How to claim the federal (USA) nonbusiness tax credit for solar

RoderickRoderick Solar Expert Posts: 253 ✭✭
As most people know there is a 30% federal tax credit, capped at $2000, for photovoltaic or solar hot water heating systems installed in 2006, and the coming year, too.  The way I read it, that's 30% of what a person pays AFTER getting all state incentives and rebates back, but still, it's really easy to hit the cap with photovoltaic.

I did some poking around on the irs.gov site to try to find out what form I would need to fill out to claim this credit, and it seemed that form 5695 was what I needed.  However, all I could find was this draft form today:

http://www.irs.gov/pub/irs-dft/f5695--dft.pdf

Maybe the final form will be released on January 1st, 2007, and this message will be moot, but if anyone has already run across the final form, could they point me in the right direction?

Tax preparation software will probably have 5695 built-in, but I'm probably going to go manual this year.

Okay, the real form is up now.  http://www.irs.gov/pub/irs-pdf/f5695.pdf

Disclaimer: I'm just a citizen, not qualified to give any tax advice.  And I wouldn't hold anyone liable who posts a suggestion in reply to my question, either.

Comments

  • BB.BB. Super Moderators, Administrators Posts: 32,007 admin
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    TurboTax had support for taking the tax break last year (2005 tax year). My installer just gave me the instructions for filling in the form (example: line 1 $xx,xxx, line 5 ....).

    -Bill
    Near San Francisco California: 3.5kWatt Grid Tied Solar power system+small backup genset
  • RoderickRoderick Solar Expert Posts: 253 ✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar
    BB wrote:
    TurboTax had support for taking the tax break last year (2005 tax year). My installer just gave me the instructions for filling in the form (example: line 1 $xx,xxx, line 5 ....).

    -Bill

    Thanks, Bill!  I could always go to TurboTax as a fallback position.  I'm sure they'll be updated with whatever is current.  I believe there was a new law enacted in 2005, so the 2006 credit is figured differently.
  • nielniel Solar Expert Posts: 10,300 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    do we have anybody that is good with taxes on board as even i have other things that are supposed to be able to be deducted like a new hot water boiler and a new energy-star washing machine? do the newest tax programs include this stuff and the proper forms for all?
  • RoderickRoderick Solar Expert Posts: 253 ✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar
    niel wrote:
    do we have anybody that is good with taxes on board as even i have other things that are supposed to be able to be deducted like a new hot water boiler and a new energy-star washing machine? do the newest tax programs include this stuff and the proper forms for all?

    The above things are also line items for form 5695, which only existed in draft form, last I checked, at the link in the base of this thread. There are also accompanying instructions, which have apparently not been released to the public, yet. My uneducated guess is that this will all become available around the time that employers are supposed to send out their W-2's (end of this month), and ordinary people start doing their taxes.

    There's also a release schedule on the IRS site for these forms, but the schedule was "temporarily unavailable" last I checked.

    If I see an answer, I'll share it here, but if someone else finds it first, please post.

    Happy New Year!
  • RoderickRoderick Solar Expert Posts: 253 ✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    Okay, the real form is up on the IRS site, now.  I've modified the base post.

    http://www.irs.gov/pub/irs-pdf/f5695.pdf
  • nielniel Solar Expert Posts: 10,300 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    thanks for the link. i wonder why the irs doesn't want us to save the form and instructions to the pc without being filled in. did they do this with other forms too? if this be so, then what a waste to pay somebody in the government to do nothing more than to make life more difficult on those they are supposed to serve.
  • crewzercrewzer Registered Users, Solar Expert Posts: 1,832 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar
    i wonder why the irs doesn't want us to save the form and instructions to the pc without being filled in.

    niel,

    How did you come to that conclusion? All you need to do is right-click on the link provided by Roderick and then select the appropriate "Save" function.

    HTH,
    Jim / crewzer
  • RoderickRoderick Solar Expert Posts: 253 ✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    Hi, Neil,

    Regarding saving a partially filled-in form, that's an inconvenience of Acrobat, not the irs. As you probably noticed, if you download the form on your local computer, then fill out (say) just your name, the "save" icon is greyed out. However, I found that if you wait a minute while Acrobat checks for updates and offers to enable auto-fill for fields, then the save icon will get activated, and let you save. This probably applies to the other forms from the IRS, too.

