Financial Incentives for Renewable Energy
FEDERAL
Residential & Business
For solar electric (photovoltaic, or "PV") systems, and solar water heating (SWH) systems:
An overview of this program is online at http://programs.dsireusa.org/system/program/detail/1235
Credits are taken for each system separately, so it is possible to qualify for several credits. These credits reduce tax liability. They are not reductions to income. If tax liability in the installation year is less than the credit, the difference can be carried over to succeeding years’ tax liability.
Business only
PV and SWH systems are 5-year properties for the purpose of depreciation. Further, the depreciation basis for solar PV is only reduced by half of the federal tax credit. A business that installs a solar thermal or PV system (or both) gets a tax credit of 30% and can also depreciate 85% of the cost of the systems.
USDA REAP is a grant and loan guarantee program for renewable energy systems, energy efficiency improvements, and feasibility studies. Rural small businesses and agricultural producers are eligible to apply. Nonprofits are NOT eligible. This program is paperwork-heavy and funds are awarded competitively. An overview of this program is online at http://programs.dsireusa.org/system/program/detail/917
STATE
Production Incentives
Grid-Interactive solar power systems may be eligible to receive annual energy production incentive payments, in addition to the above net metering value.
The current program, capped at $110 million, was estimated to have been reached as of January 31, 2019. New applicants are being wait-listed, pending review of the program budget.
Program Incentive rates:
Residential & Business
For solar electric (photovoltaic, or "PV") systems, and solar water heating (SWH) systems:
- 30% tax credit for systems placed in service by 12/31/2019
- 26% tax credit for systems placed in service after 12/31/2019 and before 01/01/2021
- 22% tax credit for systems placed in service after 12/31/2020 and before 01/01/2022
An overview of this program is online at http://programs.dsireusa.org/system/program/detail/1235
Credits are taken for each system separately, so it is possible to qualify for several credits. These credits reduce tax liability. They are not reductions to income. If tax liability in the installation year is less than the credit, the difference can be carried over to succeeding years’ tax liability.
Business only
PV and SWH systems are 5-year properties for the purpose of depreciation. Further, the depreciation basis for solar PV is only reduced by half of the federal tax credit. A business that installs a solar thermal or PV system (or both) gets a tax credit of 30% and can also depreciate 85% of the cost of the systems.
USDA REAP is a grant and loan guarantee program for renewable energy systems, energy efficiency improvements, and feasibility studies. Rural small businesses and agricultural producers are eligible to apply. Nonprofits are NOT eligible. This program is paperwork-heavy and funds are awarded competitively. An overview of this program is online at http://programs.dsireusa.org/system/program/detail/917
STATE
Production Incentives
Grid-Interactive solar power systems may be eligible to receive annual energy production incentive payments, in addition to the above net metering value.
The current program, capped at $110 million, was estimated to have been reached as of January 31, 2019. New applicants are being wait-listed, pending review of the program budget.
- All solar energy production receives a per-kWh payment.
- Systems using WA-made components receive a higher incentive rate.
- Owners receive incentive payments for 8 years, or until cumulative production payments reach 50% of the system cost + tax.
- Incentive payments are capped at $5,000 per household per year.
- Production incentives are administered by the utility company and are paid in an annual check.
- Production year, and program incentive rate scale, begins July 1 through June 30 of the following year.
Program Incentive rates:
Net Metering
Grid-interactive solar PV and wind power systems are eligible for net metering:
- Energy generated by your PV/wind system reduces your utility bill
- Surplus energy generated is credited toward future power bills
- Surplus energy can be carried over from month to month, but not year to year
- The net metering program does not have an end date
FOR MORE INFORMATION
Database of both federal and state incentives for renewable energy & efficiency:
www.dsireusa.org
IRS Tax publication 946 section pertaining to renewable energy systems:
Go to www.irs.gov/ and type 946 in search box. Page 33 lists energy systems as 5-year property for depreciation for businesses.
U.S. Tax Code, Title 26, Subtitle A, Chapter 1, Subchapter A, Part IV, Subpart E, Section 50:
www.law.cornell.edu/uscode/
Navigation is thus: >Title 26 >Subtitle A >Chapter 1 > Subchapter A >Part IV >Subpart E >Section 50
Scroll down to Section (C) Basis adjustment to investment credit property, for the special rule concerning basis adjustment and the energy credit for businesses.
