Interest Heats Up for Federal Solar Energy Tax Credits


More and more people are becoming aware of the environmental and economic benefits of using clean and renewable solar energy to help preserve our precious natural resources. The government is encouraging this public interest by offering tax incentives to invest in solar energy equipment for residential or commercial use.

There are two types of solar energy tax credits, one for residential and one for commercial properties. Both tax credits provide a dollar-for-dollar reduction of the taxpayer’s federal income tax liability based on 30% of the cost of qualified solar property placed in service by December 31, 2019. The credits decrease to 26% for property placed in service in 2020 and again to 22% for property placed in service in 2021. The credits are set to expire on December 31, 2021.

Residential

The solar energy credit is commonly referred to as Residential Energy Efficient Property (REEP) credit. Qualified solar property includes solar electric property and solar water heating property. Both types of property must be used in a dwelling unit located in the U.S. The costs that qualify for the credit include amounts paid for solar panels, home batteries, and water heaters with solar panels to heat the water used inside a residence, as well as the associated labor and installation costs. Expenses that do not qualify as part of the REEP credit include financing expenses, extended warranties, and roof repairs or replacements.

For solar property, there is no limit on the total allowable credit. However, this credit is not refundable if the credit amount exceeds the taxpayer’s tax liability for the year. Any unused credit will be carried forward indefinitely for future use.

Business

The definition of qualified energy property for businesses is similar to residential. It includes solar panels, storage devices, power conditioning equipment, transfer equipment, and parts related to the functionality of this property. The basis of the solar property must be reduced by 50% of the energy credit received. If the entire credit cannot be used in the year placed in service, the unused credit may be carried back one year and forward twenty years. The property must be located within the U.S. and used by a for-profit company.

If you have questions or would like more information, please contact Katherine Holt at kholt@windes.com or 844.4WINDES.

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