EPAct2005: Tax Credit Opportunities for Solar

The Energy Policy Act of 2005 (EPAct 2005) is the first effort of the United States government to address U.S. energy policy since the Energy Policy Act of 1992. Among many other things, the 1724 page law provides new tax incentives for a number of solar and energy efficiency measures. Among them are:

• Tax credits for residential solar photovoltaic and hot water heating systems
• Tax deductions for highly efficient commercial buildings
• Tax credits for highly-efficient new homes

There is an important difference between a tax deduction and a tax credit. A tax deduction is subtracted from income before total tax liability is computed. On the other hand, a tax credit is subtracted directly from the total tax liability. This means that a deduction and a credit have very different values, with a credit being 3 or more times more advantageous to the taxpayer than a deduction. For example, a tax credit of $1,000 for someone in the 28% tax bracket is equivalent to a tax deduction of $3,571.

Combined Incentives

In many cases, multiple tax incentives may be claimed. In the case of a new home for example, the builder may claim credit for the high efficiency home and the homeowner may claim tax credits for solar hot water and photovoltaic and fuel cell systems. Other financial incentives, such as utility or SunBuilt rebates, further reduce the cost of building or owning a solar and energy efficient home.

Solar Photovoltaic and Hot Water Systems

This provision offers tax credits to individuals for residential solar energy systems.

• For solar hot water systems, the allowable tax credit is 30% of the qualified solar system expenditures up to a maximum tax credit limitation of $2,000.
• For solar photovoltaic (PV) systems, the allowable tax credit is 30%
  of the qualified PV system expenditures up to a maximum tax credit limitation of $2,000.
  

To be eligible for the solar hot water system tax credit, the system must be certified by the Solar Rating and Certification Corporation (SRCC) or the Florida Solar Energy Center (in the case of systems sold in Florida) The complete conference bill for the Energy Policy Act may be downloaded here (2.5 MB PDF file). The solar and energy efficiency provisions are found in Title XIII, Subtitle C, beginning on page 1332 through page 1390 of the act.
An Additional information on solar systems that my qualify for these tax credits may be found at the following Web sites:
Solar hot water systems: www.fsec.ucf.edu/solar/ Important Distinction