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Tax credit, deductions and Incentives, MACRS, Tax buy downs


If you’re buying a solar energy or water heating system today, one of the most generous solar incentives that you’re entitled to is the 30% federal Investment Tax Credit (ITC). But not everyone who goes solar is eligible to receive it, and for those who do, there are different ways to calculate it.

A tax credit is not a tax deduction. With a tax deduction, you deduct some amount off your gross income to determine your taxable base income. A tax credit is much better. It can be used to pay off your owed federal taxes. So, it’s sort of like receiving an IRS gift card.,

Any U.S. tax payer who purchases a solar or other renewable energy system is eligible to receive a 30% dollar for dollar tax credit

How Do You Calculate the 30% Solar ITC? solar ITC. However, if you installed your solar system with a solar lease or a solar PPA, then you’re not eligible, since the leasing company owns your solar system, so they will receive the ITC. But most leasing companies take the value of the 30% ITC into consideration when calculating your lease rate, so you do benefit indirectly.

Calculating the 30% ITC differs for homeowners and commercial businesses. Homeowners calculate the 30% on the net installed cost; i.e., after you’ve deducted the value of any state or utility rebates.For example, say the total cost for your solar installation was $15,000 and you received a utility or state rebate of $3,000, your total upfront expense is now $12,000. Consequently, to calculate the 30% ITC:

30% x $12,000 = $3600 tax credit that you can use to pay your taxes to the IRS.

For businesses installing commercial solar projects, the rebate is calculated on the gross installed cost of the solar system; i.e., before deducting for any local or utility rebates. So, using the same example:

30% x $15,000 = $4,500 tax credit that your business can use toward Federal businesses income taxes.

You might think that businesses get a higher ITC formula. However, the IRS considers the $3000 utility rebate as earned income, and therefore the business has to pay tax on that $3000. For residential homeowners, the IRS considers the $3000 as a “reduction in value,” sort of like a sale discount, and therefore it is not taxable.


Is the Value of the 30% ITC Refundable?


What if you’re eligible to receive the ITC, but you don’t owe any taxes this year? Will the IRS send you a refund check for $3000, using the above example? Unfortunately, the 30% ITC is not a refundable credit. However, you can use its value for up to 5 years after installing your solar system, so you’ll be able to use it partially or fully for the following year’s tax bill, or for subsequent years.

Once again, we’re not tax attorneys, so please be sure to verify all of the above ITC information with your tax representative.

In summary, the solar ITC is a very valuable solar incentive if you’re going to purchase a solar system with either cash or a home equity loan. For homeowners that finance their solar systems

 

All of the MACRS incentive calculations start by determining the “cost basis” of the solar equipment. Federal regulations provide a 30% tax credit for solar installations, but the MACRS rules allow half of that credit to be added back to the cost basis. For example, if a system costs $100,000, the customer will receive a $30,000 tax credit the first year, resulting in an effective cost of $70,000 for the system. However, the MACRS cost basis will actually be $85,000 (assuming no incentives other than the federal tax credit were applied) — $85,000 is the amount that can be depreciated over 6 years. The depreciation factors for those 6 years are 20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76%. (Note that they add up to 100% — resulting in full depreciation after 6 years.) Thus in our example of a $100,000 system with a cost basis of $85,000, your customer will be able to claim the following deductions:

Year 1:  $17,000

Year 2:  $27,200

Year 3:  $16,320

Year 4:  $9,792

Year 5:  $9,792

Year 6:  $4,896

(If you add them up, you’ll see that they total $85,000.)

Those values represent the deductions that may be taken. Because these are tax DEDUCTIONS and not CREDITS, the actual net savings will depend on the customer’s tax rate. For example, a $17,000 deduction in a 15% tax bracket represents a savings of $2,550; that same $17,000 deduction in a 35% tax bracket represents a savings of $5,950.

Finally, remember that the MACRS incentives will not impact that up-front (“Year 0″) costs; they don’t “kick in” until the first time the customer files their taxes (sometime within the first year after installation).


Calculating the 30% ITC


Residential Homeowners calculate the 30% on the total installed cost, including required structures, repairs, financing, etc., minus any rebates: For example, the total cost for your solar installation was $15,000 and you received a utility or state rebate of $3,000, your total upfront expense is now $12,000. 30% x $12,000 = $3600 tax credit that you can use to pay or offset your taxes to the IRS.

 

Businesses calculate on the gross installed cost of the solar system, For example:

30% x $15,000 = $4,500 tax credit that your business can use toward Federal businesses income taxes.

 

Note, that business $3000 utility rebate is taxable and Residential is not.

 

In summary, the solar ITC is a very valuable solar incentive if you’re going to purchase a solar system with either cash or loan. For homeowners that finance their solar, the cost to finance can also be included in the total and is eligible for the 30% tax credit as well.

 

Always talk to a CPA that is very familiar and experience with the Solar 30% Federal Investment Tax Credit to make sure you and your CPA understand the tax law.



The following solar electric systems will qualify for a 30% federal tax credit:

  • All grid-connected residential and commercial solar electric systems to include all materials, components, and installation.
  • All off-grid residential and commercial solar electric systems to include all materials, components, and installation.
  • All RV solar electric systems for RVs and boats that are established for tax purposes by the IRS as a second home.
  • All expansion to existing grid-connected or off-grid solar electric systems where at least one solar panel is included.
  • All emergency backup battery systems where at least one solar panel is included.

Permitting Fees

Solar Installer, Electrician, and/or Labor

Equipment Rental (Crane, Bobcat, Etc)

System Design & Engineering

System Expansion Components

Concrete/Steel for ground-mount systems

Solar structures

All Res. & Comm. Solar Power Systems

 

Solar-electric property

 

  • 30% for systems placed in service by 12/31/2019
  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022
  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
  • The home served by the system does not have to be the taxpayer’s principal residence.

 

 

Solar water-heating property

 

  • 30% for systems placed in service by 12/31/2019
  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022
  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
  • Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.
  • At least half the energy used to heat the dwelling’s water must be from solar in order for the solar water-heating property expenditures to be eligible.
  • The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.
  • The home served by the system does not have to be the taxpayer’s principal residence.

 


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