03-16-2017

Cost Savings for Solar Energy Installations

As you gather your documents and search for those all-important deductions for your state and Federal income taxes for 2016, don’t forget that there are certain energy-efficient improvements you may have made to your home in 2016 that may allow you to claim a credit for those expenses.  You don’t want to leave any stone unturned when it comes to finding deductions to reduce the amount of taxes you owe or to receive up-front cost incentives.

 

Nonbusiness Energy Property Credit (consult IRS instructions for Form 5695 for further information) is aimed at homeowners installing energy efficient improvements such as insulation, new windows, furnaces and alternative energy systems.  The property credit is more limited than in the past years, but it can still provide substantial tax savings.   You may also get a break on your state income taxes, depending on where you live.  For example, for residential solar systems, New York State provides an income tax credit for up to 25% of the system cost, with a maximum of $5,000.

 

Another source of tax savings, however, has to do with offsetting the upfront costs of solar system installation.  There may be property tax exemptions in your state that allow businesses and homeowners to exclude the added value of a solar system from the valuation of their property for taxation purposes. An exemption makes it more economically feasible for a taxpayer to install a solar system on a residential or commercial property.

 

Property Tax Incentives

Some states have granted local taxing authorities the option of allowing a property tax incentive for solar. There are 38 states that offer property tax exemptions for renewable energy. For example, New Jersey enacted legislation exempting solar systems from local property taxes if the system is used to meet on-site electricity, heating, cooling, or general energy needs.  In Nevada, one of their renewable energy property tax exemptions allows businesses to apply for a property tax abatement of up to 55 percent for up to 20 years for real and personal property used to generate solar. Section 487 of the Real Property Tax Law of New York exempts from taxation real property which includes a solar or wind energy system or farm waste energy system satisfying guidelines established by NYSERDA. The solar or wind energy system or farm waste energy system must be existing or constructed before July 1, 1988 or constructed after January 1, 1991 and before January 1, 2015.

 

Another source of potential tax savings are sales tax exemptions for solar system installation.  These tax breaks typically provide an exemption from the state sales tax for the purchase of a solar energy system. There are 29 states that offer sales tax exemptions for renewable energy. Arizona, for example, provides a sales tax exemption for the retail sale of solar energy devices and for the installation of solar energy devices by contractors. Colorado exempts from the state’s sales and use tax all sales, storage, and use of components used in the production of alternating current electricity from a renewable energy source. The exemption also includes all sales, storage, and use of components used in solar thermal systems.

 

Solar Energy Rebates

Finally, many states, including New York offer solar energy rebates as an incentive to property owners to install solar energy systems. NYSERDA (New York State Energy and Research Development Association) through its Power Naturally program offers a first-come-first serve photovoltaic (PV) rebate to install PV systems on homes and buildings. The rebates are available to property owners who pay a specified fee on their electric bills. The program pays up to 40 percent of the installed cost of a solar photovoltaic system after available tax credits up to $10,500 for residential systems, $75,000 for nonresidential and privately-owned systems and up to $37,500 for government nonprofits, government entities and schools.

 

Installing a solar energy system makes sense from both an economic and and ecological point of view.  Investigate your local tax and cost savings – there are multiple ways to save money on the front end and on long term energy costs for both yourself as a business or homeowner and for all of us as global citizens.