The Energy Policy Act of 2005 (EPACT – H.R. 6, Sec. 1335) offers federal tax credits worth 30% for the use of alternative energy powered appliances, including for purchase of hybrid vehicles and purchase and installation solar electricity powered appliances. Availability of these credits came into effect on Jan 1st 2006 and has been extended until 31st Dec 2008.
Solar tax credits are available for both residential and commercial solar technology implementations which were originally installed in between the above mentioned period, or in case of new home occupancy – If the occupancy date falls in between the above dates. While it is not entirely clear whether the tax credits are available for additional capacity installations or purchase and installation of previously used equipment, the language of the law seems to favor any kind of expenditure on installation of solar technology.
The total expenditure covered under the credit includes all labor costs such as onsite preparation, assembling, installation of the system and for interconnectivity with existing piping, wiring or other energy production and distribution infrastructure.
There is no cap on the solar tax credit availed by businesses and the eligible technologies for businesses include thermal process eat, photovoltaics (30% credit), geothermal electric, fuel cells (30% credit, maximum $500, minimum 0.5 kW ), solar hybrid lighting (30% credit), direct use geothermal (10% credit) and microturbines (10% credit, maximum size 2MW and $200 per kW credit). Credit can be spread over a period of two years.
The residential credit is limited to $2000 per system, or installation of solar producing technology. Individuals can avail of 30% credit up to $2000 for photovoltaics, and another $2000 for solar water heating and $500 per 0.5 kW for fuel cells. Eligible technologies for residences include PV, fuel cells, solar domestic water heating ( excluding pool heating ) and other solar technologies.
The federal credit is applicable only to the basis remaining after state tax incentives and/or subsidized energy financing, if any, have been availed of. Excess credit over 30% can be carried over into the next financial year. The solar water heating solution must be certified by the Solar Rating and Certification Corporation (SRCC) or by its state equivalent. A minimum of 50% of the water heating energy must be produced using the solar technology, in order to be eligible for tax credits for installation of the same.
Please note that federal solar tax credits, originally set to expire on 31st Dec 2007, have been extended for a year until 31st Dec 2008. Unless further extensions are granted by Congress, tax credits for any new solar installations on or after Jan 1st 2009 will revert back to the 10% default.