Cash Purchase Option. As with any other purchase, buying a PV system outright with cash avoids the cost of financing, such as interest and fees. With a cash purchase of a PV system and no monthly payments of any kind to make, your ongoing savings will be the highest. Buyers should consider alternative investment opportunities and ensure that the long-term investment in a PV system is right for them.
Home Equity Loan. Borrowing against the value of your home is a common form of financing. Because such loans are secured (guaranteed by the value of the home), the interest rate can be favorable and the interest paid is often tax deductible.
DC Solar Loan. This loan is designed for solar and has a special re amortization feature that allows you to pay down your loan with your solar Federal tax credit. This product has an average 50% saving on your currently electric bills.
Other Loan Products. Local banks and credit unions may be a source of unsecured loans (loans not backed by any collateral) or loans secured by the PV system itself, often in partnership with a solar company. The terms of such loans will likely be less favorable than the home equity loan. The interest paid on these loans is usually not considered tax deductible.
Residential Renewable Energy Tax Credit
A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer. Expenditures with respect to the 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 tax liability, the excess amount may be carried forward to the succeeding taxable year. The excess credit may be carried forward until 2016, but it is unclear whether the unused tax credit can be carried forward after then. The maximum allowable credit, equipment requirements and other details vary by technology, as outlined below.
- There is no maximum credit for systems placed in service after 2008.
- Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.
- The home served by the system does not have to be the taxpayer’s principal residence.
Business Energy Investment Tax Credit (ITC)
In general, the following credits are available for eligible systems placed in service on or before December 31, 2016.
Solar The credit is equal to 30% of expenditures, with no maximum credit. Eligible solar energy property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat. Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, are eligible. Passive solar systems and solar pool-heating systems are ''not'' eligible.
Modified Accelerated Cost-Recovery System (MACRS) + Bonus Depreciation (2008-2013)
The 5-year schedule for most types of solar, geothermal, and wind property has been in place since 1986. The federalEnergy Policy Act of 2005 (EPAct 2005) classified fuel cells, microturbines and solar hybrid lighting technologies as five-year property as well by adding them to § 48(a)(3)(A). This section was further expanded in October 2008 by the addition of geothermal heat pumps, combined heat and power, and small wind under The Energy Improvement and Extension Act of 2008.
The federal Economic Stimulus Act of 2008, enacted in February 2008, included a 50% first-year bonus depreciation (26 USC § 168(k)) provision for eligible renewable-energy systems acquired and placed in service in 2008. The allowance for bonus depreciation has since been extended and modified several times since the original enactment, most recently in January 2013 by the American Taxpayer Relief Act of 2012 (H.R. 8, Sec. 331). This legislation extended the placed in service deadline for 50% first-year bonus depreciation by one year, from December 31, 2012 to December 31, 2013. Currently, in order to qualify for bonus depreciation, a project must satisfy these criteria:
- the property must have a recovery period of 20 years or less under normal federal tax depreciation rules;
- the original use of the property must commence with the taxpayer claiming the deduction;
- the property generally must have been acquired during the period from 2008 - 2013; and
- the property must have been placed in service during the period from 2008 - 2013.
If property meets these requirements, the owner is entitled to deduct a significant portion of the adjusted basis of the property during the tax year the property is first placed in service. For property acquired and placed in service after September 8, 2010 and before January 1, 2012, the allowable first year deduction is 100% of the adjusted basis (i.e., the property is fully depreciated and additional deductions under MACRS cannot be claimed). For property placed in service from 2008 - 2013, for which the placed in service date does not fall within this window, the allowable first-year deduction is 50% of the adjusted basis. In the case of a 50% first year deduction, the remaining 50% of the adjusted basis of the property is depreciated over the ordinary MACRS depreciation schedule.
The bonus depreciation rules do not override the depreciation limit applicable to projects qualifying for the federal business energy tax credit. Before calculating depreciation for such a project, including any bonus depreciation, the adjusted basis of the project must be reduced by one-half of the amount of the energy credit for which the project qualifies.