FEDERAL SOLAR TAX CREDIT
When it comes to homeowners, businesses and farms investing into the renewable energy sector, the initial financial outlay required is always weighed in relation to the long term return. Since 2005 there has been a federal solar tax credit offered by our government that helps ease this decision. These credits are similar to the tax write offs that homeowners take like to take advantage of. Besides the financial savings that comes with solar (see Home Solar Power) and wind power systems (see Homemade Wind Turbines), The American Recovery and Reinvestment Act of 2009, which is essentially an extension of the Energy Policy Act of 2005, was signed into law by President Obama despite the economic downturn.
Treasury grants are offered as handsome incentives in the form of tax credits to these investors for their investment in these renewable energy systems. The federal solar tax credit, what it’s commonly referred to, also includes solar water heaters, homemade wind turbines, geothermal heat pumps and fuel cells.
There are a number of clauses and parts to this law, but here is a basic overview: (For a more detailed overview, see)
AMOUNTS, REQUIREMENTS, ETC
As of the writing of this article, there is no longer a maximum tax credit clause when it comes to Solar-Electric Property. Prior to Jan 1, 2009 a homeowner who installed a system could receive a tax credit up to 30% of the cost not to exceed $2000. If this level was exceeded, the excess beyond the $2000 level was rolled over into the next calendar year. This kept homeowners from building larger systems because of the minimal tax breaks on costs that exceeded this $2000 mark. The current law still offers the same 30%, however there is no longer a maximum. For example, a system that costs $10,000 would receive the full $3000 tax credit (30%) incentive at the end of the year and could receive this yearly on a system that has operational costs of this level or higher. The costs of a system include the preparation of the site, assembly costs, piping ant the associated wiring needed to tie the residence to the system itself.
SOLAR WATER HEATER CLAUSE
In the case of solar water heaters, there are a few details to be aware of that are different than solar electric systems. As with solar electric systems, solar hot water systems do not have a maximum credit if the system was installed after Jan 1, 2009. There must be a government endorsement or certification by either the Solar Rating Certification Corporation (SRCC) or another organization that is endorsed by the state government for which the system resides in order to be eligible for the federal solar tax credit. A property must have at least ½ of its water usage being heated by the system in order for eligibility. There are no tax credits given for solar hot water systems used for spas/hot tubs or swimming pools. The home that contains this system does not have to be the owner’s primary residence.
FUTURE GROWTH AND EXPANSION
This law has had much planning and tracking behind it and the stimulus results and future projections continue to be monitored by the Energy Information Administration. In a most recent report in 2009 the EIA projected the federal solar tax credit would create a fair amount of market expansion in the near future. They projected that by 2012 wind generation system installation could actually double. In the solar electric side of things, they predicted a 15 % growth by 2011. Biomass and Geothermal systems would also see an increase, but the main growth from the federal solar tax credit would come from solar (see Solar Energy Facts) and wind power systems (see Wind Energy Facts). These types of credits are very important in maintaining long term, sustainable growth in these areas. Since 1999 this law has had its ups and downs. There were times where the planned expirations were carried out, but usually the law was quickly passed again to bring tax incentives back. There have been several changes as the technology and nationwide interests in this area change and grow. Each state has its own clauses to this law, and it is recommended to spend some time learning exactly what is available to take advantage of before taking the dive into the world of solar power.