Anyone know how the Fed tax credit for solar energy work?

stumpfield · Nov 8, 2006

I hope someone here understand how it works and can explain it in simple terms.
The $2000 tax credit is good only for 2006 and 2007. How do I make sure I qualify for both years? I'm thinking of installing a small system this year and expand it next year. Is this a one time deal or can be claimed every year on the same property/system as long as you buy more solar equipment? Is it only for your principal residence and have to occupy it? Can it be a 2nd home? What if the house is not even built yet? If you install the system on vacant land, will it qualify?

Treasury and IRS Provide Guidance for energy Credits for Homeowners

Here says you can get $4000 when combined with solar water heating...

Knock $4,000 off your taxes for going solar - MSN Money

dmccarty · Nov 8, 2006

To get the credit you have to spend over 13K to get 4,000 back. You only get 30 cents on the dollar up to a maximum of 2,000/4,000. A 6,000/7,000 dollar photoelectric installation does not buy very much at all. What I have seen over the years is that it would cost the typical homeowner 30,000 dollars to install a photoelectric system to provide most/all of the power for the house. A TBNer has spent far more than that to have off the grid power.

We wanted to put in a solar water heater for domestic use as well as radiant flooring heated with solar in the new house. NC has tax incentives but even with their help it did not make money sense for us to put in the solar water heating. They key is when does the system go into service.

So in 2006 you could put in a domestic solar water heater and claim the credit. In 2007 you could put into service the radient flooring and get credit for that system. You can't claim credit in 2007 for the system in service in 2006.

You need to check to see if your state offers incentives as well. But check the fine print. For instance NC will pay 30 cents on the dollar like the Feds. But they have a maximum amount they will pay and for domestic solar water use its 1,400 dollars. But there is another gate as well. NC only pay 50 cents on the dollar for the installation and they will only pay up to half of what you pay in state taxes.

So to get the full credit on 1,400 dollars you would have to spend over $2,800 on the installation AND pay at least $2,800 in state taxes.

I don't think it would be hard to spend $2,800 on a solar water heating system. There was an article in Journal of Light Construction in the last year or so about installing a solar system and it was well over $2,800.

If the solar water heater system cost $5,000. NC would give me 1,400 dollars and the Feds would give me $1,500 for a total of $2,900 back on a 5K system. So I would be out of pocket $2,100. If the system lasted 10 years, I think it really should go 15 but lets say 10, that is a minimum of $210 a year or $17.5/month that the system costs me. I'll have to look and see what the EPA cost is on the heater we have but I'm guessing it real close to $15 a month.

Later,
Dan

stumpfield · Nov 8, 2006

I'm off-the-grid and will not qualify for any state incentives. The fed tax credit is the only incentive apply here. I'm not going to mess with solar water heating because the numbers don't add up. The fact is that I'm going to install the solar power system regardless of the tax credit. If I can qualify and take full advantage of the tax credit, I'll do it in 2006 & 2007. If not, I'll wait until the house is built. I want to take full advantage of the tax credit by installing the power system *before* building the house and occupy it. So, $2000 per year or just once is better than nothing.

My system will cost about $20K (self-install). If I can claim $2k in 2006 and another $2k in 2007 then I will setup a $10k system and put it in service before the end of the year. Next year, I will setup another $10k system. The net cost will be $16k total. "in service" means providing power to build the house and well pump...etc. If that doesn't qualify, then a generator would work better during construction. I'll wait for better batteries and inverter technology... hopefully solar panel price will go down a little. Depending on the tax credit, I may install:

1. 2 smaller systems in 06 & 07 -- get $4k back
2. 1 system in 07 -- get $2k back
3. probably 08 when the house is completed and I'm moving there fulltime -- get $0 back but I may get better equipments for the same $

Phils · Nov 8, 2006

Thanks for the links Stumpfield!

I don't read anything that contradicts what my plans have been. I added $6800 in solar panels & controller, qualifying me for the $2000 credit this year. I've received the CA tax credit in previous years for previous additions but that is no longer offered.

I'm watching our power system closely on stormy days. The goal was to eliminate generator usage to make power (I still must run it for an hour every 4th day for water). Since installing the newest panels last May, I have had to run the generator to augment power about 2 hours total ... pretty darn good. But that's been over the sunny summer. Last day off was cloudy and while doing those normal things on a day off including watching TV, I was "losing" 7 amps per hour.

If I had one more bank identical to what I installed last May, I'd have been "making" 3 amps net per hour on that cloudy day off, despite the things we were using electricity for. Not a huge amount but more than we'd be using so the battery bank would be going slowly "up" instead of slowly "down".

But no credit on taxes unless I wait until after Jan 1 to buy the next set. By then I'll know for sure whether another $6800 investment will totally supply our energy needs, or just "jump halfway toward the wall" again.

It was an easy computation: I read the measurements in and out on the stormy day, then took the reading from the newest set and added it in again.

The attached photo is of our solar panels now. The six farthest from the camera are the newest, and I'll likely be adding six more like that again. It's been a system that has evolved over the years as budget and technology have allowed.

[on edit] The only incentives we (off-grid) don't qualify for are the rebates from PG$E. Tax credits we qualify for.

Phil

randy41 · Nov 8, 2006

The federal income tax credit is for alternative energy-generating equipment (solar hot water heaters, photovoltaic equipment, and fuel cell property) placed in service after 12/31/05 and before 1/1/08. Labor costs to prepare the site and to assemble and install the equipment also qualify.
The credit for a tax year is the sum of 30% of each of the above kinds of equipment. The max credit per year is $2,000 for photovoltaic and solar hot water and $500 for each half kilowatt capacity of fuel cell property.
Solar water heating property must be certified by the SRCC or equivalent group and at least half the energy used by the solar water heating system must come from the sun. The solar water heating property must be installed in a dwelling unit used by the taxpayer as a residence. The credit is not limited to the principal residence....vacation and second homes are acceptable.
Rental property is business property and has different rules.
If used for a swiiming pool or hot tub it does not qualify.
The credit is not a refundable credit but if not used in the current yea can be carried forward to the next year.
PV's do not have to be certified or meet any output requirement. They can provide supplemental or exclusive electricity to your home. Similar rules about second and vacation homes apply as with solar hot water.
so if you have more questions bring them on.

3RRL · Nov 8, 2006

randy41's post is exactly right and pretty much sums up the Energy Policy Act of 2005 (excluding the geothermal energy part) . Only thing I can add is a business credit is also 30% but with no cap. Not certain if you can get rental property to creep into that line?

RonMar · Nov 8, 2006

There may also be state tax incentives. Here in WA, the state sales tax is waived on purchases of solar energy equipment as well as the labor for site prep and installation. Went touring the area on national solar tour day a few weeks ago, saw some pretty neat setups. In this area it runs about $27K turnkey for a 2.2KW tracking system connected to feed the energy back into the grid during the day.

stumpfield · Nov 9, 2006

3RRL said:
randy41's post is exactly right and pretty much sums up the Energy Policy Act of 2005 (excluding the geothermal energy part) . Only thing I can add is a business credit is also 30% but with no cap. Not certain if you can get rental property to creep into that line?

What's not clear to me (and my tax man) was whether I can claim the credit without a "home" on the property. I was told that my 5th wheel trailer currently on the property could be considered a vacationor 2nd home. So, I'm going to buy the equipments and put the system in service before the end of the year. If you are building a home, "in service" means the day you got the certificate of occupancy.