    Good luck,
    Roderick
  • nielniel Solar Expert Posts: 10,300 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    thanks, as i got around the problem. i allowed it to save on the initial download rather than saving it after downloading. i never ran into that before with acrobat, but i'll take your word for it roderick that that is the problem.
  • dhilldhill Solar Expert Posts: 47
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    Okay, I'm looking at the tax form and trying to figure out what's allowed and what's not allowed for this solar tax credit. Can I deduct the price of my inverter? What about my battery bank? The language in the instructions is rather vague. Obviously, solar panels are deductible, but what about all the peripheral equipment necessary to balance the solar system. Can I deduct the price of my Mate or charge controller. Last, what about the cost of my whole house generator that is used to bump my battery bank on cloudy days? I also see that the cost of labor on the installation of the system can be included. If I did all the work myself, can I deduct that cost to myself or do I have to pay my son all of that labor amount in order to be able to deduct it? Hope I'm not asking too many tax questions here, but I'm only gaining 30% and I'd like to recover as much as possible of my investment in solar. It's the only break we get in Texas. In fact, in my area, we can't even run meters backwards to off-set electric costs. TXU has no meters that run backwards.
    Thanks for the help.
  • crewzercrewzer Registered Users, Solar Expert Posts: 1,832 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    Here are the relevant instructions from the IRS form 5695:
    Residential Energy Efficient Property Credit

    You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, and fuel cell property. This includes labor costs properly allocable to the onsite preparation, assembly, or original installation of the property and for piping or wiring to interconnect such property to the home. This credit is limited to:

    • $2,000 for qualified solar electric property costs,
    • $2,000 for qualified solar water heating property costs, and
    • $500 for each half kilowatt of capacity of qualified fuel cell property for which qualified fuel cell property costs are paid.

    Qualified solar electric property costs. Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in a home located in the United States and used as your home. This includes costs relating to a solar panel or other property installed as a roof or a portion of a roof. The home does not have to be your main home.

    I’m also not a professional tax weenie. However, my interpretation of the above includes the following:

    1)  The word “property” means hardware, not improved real estate.
    2)  “Costs” includes labor costs.
    3)  The costs for inverters, batteries, cabling, panels, breakers, etc. are included as qualified costs because the are “… property that uses solar energy to generate electricity for use in a home…” In my view, the PV panels alone cannot and do not “…(use) solar energy to generate electricity for use in a home…”.

    HTH,
    Jim / crewzer
  • nielniel Solar Expert Posts: 10,300 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    i agree with you jim, but it may not be the intent of those that drew this up. they don't always say what they mean or mean what they say, let alone know what they are sometimes talking about. the proof of that is they generalize with the term property without distinguishing between real property or personal property, leading some to be confused. that personal property in the case of a solar system when installed into/onto a home becomes part of the real property by law. as law makers they should be making that distinction and know what it is they are talking about. they should be wording it all better and i'm not going holding my breath for that to happen soon. :roll:
  • crewzercrewzer Registered Users, Solar Expert Posts: 1,832 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    Moving on… here’s some interesting language from the EPAct 2005, the original law that created these credits:
    ‘‘(8 ) WHEN EXPENDITURE MADE; AMOUNT OF EXPENDITURE.—
    ‘‘(A) IN GENERAL.—Except as provided in subparagraph
    (B), an expenditure with respect to an item shall be treated
    as made when the original installation of the item is completed.
    ‘‘(B) EXPENDITURES PART OF BUILDING CONSTRUCTION.—
    In the case of an expenditure in connection with
    the construction or reconstruction of a structure, such
    expenditure shall be treated as made when the original
    use of the constructed or reconstructed structure by the
    taxpayer begins.

    The language in section (8 )(A) says to me that expenditures qualify in time based on when the equipment is installed (“completed”) and not when the actual purchase was made. For example, although I bought my MX60 in September, 2004, I did not complete my installation until September, 2006. Accordingly, my MX60 may qualify for the credit.

