Tuesday, September 13, 2016
TAX CREDITS FOR SOLAR ENERGY
I recently received an email from a client who is “thinking about putting solar on the house”.
He asked whether he should purchase or lease the product, about the interest on a loan to purchase the product, and in general if it was a good idea.
Here is my response -
I have no personal knowledge of or experience with any solar energy product. Here is what I know -
(1) You can claim a tax credit on IRS Form 5695 for 30% of the cost of solar energy systems (solar electric property and solar water heating property), including the cost of installation, purchased for a person's personal residence.
(2) No credit is allowed for equipment to heat swimming pools or hot tubs.
(3) The actual credit allowed is limited by one's tax liability. If the amount of the credit is more than the actual tax you owe for the year the unused portion of the credit can be carried forward to be used in future years.
(4) The credit is allowed against the dreaded AMT.
(5) You are eligible for the credit as long as you own your solar energy system, rather than lease it. If you sign a lease agreement, the third-party owner gets the solar tax credit associated with the system.
As far as a deduction for interest - you are only allowed to deduct mortgage interest. If you took out a mortgage loan (must be secured by your residence) to pay for the system you can deduct the interest on Schedule A. The interest would be deducted over the term of the loan as you make payments, like any other mortgage loan.
Whether purchasing a system is a good idea financially - take the cost of the system less the 30% federal tax credit and compare that to the anticipated annual utility cost savings over time. You should also factor in how the purchase will increase the market value of your home. You should consult a real estate professional not connected to the product in any way to see how installing such a product will increase the market value of your home.
Here is a link to more information on solar energy systems from EnergyStar -
And here are links to more information on claiming the credit -
So do you have any questions?