduce the “cost of goods sold” as accountants call it. The net effect is the same, your costs are reduced, profits increase, the profits are the taxable part…but the rebate itself isn’t actually taxable.
…and like you said it isn’t a refundable credit so where you put the rebate is important to getting money back if you are due.
Just recently had a 9.2kW system installed on my home at a cost of about $50,000 & was looking forward to the 30% solar tax incentive. BUT – my tax advisor pointed me to EnergyStar.gov which states the tax credit is “30% of the cost, up to $500 per .5kW of power capacity”. So although I thought I’ve be getting a $15,000 tax credit (30%), I’m now only going to get $9,000 ($500 per .5 kW). Not that $9,000 is bad – just not what I’ve seen published and promoted!
Arborlast,
That $500 per .5kW cap is for fuel cells, not home solar energy. The solar energy credit is 30% of costs. Hope you filed for all the money due to you!
- Dan
Installed a 5kw system and am eligible for a $9600.00 30% rebate but have only paid $8600.00 in Fed taxes. Will I receive the full $9600.00 rebate after filing 2010 taxes?
Dave, short answer is yes, but not all at once. From what we understand, the balance will be rolled over into next year, so you’ll have another $1,000 to use as a credit for next year.
Hope that helps,
Solar Fred
Great, Great information, I am seriouly trying to install a micro invertor system in NYS and your site is very helpful. Keep it up and thanks.
Mike
if you add panels to your system 2 years later can you take the 30% for the add. panels?
I am trying to squeeze in a federal grant for a solar system beginning construction before 12/31/10. At this point, I was ready to order and pay for the inverters. My accountant is unsure whether the inverters constitute “solar energy property” for purposes of the grant. Seems to me that it is a no brainer but he’s got me worried.
For condo associations I understand that they don’t get the State and Federal tax rebates. Bummer
I just put on a new roof and a 9.66kw solar array. It was a roofing/solar company that installed it. They informed me I needed a new roof to hold the solar array. Can I get 30% back off the roof and the solar, as it was an additional cost?
im looking into building and installing a ppm (electro magnetic) generator system can i get the same grants as a solar system?
Wayne
Arbolast
Dan Hahn
dave shaffer
Tor a.k.a. "Solar Fred"
micheal rivera
susco
Dan
stan
Frank
andy