California Tax Credits for Solar Power
California has long been a leading state in the national solar power and renewable energy initiative.
Favorable laws, rebates and performance payments and high electric prices make going solar in California a very wise economic decision.
Solar consumers are eligible for federal tax incentives for the purchase and installation of eligible solar systems, including both solar photovoltaics and solar hot water (solar thermal) systems, as well as other renewable investments.
The following information regarding taxes, tax credits and depreciation is meant to make the reader aware of these benefits, risks and potential expenses and help avoid claims by aggressive people.
Note that this is not tax advice and kindly seek professional advice from a qualified tax adviser to check the applicability and eligibility before claiming any tax benefits or exemptions.
Learn more about rebates and incentives.
How Solar Tax Credits Work
Solar tax credits were enacted in 2008 as part of the Emergency Economic Stabilization Act, which includes $18 billion in incentives for clean and renewable energy technologies as well as for energy efficiency improvements.
The 2008 legislation extended the solar investment tax credit through December 31, 2016, and made other modifications to the tax credits. Legislation in late 2015 renewed these credits for five years with an incremental de-escalation of the credits. The solar ITC offers:
- A federal investment tax credit for both residential and commercial consumers is available for both photovoltaics and solar water heating systems.
- A consumer must have a federal tax liability to take advantage of the solar investment tax credit.
- Prior to 2009, residential solar installations had a per-project cap of $2000 tax credit. With current legislation, the solar ITC for residential system owners is 30% of the total system with no upper limit.
- The 30% rate is available for systerems placed in service through December 31, 2019. The credit drops to 26% through the end of 2020, then 22% through 2021 before dropping to zero by the end of 2021.
- The federal tax credit is a one-time credit but may be carried forward (and possibly backward) if not completely useable in the system installation tax year. Rules about carrying forward and backward may vary between residential and commercial tax filers, please consult a tax professional for the current rules.
- Eligible projects may take a grant in lieu of tax credit under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009. The 1603 grant program is administered by the United States Department of the Treasury. By receiving payments for property under section 1603, applicants are electing to forego tax credits with respect to such property for the taxable year in which the payment is made or any subsequent taxable year.
- Residential customers in higher income tax brackets see comparatively more value because residential electricity expenses are paid with after-tax dollars- they aren’t tax deductible.
- The IRS current federal tax form for the Investment Credits is Form 3468.
- Municipal and non-profit entities do not have to worry about these tax issues, as they are generally tax-exempt.
- The solar system owner has the ability to take advantage of the solar tax credit. Entities without a federal tax liability sometimes use third-party system owner arrangement to install solar since a third party can take advantage of the solar investment tax credit, passing along some savings to the solar system host customer.
- Bonus depreciation was expanded to 100% for solar projects placed I service in 2011, and 50% for projects placed in 2012. “Bonus Depreciation” means acceleration of the otherwise applicable depreciation (not “more” depreciation, but “sooner” depreciation).100% Bonus Depreciation means that the whole project’s applicable tax depreciation is accelerated to 2011.
Before you can claim the California solar credit –like most credits, rebates or deals- there are eligibility requirements.
Whether you’re incorporating solar into your residence or your business. Below is a list of the requirements that you make eligible for the solar investment tax credit:
- The solar PV system must be providing energy for your home – Note: your system must be approved as in service.
- Applicable electrical and fire code requirements must be met.
- Your system must be placed into service- up and running- after 1/1/2006 and on or before, 12/31/2021
- You must own the PV system, whether it was cash purchase or finance. If you are leasing the system then you are not eligible for the investment tax credit.
- Your solar equipment must be new, not used.
- Your solar energy system must be used by someone that is subject to U.S. income taxes
- Your solar system must be located within the U.S.
- The generated energy can not be used to heat a swimming pool.
Benefits of Solar Tax Credits in California
The residential energy efficient property (REEP) credit and the solar investment tax credit (ITC) have made it possible for solar power to enable households and businesses save after their energy-efficient improvements.
Solar tax credits enable businesses and homeowners to take 30% of the invested amount in qualifying the solar property as a credit against the tax liabilities.
The CPA normally determines the amount of the qualified expenditures, and compute the credit that is based on these expenditures. They will then use the solar credit in offsetting the federal tax liability.
The 30% credit amount applies to both residential and commercial construction projects that started before the end of 2019 in California. It is imperative to note that the tax credits have been functional since January 2006.
This implies that those who installed their solar systems during or after the date can acquire incentives through an amended return.
On the off chance that the upfront costs of the solar energy project are greater than earlier planned, the solar tax credits can be applicable for the investment.
Ensure that you contact our experienced tax professionals for more details on how these credits could assist in your energy-efficient improvements more inexpensive.
To get started on your path to self-sufficient solar power in California and to take part in some of these solar tax credits for yourself, give Solar Sun Surfer a call today!