2014 Commercial Solar Tax Credits, Rebates & Depreciation

 

There are several things that your accountant needs to be aware of to maximize payback of your solar electric or hot water heating system. While we are not tax accountants, the following is the best information we have been able to accumulate regarding commercial solar tax credits and rebates and their interactions:

 

• REBATES: You have the option of either reducing the cost of the solar system by this amount before calculating the 30% Federal Tax Credit and Depreciation, OR counting the rebate as income, paying income taxes on it. It turns out that it is better to pay taxes on it! If your bracket is over 25%, it is MUCH better to pay taxes on it because of the way the Federal Tax Credit and Depreciation interact. Please note that residential installations cannot be treated this way, as section 136 of the Internal Revenue Code specifically states that Utility Rebates cannot be treated as Gross Income in Business Use of Home.​

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• FEDERAL TAX CREDIT CARRYFORWARD: The 30% Federal Solar Tax Credit carries forward as long as necessary until the full credit has been obtained. It also DOES apply to AMT of individuals. This tax credit is currently in place through 2016. There is no cap on this Federal Tax Credit on any solar hot water or solar electric system installed after December 31, 2008…residential or commercial.

 

• FEDERAL TAX CREDIT AND DEPRECIATION: The IRS has decided that you only need to reduce the initial cost by HALF of the Tax Credit to determine the Depreciation Cost Basis. Since the Tax Credit is 30% of the system cost, your Depreciation Basis is 85% of the system cost. In effect, this means that you receive depreciation benefits on the other 15% of the cost of the system that you got back from the IRS as half of the tax credit.

 

• ​​SOLAR PROPERTY TAX EXEMPTION: In California, solar electric and thermal installations are 100% exempt from property taxes. This has been the case since the late 1970’s.

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• SOLAR POOL AND SPA SYSTEMS: The IRS allows no solar tax credit for any system that heats a pool or spa, but, in 2014, the CSI is offering a rebate for solar pool heating.  However, Depreciation does apply as 5 year accelerated for commercial application of solar pool or spa heating. For residential pool and spa heating can only result in medical expense tax benefits if swimming is prescribed by a doctor.