how do the tax credits work?

bgarrett · May 2009

I did a search but do not understand.

If I buy a $10,000 solar system and usually pay $2000 a year in federal taxes, do the tax credits mean that I do not pay any Federal taxes for 5 years?

BB. · May 2009

Re: how do the tax credits work?

For us, 3+ years ago...

$10,000 system * 30% tax credit = $3,000

$2,000 credit for next year.
$1,000 credit for the following year.

But, I would not swear to it... AMT (Alternative Minimum Tax) and other "issues" can limit the deductibility of certain credits.

If you have last year's tax documents, or TurboTax/etc... Try running through the solar credit and see what they ask, and how it would affect your last year's taxes.

And, things change every year--so you have to be very careful when reading/implementing the rules.

-Bill

Dave Angelini · May 2009

Re: how do the tax credits work?

No! If you were off grid and you spend 10 K you get 3K of deduction on the federal return. If you are grid tied you will get a state or local or utility deduction. If you are grid tied the 30% is based on the total minus the previous state,local or utility deduction. INMHO..........

Solar Guppy · May 2009

Re: how do the tax credits work?

The 2009+ credits does not require any state or local rebates be deducted for the cost basis used for the federal credit. Pre 2009, one had to deduct any incentives from the total purchase price and use the smaller amount for the 30% credit, which was capped at 2k/year

Brock · May 2009

Re: how do the tax credits work?

I could be wrong but when talking to a local installer he said to get the 30% Fed rebate it HAD to be grid tied and certified by an approved installer. That local installer will only install equipment he sells, and that was about 50% more than I could find on the web…

Solar Guppy · May 2009

Re: how do the tax credits work?

Federal Tax credit has no requirement for being gridtie

http://www.energystar.gov/index.cfm?c=products.pr_tax_credits

State/local usally have those requirements, but not the Feds

solarf.helen · May 2009

Re: how do the tax credits work?

:-)I am also interested in the tax credit policy, especially for recently days.

Could you make an example about the details?

Thanks so much.

Helen

BB. · May 2009

Re: how do the tax credits work?

Helen,

In the US, tax credits are both at the Federal Level (national government) and the State level... Also there may be local credits and rebates by city/county/utility company.

A good place to look is here:

http://www.dsireusa.org/

The programs are varied and complex. There is no "one answer" that covers everyone (home, commercial, etc.).

-Bill

niel · May 2009

Re: how do the tax credits work?

solarf.helen,
why would you be interested in us tax credits when you are in china? i'm seeing empty general posts from you like you are gearing up to spam. please prove me wrong and you may stay. post spam and you will be gone.

solarf.helen · May 2009

Re: how do the tax credits work?

niel wrote: »

solarf.helen,
why would you be interested in us tax credits when you are in china? i'm seeing empty general posts from you like you are gearing up to spam. please prove me wrong and you may stay. post spam and you will be gone.

hi, even I am in China now. I am working for a Spain company which is dedicated on solar energy. Until now our company has the plan to enter the US market, so we need to do more research. And that's why i want to know more about the policy in US.

I don't think that could be called "Spam".

Thanks so much for your kindly remind.:-)

solarf.helen · May 2009

Re: how do the tax credits work?

BB. wrote: »

For us, 3+ years ago...

$10,000 system * 30% tax credit = $3,000

$2,000 credit for next year.
$1,000 credit for the following year.

But, I would not swear to it... AMT (Alternative Minimum Tax) and other "issues" can limit the deductibility of certain credits.

If you have last year's tax documents, or TurboTax/etc... Try running through the solar credit and see what they ask, and how it would affect your last year's taxes.

And, things change every year--so you have to be very careful when reading/implementing the rules.

-Bill

Thank so much. I will try to figure it out.

niel · May 2009

Re: how do the tax credits work?

solarf.helen wrote: »

hi, even I am in China now. I am working for a Spain company which is dedicated on solar energy. Until now our company has the plan to enter the US market, so we need to do more research. And that's why i want to know more about the policy in US.

I don't think that could be called "Spam".

