Solar Hot Water Incentives and Credits |
| Federal and State governments have began to recognize, and even assist, the growing move toward renewable energy, green living, and have instituted a wide ranging number of assistance programs to help prospective owners with the purchase of their systems.
Currently there are a number of Federal and State credits, incentives, and rebates for both Solar Hot Water (solar thermal) Systems and Photovoltaic (PV or Solar Electric) Systems.
Many states, similar to the Federal Government, offer tax credits on the purchase of Solar Hot Water and Solar Electric Systems. However, states also provide incentives such as rebates, grants, production credits, sales tax exemptions, and more. It is imperative that you have a firm understanding what incentives are available to you, and where, how, and when to apply before you purchase your Solar Hot Water System.
The most comprehensive database of Incentives, Credits, and Rebates for Solar Hot Water and Solar Electric Systems is:
DSIRE: Database of State Incentives for Renewables & Efficiency |
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| The Federal Tax Credit |
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| Residential Solar and Fuel Cell Tax Credit |
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| Specifics |
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| Incentive Type : |
Personal Tax Credit |
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| Eligible Technology : |
Solar Hot Water, PV Systems, Fuel Cells, Other Solar Technologies |
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| Applicable Sectors : |
Residential |
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| Amount : |
30% |
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| Maximum Credit : |
$2,000 for PV and Solar Hot Water; $500/0.5kw for fuel cells |
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| Carryover Provisions: |
Excess credit may be carried forward to succeeding tax year |
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| Eligible System Size |
Not Specified |
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| Requirements : |
Solar hot water heating property must be SRCC Certified, or certified by entity recognized by the state. At least half of the energy used to heat the dwelling’s water must be from solar in order for the Solar Hot Water Heater’s expenditures to be eligible. |
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| Legal Authority : |
26 USC – 25D |
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| Date Enacted : |
8/8/2005 |
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| Effective Date : |
1/1/2006 |
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| Expiration Date: |
12/31/2008 (extended) |
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Summary |
| The Energy Policy Act of 2005 established a 30% tax credit up to $2,000 for the purchase and installation of residential solar electric and solar water heating property. An individual can take both a 30% credit up to the $2,000 cap for a photovoltaics system and a 30% credit up to a separate $2,000 cap for a solar water heating system. A 30% tax credit up to $500 per 0.5 kilowatt (kW) is also available for fuels cells. Initially scheduled to expire at the end of 2007, the tax credits were extended through December 31, 2008, by Section 206 of the Tax Relief and Health Care Act of 2006.
Solar water heating property 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. Note that the tax credit does not apply to solar water heating property for swimming pools or hot tubs.
The credit is calculated based on the individual’s expenditures excluding subsidized energy financing, which is defined as "financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy." Consumers who receive other incentives are advised to consult with a tax professional regarding how to calculate this federal tax credit.
If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. Expenditures include labor costs for the onsite preparation, assembly, or original installation of the system and for piping or wiring to interconnect the system to the dwelling.
To be eligible for the credit, a system must be "placed in service" or activated on or after January 1, 2006, and on or before December 31, 2008. 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.
Contact
Public Information – IRS
Internal Revenue Service
1111 Constitution Ave. NW
Washington, DC 20224
Phone: 800.829.1040
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