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.
What homeowners need to know about the Solar Tax Credit: https://www.seia.org/research-resources/residential-itc-phasedown
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
Sales Tax Exemption
No sales tax collected on solar equipment and installation
Residential & Business
For solar electric (photovoltaic, or "PV") systems, and solar water heating (SWH) systems:
- 26% tax credit for systems placed in service before 12/31/2022
- 22% tax credit for systems placed in service after 01/01/2023 and before 12/31/2023
- 10% tax credit starting in 2024 for commercial systems only
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.
What homeowners need to know about the Solar Tax Credit: https://www.seia.org/research-resources/residential-itc-phasedown
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
Sales Tax Exemption
No sales tax collected on solar equipment and installation
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.
