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Federal solar tax credit

Solar energy tax credit and hot water heaters

With the federal solar tax credit, and other energy incentives, the cost of installing a solar hot water heater can be reduced by thousands of dollars. Federal solar tax credits were in place as early as 2005. And with recent legislation, the credit has been extended through the calendar year of 2016.

Other upgrades have recently been made for both residential and commercial applications. Overall it's safe to say that the U.S government, and some state governments, are encouraging private investment in solar hot water heaters.

Tax credits Are Dollar for Dollar

Tax credits are claimed and filed for the previous calendar year. A tax credit is always better than a deduction, because it reduces the total amount of taxes you pay dollar for dollar. A tax deduction only reduces your total taxable income before taxes are eventually applied. 

Solar energy tax credit overview

  • The federal solar tax credit itself has been extended through 2016.
  • Covers 30% of the total cost of both purchase and installation.
  • There is no longer a maximum dollar amount, so the federal solar tax credit can be claimed for 30% of all related cost, regardless of the total cost of both the design and installation.

Federal solar tax credit specifics

  • The solar hot water heater must be installed between 2009 and 2016.
  • The system can be installed in either an existing home or a new construction.
  • In the case of newly built homes, the date the home is legally occupied is considered the installation date of the system.
  • The home can be a principle residence, a secondary residence or a rental property.
  • The solar water heater design, and components, must be certified and rated by the Solar Rating and Certification Corporation.
  • The water heater must be capable of providing at least 50% of the home's total hot water supply.
  • Systems that supply outdoor swimming pools and hot tubs do not qualify.
  • The Solar Energy Industries Association has a helpful list of frequently asked questions regarding the federal solar energy tax credit.

Business solar energy tax credit

For commercial applications there is the federal business energy investment tax credit. Most of all the previously mentioned requirements apply, including the fact there's no maximum dollar amount placed on each credit.

There is one additional provision; passive solar water heater designs do not qualify. It's important to note that passive systems are generally unsuitable for commercial application due to they're relatively small storage capacity.

Other incentives

There are several other incentives currently being offered. Several states are now offering solar energy tax credits. Local governments, municipalities and even utility companies are offering rebates, loans, sales tax and property tax exemptions for the installation of a solar hot water heater. 

Researching several incentive programs in your area is strongly advised. Ensure that the specific system and the specific design your considering meets the programs requirements before installation.

State Solar Energy Tax Credit

Many states are now offering personal and business credits that resemble the federal solar tax credit. If applicable, the state tax credit can also be combined with the federal solar energy tax credit to recoup thousands of dollars.

The percentage of cost that will be credited and the maximum dollar amount, if applicable, will vary from state to state.

Sales Tax Exemption

Some U.S states have exempted any sales tax associated with the purchase of qualified solar hot water heaters. This means the supplier, even if they're out of state in most cases, can't pass a sales tax onto the consumer.

Property Tax Exemption

Installing a solar powered water heating system will undoubtedly increase the property value of your home or business. Some U.S states as well as local governments have made the additional value accessed to your home exempt from additional taxation.

Utility and Municipality Rebates

Your local utility company or municipality may be offering cash rebates for the purchase and installation of a solar hot water heater. In some instances the homeowner or business owner must agree to a pre home evaluation or a solar site evaluation.

State and Local Loan Programs  

Several state and local governments have teamed up with financial institutions to provide low interest loans for residents who go solar. In some instances the homeowner or business owner must agree to a solar site evaluation in order to qualify for loan approval.

The Database of State Incentives for Renewables and Efficiency, or DSIRE, has an updated, locally categorized and summarized list of such solar incentives. The DSIRE also provides all the necessary links and contact information needed to inquire about specific programs and program details.

More on Solar Hot Water Heaters


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