Many individuals and businesses in New York State have decided to “go solar” in the last few years, in part due to state incentives and community initiatives. When considering the purchase of solar panels, it is important not only to consider the benefits for the environment and your utility bill, but also the potential tax benefits. Here are two benefits for individuals and one for businesses:
Federal – Residential Energy Efficient Property Credit
Individuals who purchase qualified solar electric property or qualified solar water heating property may be eligible for a personal tax credit of 30% of the out-of-pocket cost of the property, including labor and installation. The solar property must be used to generate electricity or to heat water in a home that you use as your residence. The residence does not have to be your primary home. The credit may be taken for solar electric property installed off-site (e.g., a solar farm) if the energy is for use at your home and if you do not sell excess energy. The credit applies to solar energy property for which construction begins on or before December 31, 2019. Reduced credits are available for construction beginning after December 31, 2019, but before January 1, 2022.
New York State – Solar Energy System Equipment Credit
This credit is available to individuals who purchase solar energy equipment, enter an agreement to lease solar energy equipment, or enter a power purchase agreement that spans at least 10 years. The equipment must use solar radiation to produce energy for heating, cooling, hot water, or electricity. Unlike the federal credit, the property must be used in connection with a taxpayer’s primary home. The credit is 25% of the cost of the equipment (excluding the amount of any federal credit taken), and is limited to $5,000.
Federal – Investment Credit (Energy Credit)
Businesses purchasing equipment that uses solar energy to generate electricity, heat or cool, or provide hot water may be eligible for the business energy credit. For 2017, the credit is 30% of the cost of the property (including any NYSERDA benefit reported as business income), but the credit is phased out for any construction beginning after calendar year 2021. Note that the equipment may not be expensed under IRC Section 179 if the credit is taken. The equipment’s basis for depreciation must be reduced by 50% of the energy credit taken. Currently there is no specific New York State business credit for solar energy.
Taxpayers should keep in mind that all of these credits are nonrefundable, meaning the benefit is limited to the tax liability in the year the property is placed in service. Any unused portion of the credits may be carried forward and applied to (a limited number of) future tax years. For questions or further details on the rules for claiming these tax credits, please feel free to contact us.