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Federal Solar Rebates Overview

There is currently a 30% tax credit for qualified renewable energy systems that is valid until December 31st, 2016.  In 2009, legislation was passed (the 1603 grant) that allowed taxpayers to receive this 30% rebate as a cash grant versus waiting for a tax credit.  The 1603 grant has been very popular and there is a lot of pressure on congress to extend this grant.  However, as of December 31st, 2011 the 1603 grant is officially expired and unless congress acts to pass this or another longer term version of it, taxpayers will only be able to receive a tax credit.


History and Details

The federal Energy Policy Act of 2005 established a 30% tax credit (up to $2,000) for the purchase and installation of residential solar electric and solar water heating property and a 30% tax credit (up to $500 per 0.5 kW) for fuel cells. Initially scheduled to expire at the end of 2007, the tax credits were extended through December 31, 2008, by the Tax Relief and Health Care Act of 2006.

The Energy Improvement and Extension Act of 2008 (H.R. 1424) extended the tax credit to small wind-energy systems and geothermal heat pumps, effective January 1, 2008. Other key revisions included an eight-year extension of the credit to December 31, 2016; the ability to take the credit against the alternative minimum tax; and the removal of the $2,000 credit limit for solar-electric systems beginning in 2009. The credit was further enhanced in February 2009 by The American Recovery and Reinvestment Act of 2009 (H.R. 1: Div. B, Sec. 1122, p. 46), which removed the maximum credit amount for all eligible technologies (except fuel cells) placed in service after 2008.

The American Recovery and Reinvestment Act of 2009  (H.R. 1), enacted in February 2009, created a renewable energy grant program that is administered by the U.S. Department of Treasury. This cash grant may be taken in lieu of the federal business energy investment tax credit (ITC). In July 2009 the Department of Treasury issued documents detailing guidelines for the grants, terms and conditions and a sample application. There is an online application process, and applications are currently being accepted. See the US Department of Treasury program web site for more information, including answers to frequently asked questions and program guidance. The Treasury also maintains a list of award recipients on the website. The Department of Treasury has also filed a sample form that recipients of the grant must fill out each year to avoid recapture. Grants are available to eligible property* placed in service in 2009, 2010 or 2011 or placed in service by the specified credit termination date,** if construction began in 2009, 2010 or 2011. Originally, this program was only available to systems placed in service in 2009 or 2010 or where construction began in 2009 or 2010, but Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853), signed in December 2010, extended the program through 2011. The guidelines include a "safe harbor" provision that sets the beginning of construction at the point where the applicant has incurred or paid at least 5% of the total cost of the property, excluding land and certain preliminary planning activities. Generally, construction begins when "physical work of a significant nature" begins. Below is a list of important program details as they apply to each different eligible technology.

Eligible Solar Power Systems;

A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States 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.

Solar-electric property

•     There is no maximum credit for systems placed in service after 2008. The maximum credit is $2,000 for systems placed in service before January 1, 2009.
•     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.

Solar water-heating property

•     There is no maximum credit for systems placed in service after 2008. The maximum credit is $2,000 for systems placed in service before January 1, 2009. 
•     Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.
•     Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed. 
•     At least half the energy used to heat the dwelling's water must be from solar in order for the solar water-heating property expenditures to be eligible. 
•     The tax credit does not apply to solar water-heating property for swimming pools or hot tubs. 
•     The home served by the system does not have to be the taxpayer’s principal residence.


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