| Note: IRS Form 5695 & Instructions: Residential Energy Credits for Tax Year 2007 are now available. Also note that the federal tax credits for home energy-efficiency improvements under 26 USC § 25C expired on 12/31/07, but the solar and fuel cell tax credits are available through 12/31/08.
The Energy Policy Act of 2005 (H.R. 6, Sec. 1335) established a 30% tax credit up to $2,000 for the purchase and installation of residential solar electric and solar water heating property. An individual can take both a 30% credit up to the $2,000 cap for a photovoltaics system and a 30% credit up to a separate $2,000 cap for a solar water heating system. A 30% tax credit up to $500 per 0.5 kilowatt (kW) is also available for fuels cells. Initially scheduled to expire at the end of 2007, the tax credits were extended through December 31, 2008, by Section 206 of the Tax Relief and Health Care Act of 2006 (H.R. 6111).
Solar water heating property must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed. Note that the tax credit does not apply to solar water heating property for swimming pools or hot tubs.
The credit is calculated based on the individual’s expenditures excluding subsidized energy financing, which is defined as “financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.” Consumers who receive other incentives are advised to consult with a tax professional regarding how to calculate this federal tax credit.
If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. Expenditures include labor costs for the onsite preparation, assembly, or original installation of the system and for piping or wiring to interconnect the system to the dwelling.
To be eligible for the credit, a system must be “placed in service” or activated on or after January 1, 2006, and on or before December 31, 2008. Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is on a new home, the “placed in service” date is the date of occupancy by the homeowner.
For more information about the solar-energy component of this tax credit (including the types and use of eligible property, the credit’s interaction with other incentives, and project ownership requirements), see the Solar Energy Industries Association’s (SEIA) Guide to Federal Tax Incentives for Solar Energy. |
