Knock $4,000 off Your Taxes by Going Solar
Save even more by adding state incentives to those in the new federal energy bill, the first in 20 years
In the new energy law, the U.S. Congress lavished tax breaks on its usual fossil-fuel favorites—there’s $1.6 billion in tax credits for new coal technology, $1 billion for gas distribution lines, another $1 billion for oil and gas exploration costs, $400 million for oil refineries, and so on.
But the solar energy industry is betting that its comparatively tiny share of the energy bill spoils will be enough to jump-start the industry.
The cost of the solar tax breaks to the U.S. Treasury—less than $52 million out of a $14.5 billion energy package—may seem trifling. But the handout shows that Washington supports solar, and that should encourage more states to offer breaks too, solar supporters say.
“For anybody who has ever considered installing a solar system, Washington is telling you to do it now,” says Rhone Resch, president of the Solar Energy Industries Association in Washington, D.C. That’s good news for solar equipment manufacturers like General Electric and Evergreen Solar.
Claiming the credit
The law both increases tax credits for commercial solar installations and offers individual homeowners a credit for the first time in 20 years. (An earlier personal-use solar credit was in effect from 1979 to 1985.)
Companies such as FedEx and Johnson & Johnson that have already installed solar systems on some properties, and have made a commitment toward adding more, are likely to pick up the pace, predicts Resch. “The federal incentives by themselves will not create a market for solar energy, but when combined with state incentives, you reach the economic tipping point to make it work,” he adds.
Homeowners get a more limited credit. They can put in a photovoltaic system (roof panels that take in energy from the sun and turn it into electricity) and/or a solar-powered hot water system (for hot water heaters, radiant floors or radiators), and get a federal tax credit worth 30% of the systems’ cost, up to a credit of $2,000 per system. There are a couple of catches: The heating system can’t be for a pool or hot tub, and the federal credit applies to the net system cost after any state incentives.
The good part is that this new federal break is a credit—not a deduction—meaning it reduces your tax bill directly, dollar for dollar. So, if you install both eligible solar systems in your house, you can knock $4,000 off your federal tax bill. And if you have more credit than you owe in tax, you can carry it over and use it to defray next year’s federal tax bill.