Trying to calculate your solar credit?
Executive summary: Our office is receiving calls relating to how to calculate the solar energy credit as many solar installation companies are calculating the tax credit on the total price of the system before any utility rebates. However, according the following letter and examples from the IRS, the credit is calculated based on actual cost to the taxpayer after utility subsidies.
Selected excerpts from the letter.
Dear Congresswoman Giffords:
I am responding to your letter dated May 13, 2009, on behalf of your constituent, who wants to know whether a taxpayer who purchases a residential solar electric system may claim a credit under Sec. 25D for that part of the purchase price paid for by a utility. Generally under Sec. 25D, individuals may claim a credit equal to 30% of the qualified solar electric property expenditures that the taxpayer makes during that year. Sec. 136(a) excludes from gross income the value of any subsidy a public utility provides (directly or indirectly) to a customer for the purchase or installation of any energy conservation measure. An "energy conservation measure" is any installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand with respect to a dwelling unit.
Thus, Congress precludes taxpayers from receiving a double benefit for energy conservation measures that they purchase or install. A taxpayer receives a benefit by excluding from income the utility subsidy or rebate that helps pay for the energy conservation measure. A taxpayer, however, cannot receive another benefit by taking a credit under Sec. 25D for the portion of the energy conservation measure paid for by that subsidy or rebate.
For example, assume a taxpayer purchases for $30,000 qualified solar electric property that is also an energy conservation measure under section 136(a). In addition, the taxpayer receives a $14,000 subsidy from a utility toward its purchase that Sec. 136(a) excludes from gross income. In these circumstances, the maximum credit is $4,800 (30 percent x $16,000, the purchase price excluding the nontaxable subsidy).
Author of Letter. Michael J. Montemurro, Branch Chief Office of Associate Chief Counsel (Income Tax & Accounting).
