Solar Tax Credits

On October 3, 2008, the President signed the Emergency Economic Stabilization Act of 2008 into law (P.L. 110-343). This legislation contains a number of tax incentives designed to encourage both individuals and businesses to make investments in solar energy, including 8-year extensions of the section 48 business solar investment tax credit (ITC) and the section 25D residential solar ITC.

The Business Solar Investment Tax Credit (IR Code §48)is a bill that extends the 30% ITC for solar energy property for eight years through December 31, 2016. The bill allows the ITC to be used to offset both regular and alternative minimum tax (AMT) and waives the public utility exception of prior law (i.e., utilities are now permitted to directly invest in solar facilities and claim the ITC). The five-year accelerated depreciation allowance for solar property is permanent and unaffected by passage of the eight-year extension of the solar ITC.

These Federal tax credits have the effect of reducing the cost of commercially owned solar energy systems to half of the purchase price. So, a system that costs an average company $100,000 to install costs about $50,000, after taxes. The actual tax savings depend on the company's tax rate.

Other state and local tax credits may also apply. In the certain states, the combination can reduce the after tax cost of a solar energy system by as much as 74%. Utilities also provide some funding for renewable energy and energy conservation projects such as solar heating that offsets conventional heating sources. For a listing of these state and local credits and utility incentives, visit www.dsire.org for a state-by-state listing.

The Economic Stimulus Act of 208 enacted in February 2008 included a 50% bonus depreciation for solar heating systems installed in 2008 and 2009. The US Tax Code includes a longstanding five-year accelerated depreciation allowance for solar energy systems. The combination of these two allowances enables companies to depreciate 86% of their solar roofing systems in three years instead of the standard 17-33 years.

On February 17, 2009, the President signed into law the American Recovery and Reinvestment Act. This law provides for grants in le of tax credits.

Solar tax incentives increasing

We provide information on this page regarding Federal Tax credits.

Several states also provide solar energy tax incentives.