Tax Write-Offs for Installation of Solar Panels on Your Home
The American Recovery and Reinvestment Act offers tax credits for the installation of alternative energy sources and energy efficiency products in your primary residence. These credits are nonrefundable and must meet certain standards to be eligible. For solar panels installed to reduce electricity costs, the credit can be based on the installation costs or the amount of electricity they generate. The panels you purchase must also meet certain defined standards to qualify.
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Residential Energy Efficient Property Credit
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The Residential Energy Efficient Tax credit is designed to encourage homeowners to install alternative-energy equipment. Solar electric systems and solar hot water heaters qualify for the credit provided the equipment has the certification necessary to meet eligibility standards. The credit covers the purchase of the solar panels and labor costs associated with installing them. Regardless of the amount you spend purchasing and installing the equipment, the entire amount is eligible for the tax credit, which is up to 30 percent of the total cost of your investment. This credit is set to expire in 2017.
Qualified Expenditures
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You may qualify for the credit if your solar panels are used to produce electricity for your home or to power your solar water heater. If your solar panels are used to generate power for your solar water heater, at least half of the energy must be derived from the sun. The equipment must be certified by the nonprofit Solar Rating Certification Corporation or some other certifying entity approved by your state.
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Qualified Dwelling
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The IRS defines a qualified dwelling unit as one in which the taxpayer lives and that is located in the United States. Even if you don't itemize on your taxes, you can take this credit. This is a nonrefundable credit, which means it is applied to what you owe in taxes, and the credit, once applied, reduces your tax liability but can only reduce it to zero.
Labor Costs
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You can add your labor costs when you calculate your tax credit but only labor costs that are considered qualified by the IRS. Qualified labor costs include preparation of the site for installation; assembly of the equipment; or original installation of the equipment -- in new housing, for example -- along with the wiring and piping to interconnect the equipment to the dwelling unit.
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References
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