Understanding and Applying the Residential Solar PV Tax Credit
This information is an informed summary based on experience and industry knowledge. Before claiming a Solar PV Tax Credit we strongly recommend you consult a tax professional to fully discuss your personal situation.
- What Is The Residential Solar PV Tax Credit?
- In August, 2005, congress passed the Energy Policy Act of 2005. This is a broad piece of legislation covering a variety of energy conservation issues. One highlight of this legislation is the establishment of a tax credit for taxpayers who invest in residential solar photovoltaic (PV) systems. The Legislation was extended in 2008.
- What Is Eligible For The Credit?
- Materials and labor in the construction of a solar PV system on a U.S. residence.
- How Much Of My System Cost Qualifies?
- All necessary components, and materials and labor (site preparation, assembly and original installation, and wiring, etc) necessary to the point of electrical distribution or to connect to the individual’s home system are eligible. This could include PV modules, inverters, batteries, controllers, wiring, conduit, etc. Please contact our sales staff for further details.
- How Much Is the Tax Credit?
- The tax credit is 30% of the eligible expenditures. IMPORTANT: this is a direct credit to your tax liability, not simply a reduction in your taxable income.
- When Can The Tax Credit Be Taken?
- The credit can be applied to your 2011 federal income tax for systems/items installed during 2011. The credit can be applied to your 2012 federal income tax for systems/items installed during 2012.
- Is There a Cap or Limit To the Credit?
- No. In October 2008, Congress eliminated the cap that previously limited the maximum credit to $2,000.00.
- Will An Expansion To My Existing System Qualify?
- The law is clear that the components must consist of the original installation of new equipment. There is no indication that the purchase and installation of an upgrade or expansion of an existing PV system, or the addition of PV to an existing remote system, does not qualify (subject to the same requirements and restrictions as new installations). However, this issue is not yet clearly defined. For current and additional details on these requirements, contact our sales personnel.
- Does My Existing (or new) System Have To Be Exclusively PV?
- No. But only the portion installed that applies (in whole or part) to solar PV will qualify as eligible property for calculating the Solar PV Tax Credit.
- Can Both My Spouse And I Take Credits?
- The Solar PV Tax Credit can only be counted once.
- Will My New Solar Grid Tie System Qualify?
- What Parts Of My System Do Not Qualify?
- 1) Other power generation sources (wind, hydro, generator) up to the point of interconnect. Typically, the interconnect point in a hybrid system would be the battery bank. 2) Electrical loads such as appliances.
- Does A Solar PV System For My Recreational Cabin Qualify?
- Possibly. The credit applies to PV systems installed on a taxpayer’s ‘residence’ and not necessarily a “taxpayer’s principal residence.”
- What is A Tax Credit and How Is It Applied?
- A tax credit is a direct reduction in your federal tax liability. All prepayments (estimated tax payments, employment withholding, etc) are then applied. Example:
- Do I need to Itemize to Claim The Credit?
- Can I Apply the Solar Tax Credit if I Must Pay the AMT?
- The Solar Tax Credit may be used not only as a credit for regular income taxes, but also against the Alternative Minimum Tax (AMT).
Tax liability (line 63 on Form 1040) $ 8,000.00 Less eligible solar PV tax credit ($6,000.00) New tax liability $ 2,000.00 Less other credits and prepayments ($XXXX) Amount Owed (or Refund) $XXXX