Daylight's burning on the solar energy credit

Josh Nowack

June 12, 2015

One key provision from the ARRA of 2009 included a 30% tax credit for installing solar panels for both businesses and homes.  So, if you take an average home installation of $30,000, that means, the taxpayer would get a non-refundable credit of $9,000 on their tax return.  A nonrefundable credit means that if you don't have a $9,000 tax bill, then your credit is suspended until next year.  This can a challenge for those financing your solar installation so let's talk before you commit.  This is otherwise a very straightforwar credit - 30% of the installation is a credit on your return.  Again, talk before you commit, but you get the idea.

On the business side, the same 30% credit exists.  But this time, you not only get the 30% credit, you then have depreciation to add to it as well.  So let's take a $100,000 installation.  The credit would be $30,000.  Your cost basis for the system would be $85,000.  Under current law, we don't have bonus depreciation and our Sec 179 expensing is now down to a paltry $25,000.  But let's just assume straight MACRS and the paltry $25,000 in Sec 179.  You'd get the credt of $30,000, plus you'd get the $25,000 in Sec 179 and then finally $12,000 for normal straight-line MACRS.  All told, $30,000 credit and $37,000 deduction for a $100,000 investment.  Excluding any benefit from power generation, you could save about $40,000 in your taxes in the first year.  

Here's the rub - the installation has to be live on or before December 31, 2016.  Of course laws can be extended or outright changed, but if you are thinking about solar now would be the time to do it.  Once we hit 2017, the business credit drops from 30% to 10%.  And the residential credit goes away entirely (from 30% down to $0).  Again, let's talk before you commit to manage your expectations and so that we can calculate how the credit and deductions would impact you.

Wow - it is sunny today...

   

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