Solar and the Federal Investment Tax Credit

Solar and the Federal Investment Tax Credit

Tax season is a good time to review the benefits of going solar.

It’s tax time. Time to meet with your tax preparer and tally up with the man. A good time also to review one of the key benefits of residential and commercial solar – the federal Investment Tax Credit (ITC) – which allows solar owners to take a credit against their federal tax liability equal to 30% of the qualifying costs of the solar electric system.

A few important points:

The ITC must be taken in the tax year in which the solar system was placed in service. If your solar electric system was placed in service anytime between January 1st to December 31st, 2012, you should take the tax credit in the 2012 tax year. If you signed a purchase contract in 2012 but the system wasn’t built until March 2013, you should take the tax credit in the 2013 tax year.

The ITC is not refundable. If your 30% tax credit equals $6,000.00, yet your federal tax liability for the year is $5,000.00 – you won’t receive $1,000.00 from Uncle Sam. Instead, you’ll apply this remainder of the credit to next year’s taxes.

The ITC is only provided to solar system owners. If you’re financing or leasing your solar system (from Sunrun or another company) you aren’t eligible to take the ITC. In these cases, the third-party system owner utilizes the ITC and incorporates the benefit into your solar system leasing or financing arrangement.

In most cases (but not all) any state or utility incentives should be subtracted from the system cost before calculating the tax credit. While commercial solar owners and homeowners in certain states may not be compelled to subtract state or utility incentives from the system cost, there’s no free lunch. In such cases, incentives are generally treated as income and taxed accordingly. The calculation of the tax credit vis-à-vis other financial incentives is an issue which we always recommend solar owners speak to their tax advisor about.

For commercial solar owners, there may be additional federal tax benefits. Specifically, commercial solar owners can benefit from 50% ‘bonus’ depreciation, which allows for the deduction of 50% of the depreciable basis of a solar electric system in the first year of operation (rather than over a typical five-year MACRS schedule). This benefit is available for commercial solar electric systems placed in service on or before December 31, 2013.

While REC Solar certifies that our solar electric systems meet the definition of qualifying solar property, we can’t guarantee a particular tax result or outcome. The information provided above is for informational purposes only, and we strongly encourage current or prospective solar owners to consult their tax advisor to determine how the ITC or other tax allowances may benefit you, given the specific facts and circumstances.

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