Care & Handling of the Solar Tax Credit

By now most know the Emergency Economic Stabilization Act of 2008 extended the solar investment tax credit (ITC) through 2016 and the $2000 cap for residential solar installations has been dropped allowing for the full 30% credit businesses get. The extension, as it turns out, might be the only good thing for Main Street in a major chunk of legislation aimed at fixing Wall Street. It's a very good thing, to be sure, but let's review the details.




The Database of State Incentives for Renewables & Efficiency (DSIRE, see Related Links) summarized the solar electric ITC extension in October thus:

"A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the U.S. used as a residence by the taxpayer. Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is on a new home, the 'placed in service' date is the date of occupancy by the homeowner. Expenditures include labor costs for onsite preparation, assembly, or original system installation and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year... Consumers who receive other incentives are advised to consult with a tax professional regarding how to calculate this federal tax credit."

DSRIRE went on to say that in case of joint occupancy, the maximum qualifying amount allowed is $6,667 per occupant. Lifewise, the credit may be claimed proportionally by how much each individual paid. Finally, the law states the PV installation must be used as a residence but does not have to be the principal residence to qualify. Any unused tax credit from the first tax year may be carried over to the next tax year.

It is particularly important to consult a CPA or tax attorney if your state offers a solar rebate which is taken with the federal tax credit. Normally, the tax credit is taken on the balance after the rebate is deducted from the total installation cost. If however, one takes the tax credit against the whole installation cost along with the rebate, the rebate could be taxed as income. At present, the issue is better determined by a professional who also considers the solar customer's tax situation.

A four-page set of frequently asked questions about the solar tax credit was produced by the Solar Energy Industries Association, the national trade organization for the solar industry. It is available at: http://seia.org/galleries/pdf/ITC_Frequently_Asked_Questions_10_9_08.pdf