The Residential Renewable Energy Tax Credit Explained

Solar arrays must be mounted in an unshaded location; rooftops, carports, and ground-mounted arrays are common mounting locations. The amount of energy produced by a panel depends on several factors. These factors include the type of panel, the tilt and azimuth of the panel, the temperature, and the level of sunlight and weather conditions. An inverter is required to convert the direct current (DC) to alternating current (AC) in a manner that is compatible for both home and utility power systems. The balance of the system consists of conductors, conduit, switches, disconnects, and fuses.

 

In many cases, a roof is the best location for a PV system but a roof is a convenient location because it is out of the way and usually unshaded. A home with a sloped roof and minimal rooftop equipment is preferred. Typically, PV systems are installed on roofs that either are less than five years old or have over 30 years left before replacement. For the purposes of the IRS, a typical system is made up of the following components which qualify as equipment purchases leading to a tax credit:

 

  • PV panels
  • Inverters
  • Various wiring, mounting hardware, and combiner boxes
  • Monitoring equipment

PV panels are very sensitive to shading. When shade falls on a panel, that portion of the panel is no longer able to collect sunlight. If an individual cell is shaded, it will act as a resistance to the whole series circuit, impeding current flow and dissipating power rather than producing it. By determining solar access—the unimpeded ability of sunlight to reach a solar panel—one can determine whether an area is appropriate for solar panels. Get the biggest bang for your buck by placing your solar array where it will generate the most energy.

 

A taxpayer may claim a credit of 30% of qualified expenditures for a solar energy generation system that serves a home located in the United States that is owned and used as a residence by the taxpayer. To do this you will use IRS Form 5965. Expenditures with respect to the solar equipment are treated as made when the installation is completed. If the installation is at a new home, the “placed in service” date is the date of occupancy by the homeowner. Expenditures include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds the tax liability, the excess amount may be carried forward to the succeeding taxable year. The excess credit may be carried forward until 2016. However, you should be aware that it has not been established by Congress whether or not the unused tax credit can be carried forward after the year 2016. The relevant tax forms can be found at the end of this article. Please remember these important points when you are claiming your tax credit:

 

  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service after January 1, 2006, and before December 31, 2016.
  • The home served by the system does not have to be the taxpayer’s principal residence.

 

Stay tuned – we will have much more on this topic in the months ahead!