Business Tax Incentives
Solar Energy Systems
What are the tax incentives for commercial solar systems?
Businesses are eligible for tax credits for qualified solar water heating and photovoltaic systems, and for certain solar lighting systems. Qualifying equipment will either use solar energy to generate electricity, to heat/cool or provide hot water to a structure, or will use solar energy to illuminate the inside of a building by means of fiber-optic distributed sunlight (tube systems and passive solar are not eligible). The credits are available for systems "placed in service" between January 1, 2006 and December 31, 2008.
Note: This is a basic guide to the credit. For more detailed information, go to www.seia.org and download the Guide to Federal Tax Incentives for Solar Energy.
Who is eligible for the tax incentives?
The tax credits go to businesses that install solar equipment for their use.
What are the incentives and how do they work?
The tax credits are for 30% of the cost of the system. For individuals the maximum credit is $2000 for photovoltaic systems and $2000 for solar water heating systems in any tax year. To qualify, residential systems must meet certain criteria as follows:
- Solar water heating:
- System must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the state government in which the system is located. SRCC is an organization set up by the solar industry to test and certify equipment so purchasers have an independent assessment of system performance www.solar-rating.org
- At least half of the energy used by the system to heat the water must be solar energy. The credit is not available for expenses for swimming pools or hot tubs.
- Photovoltaic systems:
- System must provide electricity for the residence, and must meet applicable fire and electrical code requirement.
Alternative Minimum Tax and the Commercial Solar Tax Credit
According to the SEIA Guide to Federal Tax Incentives for Solar Energy, "a commercial solar tax credit cannot be used to reduce a taxpayer's regular income taxes by more than 75% of what the taxpayer would otherwise pay, or below the taxpayer's alternative minimum tax amount, whichever is greater."
What do I have to do to qualify for these incentives?
- To qualify, tax payers will probably need to have evidence regarding:
- the cost of the system (including labor and piping or wiring to connect the system to a home's plumbing and/or electrical systems),
- when it was placed in service,
- whether the system meets the qualifying criteria discussed above.
IRS Forms
Where can I learn more about qualifying products?
Good sources of information about these systems include:
