Federal Tax Credit and Incentives:
As part of its effort to encourage the use and utilization of renewable energy, the federal government provides taxpayers with tax incentives to purchase solar, wind and energy-efficient technologies for residential, commercial and corporate applications.
On this page we summarize a few of the more common federal incentives and provide a link at the bottom of this to a database for a complete listing of federal incentives, policies and programs.
Federal Residential Renewable Energy Tax Credit
The Residential Renewable Energy Tax Credit is a Federal personal tax credit. The tax credit amount was 30 percent up to January 1, 2020. The renewable technologies eligible are Photovoltaics, Solar Water Heating, other Solar Electric Technologies, Wind, Fuel Cells, Geothermal and Heat Pumps.
- 2016 – 2019: The tax credit remains at 30 percent of the cost of the system. This means that in 2017, you can still get a major discounted price for your solar panel system.
- 2022: Owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their taxes.
- 2023: Owners of new residential and commercial solar can deduct 22 percent of the cost of the system from their taxes.
- 2024 onwards: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. There is no federal credit for residential solar energy systems.
The IRS, via Notice 2018-59 (6/25/18), has modified the Investment Tax Credit to allow solar projects to begin construction by the end of the periods below, and still get the designated percetage – versus being in service by that date.
For instance, this means that instead of your solar project having to finish by December 31st, 2022, it must now begin on or by that date to qualify for 30%. This same logic applies to the follow two years and their 26% and 22% tax credits.
The maximum incentive varies by technology and according to when the system was placed in service:
- Solar-electric systems placed in service after 2008: no maximum
- Solar water heaters placed in service after 2008: no maximum
- Wind turbines placed in service after 2008: no maximum
- Geothermal heat pumps placed in service after 2008: no maximum
- Fuel cells: $500 per 0.5 kW
For more information see:US Code 26 – Internal Revenue Service
Tax Form: IRS Form 5695 & Instructions: Residential Energy Credits
Federal Residential Energy Conservation Subsidy Exclusion (Personal)
This incentive is a Federal Income Tax personal exemption. The key element is that energy conservation subsidies provided to customers by public utilities, either directly or indirectly are non-taxable. Photovoltaics, Solar Water Heat, and Solar Space Heat, are eligible technologies as well as unspecified energy efficiency technologies. It applies to residential and multi-family residential properties. One hundred percent of the subsidy is exempt. There are specific rules and provisions and the customer should consult a tax professional.
For details and more information visit: www.irs.gov/publications/p525/index.html
Federal Energy-Efficient Mortgages (EEMS)
This incentive is in the form of a Federal Loan Program. Photovoltaics, Solar Water Heat, Solar Space Heat, Passive Solar Space Heat, and Daylighting as well unspecified Energy Efficiency technologies are eligible.
Homeowners can either finance energy efficiency improvements to existing homes, including renewable energy technologies, or to increase their home buying power with the purchase of a new energy efficient home when taking advantage of EEMs. The U.S. federal government supports these loans by insuring them through Federal Housing Authority (FHA) or Veterans Affairs (VA) programs. This allows borrowers who might otherwise be denied loans the ability to pursue energy efficiency implementation, and it secures lenders against loan default. Fannie Mae and Freddie Mac also have EEM programs.
For details and more information visit: www.resnet.us/ratings/mortgages
For a complete listing of all federal incentives and policies for renewable and energy efficiency, see the Database of State Incentives for Renewable and Energy Efficiency.
As with the other incentives summarized by the Arizona Solar Center, the customer should consult with authorities such as their utilities, qualified contractors, and accountant.
For details and more information contact:
Public Information - IRS
U.S. Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, DC 20224
Phone: (800) 829-1040
Web Site: www.irs.gov