    Hmmmm….

    Jim / crewzer
  • dhilldhill Solar Expert Posts: 47
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    Thanks for the responses, niel and crewzer. I'm in the process of putting my taxes together. I'll know more about how this credit is going to work by the end of the month when I finish my return. I'll post what I discovered in the process. One thing I'm learning right now is that the credit is attached to some other areas of tax credits, meaning that the credit might not apply. I do believe that the credit works according to when the material was placed in service, not necessarily when it was purchased.
  • RoderickRoderick Solar Expert Posts: 253 ✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    Again, here are my opinions as a non-tax professional:
    • On form 5695, when it says "property," that means everything paid in order to get your solar system installed, equivalent to if you bought a turnkey deal from a solar installer, or if you bought a kit from a solar dealer to install yourself.  So inverter, mounting racks, batteries, even wire should count towards the property cost.
    • If you get a state or utility rebate, you have to deduct that from the cost of the property.
    • If you pay taxes on the purchase of the system, that MIGHT have to be deducted from the cost of the property.
    • If you install it yourself, you cannot deduct the value of your time to do so, any more than you can deduct the value of volunteer time as a charitable donation.  If you pay a relative who might have done it for free, anyway, that would be shaky ground.  I would be concerned unless it was someone who already did this sort of thing as a business, and I had a contract signed, just like anyone else.
    • The $2000 cap on residential installations runs out really fast, so you can be very conservative in estimating the cost of the property above, and it won't make a difference.  Exceptions would be very small systems, or upgrades to existing systems (I think if you add, say, 4 panels to your existing array, that qualifies for the tax credit).
  • nielniel Solar Expert Posts: 10,300 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    update.
    i just went through my taxes and without other deductions in other areas like education and such i am not able to do just the energy tax credit. i think it was lines 47 to 51 on 1040 and with just energy credits they dissallowed it stating that if 0 on i think line 11 on form 5695 that you may not proceed further and are inelligable for the credit. anybody else get burned on this? comments? i really wanted to at least deduct part of the cost of my new furnace hot water boiler. :x :x this could've just as easilly have been pvs, but without those additional deductions being present on lines 47-51 on form 1040 you can't do it. i thought this wasn't supposed to hinge upon other deductions or other stipulations, but there it is in black and white. i will be contacting my congressman on this one.
  • crewzercrewzer Registered Users, Solar Expert Posts: 1,832 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    niel,

    I urge you to go back and carefully read the instructions. My take is that there's a prioritization to the credits and if you take certain other ones which result in your federal tax obligation dropping to zero, then you can't take the energy credit.

    HTH,
    Jim / crewzer
  • nielniel Solar Expert Posts: 10,300 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    jim,
    i urge you to read the energy bill that was passed as it never stipulated that these other credits were to be prioritized by the irs before allowing the deduction for energy. hr6eas. pages 1032-1039. who authorized the irs to do this as congress did not that i can see in this lengthy bill? do note that i read instructions fairly well and it's how i found out that i was excluded from taking the deduction due to not having other deductions.
  • crewzercrewzer Registered Users, Solar Expert Posts: 1,832 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    niel,

    Nothing personal, but I just don’t believe that you’re interpreting the instructions correctly. I’ll stipulate that the wording may be cumbersome.

    Based on your comments above, I assume you are not claiming any credits for 1040 lines 47 through 51 (foreign tax credit, dependent care, education, retirement).

    Accordingly, you’d enter a “0” (zero) in line 10 of form 5695, and, for discussion purposes, let’s assume you have a $2K tax liability in line 9.

    For line 11, you’d subtract “0” (line 10) from $2K (line 9) and enter $2K in line 11. Since line 11 = $2K and therefore is not “zero or less”, you may continue rather than stop.

    Assuming line 8 is, say, $150, then you enter $150 on line 12, as it’s smaller than the $2K on line 11.

    You then enter $150 for your (non business) / residential energy credit in line 52 of your 1040.

