This page will explain how Solar Tax Credits Work for Both Residential and business, encompassing all non-residential applications.
Residential Tax Credit for Solar Photovoltaic and Hot Water Systems offers tax credits to individuals for residential solar energy systems for 30% of the expenditure for equipment, installation and site preparation including tree clearing, and roofing under the solar panels.
To be eligible for the solar hot water system tax credit, the system must be certified by the Solar Rating and Certification Corporation (SRCC) and produce 50% or more of the hot water needed by the residence. Solar Electric or PV systems must be UL approved and inspected by the local building officials. Grid-tied systems must be approved by the local utility.
Passive solar heating systems or pool heating do not need incentives and do not qualify for them.
A 30% federal energy tax credit is currently available to business individuals or entities that invest in or purchase solar energy property in the United States.
Solar energy property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat. Hybrid solar lighting systems are those that use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Geothermal energy property includes equipment used to produce, distribute, or use energy derived from a geothermal deposit. It does NOT include geothermal heat pumps. For electricity produced by geothermal power, equipment qualifies only up to, but not including, the electrical transmission stage. Energy property does not include public utility property, passive solar systems, pool heating, or equipment used to generate steam for industrial or commercial processes.
To qualify, the original use of the equipment must begin with the taxpayer or it must be constructed by the taxpayer. The equipment must also meet any performance and quality standards in effect at the time the equipment is acquired. The energy property must be operational in the year in which the credit is first taken.
If the project is financed in whole or in part by subsidized energy financing or by tax-exempt private activity bonds, the basis on which the credit is calculated must be reduced. (The formula is described in the tax credit instructions.) Subsidized energy financing means “financing provided under a federal, state, or local program, a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.” Therefore, a business must reduce the basis for calculating the credit by the amount of any such incentives received.
Taxpayers cannot claim both this business energy tax credit and the credit allowed under 26 USC §45 (Renewable Energy Production Tax Credit) for the taxable year or any prior taxable year.