Thanks so much for your kindly remind.:-)

very good then and i am sorry for my abruptness with you, but you are the first from china that has not spammed here. as bill indicated with the dsireusa website, you will see that it does vary per state with some states offering nothing at all in incentives. the incentives should not sell the product, but the product will sell the product as there are many of us in states without incentives that still go solar. even when the incentives are good there's sometimes long waits to reap those incentives due to state government red tape and lack of funding. they tend to make it a bit of a hassle in too many cases to pursue those incentives, but try to pursue them we still do where it's applicable as any help is welcome.

BB. · May 2009

Re: how do the tax credits work?

Helen,

Really--do not try and figure it out. The US Federal and State tax systems are incredibly complex and the responsibility (in the end) of the tax payer themselves.

Just look at the major programs, find out what the company needs to do to register/certify their products are in compliance (some, there is nothing the company has to do; others, the company must enroll and/or have other certifications--such as in California).

Generally, the products must meet NRTL (i.e., UL, CSA, etc.) and depending on the type of system (grid tied solar electric, vs off grid solar electric, vs solar thermal for hot water/heating) some programs will allow--and others will not.

-Bill

bgarrett · May 2009

Re: how do the tax credits work?

Thank you for the responses.
I think I did not make my question clear(and I did terrible math)

If my yearly federal income tax is $2000, and I spend $10,000 on solar for a $3000 tax credit, does that mean I do not pay any federal tax the first year and only $1000 the second year?

BB. · May 2009

Re: how do the tax credits work?

As far as I understand yes... I fired up my old copy of TurboTax and it says

This credit is nonrefundable, which means the credit amount you receive won't exceed the amount of tax you owe.

Your tax will be reduced to zero, and the remaining credit will be carried forward to next year.

HOWEVER, you will need to check your AMT (alternative minimum tax) too... And, the details change every year... For example for 2007 per the IRS:

Alternative Minimum Tax (AMT)

The following changes to the AMT went into effect for 2007. For more information, see Form 6251, Alternative Minimum Tax—Individuals, and its instructions.

AMT exemption amount increased. The AMT exemption amount has increased to $44,350 ($66,250 if married filing jointly or qualifying widow(er); $33,125 if married filing separately).

AMT exemption amount for a child increased. The AMT exemption amount for a child under age 18 has increased to $6,300.

Hurricane Katrina additional exemption expired. The additional exemption for taxpayers who provide housing for a person displaced by Hurricane Katrina has expired. Therefore, the additional exemption amount (formerly line 6 of Form 8914) is no longer allowable for the AMT.

Deduction for qualified mortgage insurance premiums allowed for the AMT. In most cases, no AMT adjustment is required for the deduction of qualified mortgage insurance premiums.

Foreign Earned Income Tax Worksheet revised. The Foreign Earned Income Tax Worksheet in the Form 6251 instructions has been revised to reflect changes made by the Tax Technical Corrections Act of 2007.
Certain credits still allowed against AMT. The special rule that allows the credit for child and dependent care expenses, credit for the elderly or the disabled, education credits, residential energy credits, mortgage interest credit, and the District of Columbia first-time homebuyer credit to be applied against the AMT was scheduled to expire at the end of 2006. However, Congress has extended the special rule through 2007, so those credits can be applied against the AMT for 2007.

Then, looking further--from the US Senate (PDF):

AMT Patch:

Currently, a taxpayer receives an exemption of $33, 750 (individuals) and $45,000 (married filing jointly) under the AMT. Current law also does not allow personal credits against the AMT. At the end of last year, H.R. 3996 increased the exemptions to $44,350 and $66,250, respectively, and allowed the personal credits against the AMT to hold the number of taxpayers subject to the AMT at bay. The provision expired December 31, 2007. This proposal increases the exemption amounts to $46,200 (individuals) and $69,950 (married filing jointly) for 2008. The proposal will also allow the personal credits against the AMT.

So--whatever you plan for--it still may change several times before you file for your taxes... So, while the credit is probably good for 2009 and beyond--things may change (including your income and AMT rules)--so check with a tax professional and/or wait until your next tax filing to make sure that you enter and claim the credit correctly.

AMT--if you have not done it before--is a real pain in the behind. It backs out many "standard" deductions that congress first put in--then takes away through the AMT.

Please--don't trust me or anyone on the Internet regarding taxes. The chances that your particular situation will affect your payments/credits is just too high to get a good generic answer here.

-Bill

how do the tax credits work?

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