    My earlier choice of the word “prioritization” may have been unfortunate. The real issue is that if a taxpayer’s other credits reduce his/her tax liability to zero, then there’s no energy credit to be had, as there’s no remaining tax liability against which to credit.

    HTH,
    Jim / crewzer
  • nielniel Solar Expert Posts: 10,300 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    jim,
    nothing personal taken, but there isn't anything to be entered on line 9 as i don't have to do the alt min tax and there's nothing for me to enter for line 45 either.

    "The real issue is that if a taxpayer’s other credits reduce his/her tax liability to zero, then there’s no energy credit to be had, as there’s no remaining tax liability against which to credit."

    it wasn't supposed to be setup in the fashion of tax liabilities resting at 0 so there's nothing to credit against as it was supposed to be a straight off the top deduction without the said stipulation that you point out they made it have. this was not in the passed bill that i could see so who authorized this stipulation? do you know? instead of saying you can't go below 0, as they and you are saying, that if you owe taxes by that point you may deduct your renewable investments, but my interpretation originally and by the bill was that this was to be given even when it went below 0, as in refund and that's what an off the top deduction is supposed to be. it was not just supposed to be for those that owed the government that they'll give this pitance of forgiveness up to what is owed providing it doesn't exceed what they allow for it.
    i would appreciate it from anybody who can show me who placed this stipulation on the bill thus making it, 'we give on one hand, but for many we'll take it back if you didn't already owe us or can prove higher statis' attitude. just where in the government is the source of this that changed what i see in the bill?
  • crewzercrewzer Registered Users, Solar Expert Posts: 1,832 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    OK. Let’s try again.

    Line 9 of form 5695 is an amount taken from line 46 of the 1040, not line 45.

    Line 46 of the 1040 is the sum of line 44 (tax) and line 45 (AMT). If your line 45 AMT entry is zero, then line 46 just equals whatever you have in line 44, and this value gets transferred to line 9 of form 5695.

    HTH,
    Jim / crewzer
  • nielniel Solar Expert Posts: 10,300 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    this is getting redundant and you miss the point. technically it is $6 that i would save so it's still relatively nothing. yes, it is right.
  • crewzercrewzer Registered Users, Solar Expert Posts: 1,832 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    OK... have it your way.

    Time to move on...
    Jim / crewzer
  • System2System2 Posts: 6,290 admin
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    I love a self moderated thread! :evil:

    In Canada we don't have to worry about tax credits for renewables, our governments aren't there yet (i think). Wayne will correct me if i'm wrong.

    OK, some sales tax i got back for my re system, but 7%, no labour costs etc.

    ralph
  • System2System2 Posts: 6,290 admin
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    i took advanatage of this energy credit for some insulation i had put in last year

    im hoping to take advntage of it again for my solar electric expansion this year.

    i use a tax pro for the exact reason this thread is so long, who can understand tat stuff?!?
  • MangasMangas Solar Expert Posts: 547 ✭✭✭✭
    Re: How to claim the federal (USA) nonbusiness tax credit for solar

    I just got my tax return back from our CPA with the Federal and State tax deductions calculated.  At least it was something.

    I understand there is a federal bill being discussed that would offer substantial and serious federal assistance for solar installations far above current limitation levels.  I believe one of the senators in the Northwest is working on it.  From what I've been told deductions are being considered now based on power outputs (finally some logic) not investment limitations.  Too bad I installed mine in 2006!
    Ranch Off Grid System & Custom Home: 2 x pair stacked Schneider XW 5548+ Plus inverters (4), 2 x Schneider MPPT 80-600 Charge Controllers, 2 Xanbus AGS Generator Start and Air Extraction System Controllers, 64 Trojan L16 REB 6v 375 AH Flooded Cel Batteries w/Water Miser Caps, 44 x 185 Sharp Solar Panels, Cummins Onan RS20 KW Propane Water Cooled Genset, ICF Custom House Construction, all appliances, Central A/C, 2 x High Efficiency Variable Speed three ton Central A/C 220v compressors, 2 x Propane furnaces, 2 x Variable Speed Air Handlers, 2 x HD WiFi HVAC Zoned System Controllers
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