Tax Credits Federal (IRS) tax credit for eligible solar energy systems. Anyone who has purchased or is contemplating purchase of a solar energy system should consult with an account or the IRS for tax advice. The following information is provided for general information and is not tax advice.

For residential solar energy systems  the tax credit is 30 percent of the cost of the system. There is no cap on the tax credit for solar electric systems. However, the individual is limited to a maximum $2,000 credit for spending on solar water heating property if it was placed in service prior to December 31, 2008. After December 31, 2008 the tax credit for solar water heating is 30 percent of the cost of the system (i.e., no cap). 

If the system is included as part of construction of a new house, then the spending occurs when the taxpayer takes residence of the house. 

For business solar energy systems (solar electric and solar domestic water heating) the tax credit is 30 percent of the cost and is also eligible for accellerated depreciation.

Systems must be placed in service between January 1, 2009 and December 31, 2016. 

Systems designed to provide pool heating are not eligible for the tax credit. 

For tax credit forms and instructions, visit the Internal Revenue website at www.irs.gov.

Solar rebates from utility programs for energy improvements on dwelling units are not considered taxable income - see Internal Revenue Code 136 below.

Some people receive bills reductions and/or ‘net metering’ arrangements from their local utility. These are not considered income. See excerpt from IRS Publication 525.

IRS Publication 525, page 33:  ”If you are a customer of an electric utility company and you participate in the utilities conservation program, you may receive on your monthly electric bill either: a reduction in the purchase price of electricity furnished to you (rate reduction), or a nonrefundable credit against the purchase price of the electricity. The amount of rate reduction or nonrefundable credit is not included in your income.”

Internal Revenue Code Section 136

Sec. 136. Energy conservation subsidies provided by public utilities
 
(a) Exclusion
Gross income shall not include the value of any subsidy provided (directly or indirectly) by a public utility to a customer for the purchase or installation of any energy conservation measure.

(b) Denial of double benefit

Notwithstanding any other provision of this subtitle, no deduction or credit shall be allowed for, or by reason of, any expenditure to the extent of the amount excluded under subsection (a) for any subsidy which was provided with respect to such expenditure.  The adjusted basis of any property shall be reduced  by the amount excluded under subsection (a) which was provided with respect to such property.

(c) Energy conservation measure
(1) In general

For purposes of this section, the term ”energy conservation  measure” means any installation or modification primarily designed to reduce consumption of electricity or natural gas or  to improve the management of energy demand with respect to a dwelling unit.

(2) Other definitions

For purposes of this subsection -

(A) Dwelling unit

 The term ”dwelling unit” has the meaning given such term by section 280A(f)(1).

(B) Public utility

The term ”public utility” means a person engaged in the sale of electricity or natural gas to residential, commercial, or industrial customers for use by such customers.  For purposes of the preceding sentence, the term ”person”  includes the Federal Government, a State or local government or any political subdivision thereof, or any instrumentality of any of the foregoing.

(d) Exception
This section shall not apply to any payment to or from a qualified cogeneration facility or qualifying small power production facility pursuant to section 210 of the Public Utility Regulatory Policy Act of 1978.