Congress extended the renewable energy tax credits that were originally set to expire at the end of 2016.
A 30 percent federal renewable energy investment tax credit is available until December 31, 2019 to individual taxpayers who install solar PV or solar hot water on property they own and use as a residence. For example, a $10,000 system would cost $7,000 after the tax credit. The amount of the tax credit will step down to 26% for systems placed in service after 12/31/2019 and before 01/01/2021, and down to 22% for systems placed in service after 12/31/2020 and before 01/01/2022.
The rules describing the residential tax credit state, “Expenditures include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year.” See Energy.gov for all relevant terms and conditions for solar and other renewable technologies (fuel cell, wind and geothermal). Form 5695 is used to claim the residential tax credit.
The corporate tax credit applies to a somewhat different set of solar technologies: PV, Solar Water Heating, Solar Space Heating/Cooling, Solar Process Heat. The credit starts at 30% for systems placed in service before 12/31/2019, steps down to 26% for 2020, 22% for 2021, and 10% for 2022 and future years. The business tax credit for Hybrid Solar Lighting, Fuel Cells, Small Wind as well as Geothermal Heat Pumps, Microturbines, Combine Heat and Power (CHP) Systems expired as of 12/31/2016. A 10% tax credit is available for Geothermal Electric for the foreseeable future. The tax credit for Large Wind steps down annually from 24% in 2017, 18% in 2018, and 12% in 2019; it expires at the end of 2019.
Eligible purchases can be depreciated like any other equipment acquired for business use, following standard Modified Accelerated Cost Recovery System (MACRS) accounting rules. Both the business tax credit and a substantial portion of the depreciation allowance can be taken in the first year, making renewable technologies very affordable.
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