TAX BENEFITS OF RESIDENTIAL SOLAR 2013 thru 2016
Most know that solar energy is “Green.” There is a common understanding that it helps the environment as a renewable energy source, but it is also “Green” in how it saves $ MONEY.
The Federal and various State governments have placed significant incentives in the tax code to promote Solar Energy. We are concentrating on the Federal tax incentives for residential solar as well as NJ based projects. There are differences for commercial based projects not discussed in this article.
Federal Incentives:
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30% Federal Individual Tax Credit (ITC) – 30% credit off your personal income tax on your Federal 1040 for total cost of installed residential solar. Credit does offset the AMT (Alternative Minimum Tax) if applicable. ITC will carry forward indefinitely if tax liability is lower than the credit. Tax credit does not offset social security taxes. Federal credit expires on 12/31/2016
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No Depreciation expense for home residential system – considered personal property and not depreciated.
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Savings from utility bill offset – net meter – are not taxable.
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State incentives or Solar Renewable Energy Credits (SREC) are NOT taxable until basis is recovered. For residential systems only the NJ SREC moneys will not be subject to Federal or State taxation on residential systems only.
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Example: Home system 10,000 Kw installed for $35,000. ($3.50/watt) Tax credit will be 30% or $10,500. Basis is the net figure - $24,500. Thus, until NJ SREC’s are sold over their 15 year lifetime reach $24,500 there is no income tax on the SREC’s. Current NJ SREC is $140 and a 10,000 Kw system will produce 10 SREC’s a year or $1400 of cash per year.
NJ Incentives:
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NJ SREC. 1 SREC is generated per 1000 Kilowatt hour produced by the system. The system production is tracked by a “net meter” installed by the homeowner’s electrical panel that tracks the production of electricity.
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The NJ SREC is traded for cash by various traders in NJ. See www.FlettExchange.com for SREC pricing history. The NJ SREC market is not covered in detail with this article.
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No NJ sales tax on any component or installation costs of solar – residential or commercial.
If you have any additional questions please do not hesitate to contact Bradley H. Denn, CPA/PFS via email at brad@paddencooper.com.
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