Tax Breaks for Installing Solar in Your Home
The reasons to install solar electric panels on your residential home include benefiting the environment by supplying nonfossil fuel-produced power and reducing or eliminating your monthly electric bill for many years in the future. The installation cost of a photovoltaic system, however, is expensive, and saving money on electric bills alone may not be enough to make it financially feasible. Fortunately, there are often grants, low interest loans and tax breaks that can help.
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Financial Breaks From Local Governments
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Some cities and towns, such as Santa Monica, California, waive any fees for building permits for the installation of solar panels. While this isn't much of an incentive, this small financial break demonstrates a forward-thinking policy to help move the country toward energy independence.
Financial Breaks From States
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Every state has different incentives to install residential solar panels. Some states, such as New Jersey, waive sales tax on all solar products as well as on the labor cost of installation. As of January 2011, with New Jersey's 7 percent sales tax, that tax break can mean a savings of more than $5,000 for a typical 9 kw system. Although available funds and incentive programs change frequently by state, some states also offer grants to offset the cost of installation, with New Jersey and Oregon as examples. You do not have to pay income tax on these grants. State public utility boards may also issue energy certificates to owners of solar panels. These certificates can be sold to utility companies, and the money can be used to pay for any loans you took out for the installation. There is no income tax on this income.
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Tax Breaks on Federal Tax Returns
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The Internal Revenue Service (IRS) offers a substantial tax break for solar panel owners. Until 2010, up to 30 percent of the installation cost could be claimed as a direct tax credit, carried over a five-year period. A tax credit is a more valuable tax break than a tax deduction. A deduction only removes a percentage of any tax that is owed, whereas a tax credit directly reduces the tax owed dollar for dollar. Use IRS Form 5695 to calculate and claim your residential energy credit. This form is also used to carry forward solar tax credit from previous years.
Tackling Tax Breaks for Solar Energy
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The North Carolina Solar Center and the Interstate Renewable Energy Council have created a website that maintains a comprehensive source of incentives, tax breaks, grants, loans and renewable energy policies for municipalities and states. This ongoing project is funded by the U.S. Department of Energy. State governments that face budget shortfalls frequently change their grants and other solar incentive policies, sometimes as often as every few months. Therefore, it is important to get the latest tax break and grant information before moving forward with an installation. The good news is that the cost of a solar installation has come down over the last few years, and that trend should continue.
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- Photo Credit Solar Panel image by kuhar from Fotolia.com
