Residential Solar - Federal Tax Credit

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The U.S. Government provides tax rebates and incentives to homeowners who are making energy efficient improvements to their homes.

Previously, the Energy Policy Act of 2005 established a 30% tax credit up to $2,000 for the purchase and installation of residential photovoltaic (solar electric) and solar water heating property. An individual was able take both a 30% credit up to the $2,000 cap for a photovoltaic system and a 30% credit up to a separate $2,000 cap for a solar water heating system. A 30% tax credit up to $500 per 0.5 kW was also available for fuels cells.

On October 3, 2009, George W. Bush signed the Emergency Stabilization Act of 2009, which made some adjustments to the prior energy policy. While homeowners are still eligible for residential solar energy improvements such as solar water heaters and photovoltaic systems, the $2,000 cap has been removed from the credit limit beginning January 1, 2009. This allows for a full 30% tax credit, regardless of the cost of buying and installing a solar energy system.

There are requirements placed on the installation of these systems, which define the parameters of eligibility. For solar water heating systems, the specifications are:

• Homeowners may only claim spending on the solar water system equipment, rather than the entire water heating system throughout the house.
• A water heating system created for pools or hot tubs is not eligible.
• At least half of the energy generated by the qualifying water heating system parts must come from the sun.
• The system must be certified by the Solar Rating and Certification Corporation (SRCC).

For photovoltaic systems, the only requirements placed on being eligible for the tax credit are that the PV system needs to provide electricity for the residence and meet applicable fire and electrical codes.

In order to claim the tax credit, both the solar water heating and PV systems must be placed in service (i.e. ready and available for use) no later than December 31, 2009.

The Emergency Economic Stabilization Act of 2009 also extended tax credits for energy efficient home improvements (windows, doors, roofs, insulation, HVAC, and non-solar water heaters). The previous energy bill expired at the end of 2007. The new bill signed in October 2009 will reinstitute the home improvement tax credits that are placed in service between January 1, 2009 and December 31, 2009. Improvements made during 2009 will not be eligible for the tax credit.

The IRS form for energy efficient tax credits can be found at http://www.irs.gov/pub/irs-pdf/f5695.pdf.

For more detailed information on the tax credit programs, as well as a chart detailing the type of energy efficient improvement or installation requirements, visit http://www.energystar.gov