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The current financial incentives for the installation of a Solar system that uses Solar energy to generate electricity (Solar PV) in the residential sector presently breaks down into the following two categories. For a detailed analysis of Financial Incentives on a state-by-state basis, including Federal programs.

The following information is presented for convenience only and may be subject to change as these programs as associated tax benefits are clairified by various government agencies. Before purchasing a Solar PV system, it is recommended that you consult with a qualified tax professional to determine your particular tax benefits.

Federal Energy Tax Credit. The Energy Policy Act of 2005 creates a federal energy tax credit equal to 30% of the net cost of the installed system, after deducting any buy-down funds, for qualified Solar PV systems placed in service or activated during the period beginning January 1, 2006 and ending December 31, 2008. For residential systems placed in service before December 31, 2008, the tax credit is capped at $2,000. In October 2008, new legislation was passed that extended the deadline through 2016 and removed the $2,000 cap on residential systems. For systems placed in service after December 31, 2008, homeowners are entitled to the full 30% federal tax credit.

(1) A hidden benefit is that these funds are, under proper circumstances, not included in the gross income of the recipient/owner of the dwelling unit for federal income tax purposes. 26 USC 136 and IRS Publication 525.

Commercial: The Federal Renewable Electricity Production Tax Credit (PTC)

PTC is a per-kilowatt-hour tax credit for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year. The PTC was originally enacted in 1992 but has been renewed and expanded numerous times, most recently by H.R. 1424 in October 2008. This legislation extended the in-service deadlines for all qualifying renewable technologies; expanded the list of qualifying resources to include marine and hydrokinetic resources, such as wave, tidal, current, and ocean thermal; and made changes to the definitions of several qualifying resources and facilities.

The effective dates of these changes vary. Marine and hydrokinetic energy production is eligible as of the date the legislation was enacted (October 3, 2008), as is the incremental energy production associated with expansions of biomass facilities. A change in the definition of "trash facility" no longer requires that such facilities burn trash, and is also effective immediately. One further provision redefining the term "non-hydroelectric dam," will take effect December 31, 2008.

The tax credit amount is 1.5/kWh (in 1993 dollars and indexed for inflation) for some technologies, and half of that amount for others. The rules governing the PTC are currently different for different types of resources and facilities. The table below outlines two of the most important characteristics of the tax credit -- in service deadline and credit amount -- as they apply to different facilties. The table includes changes made by H.R. 1424 (see History section for information on prior rules) and the inflation adjusted credit amounts are current for the 2007 tax year.

It is important to note that owners of geothermal projects who claim the federal business energy tax credit may not also claim the federal PTC. In addition, the tax credit is reduced for projects that receive other federal tax credits, grants, tax-exempt financing or subsidized energy financing. A business can take the credit by completing Form 8835, "Renewable Electricity Production Credit," and Form 3800, "General Business Credit." For more information, contact IRS Telephone Assistance for Businesses at 1-800-829-4933.

History

As originally enacted by the Energy Policy Act of 1992, the PTC expired at the end of 2001, and was subsequently extended in March 2002 as part of the Job Creation and Worker Assistance Act of 2002 (H.R. 3090). The tax credit then expired at the end of 2003 and was not renewed until October 2004, as part of H.R. 1308, the Working Families Tax Relief Act of 2004, which extended the credit through December 31, 2005. The Energy Policy Act of 2005 (H.R. 6) modified the credit and extended it through December 31, 2007. In December 2006, the credit was extended for yet another year -- through December 31, 2008 -- by Section 201 of the Tax Relief and Health Care Act of 2006 (H.R. 6111).

Section 710 of the "American Jobs Creation Act of 2004" (H.R. 4520), expanded the PTC to include additional eligible resources -- geothermal energy, open-loop biomass, solar energy, small irrigation power, landfill gas and municipal solid waste combustion -- in addition to the formerly eligible wind energy, closed-loop biomass and poultry-waste energy resources. The Energy Policy Act of 2005 (EPAct 2005) further expanded the credit to certain hydropower facilities. As a result of EPAct 2005, solar facilities placed into service after December 31, 2005, are no longer eligible for this incentive.