San Diego Tax Blog

San Diego Tax Blog

Monday, May 19, 2014

Residential Energy Efficient Property Tax Credit

Have you considered installing solar panels to your home?  Have you heard that there is a tax "rebate" and want to know how that works?


The Residential Energy Efficient Property Tax Credit is available to taxpayers who install qualified equipment to their home.  It does not have to your main residence (it can be on a second/vacation home).  Qualified equipment includes:

  • Solar Electric Equipment (i.e., solar panels);
  • Wind Turbines; and
  • Solar Hot Water Heaters.
The tax credit is equal to 30 percent of the cost of the alternative energy equipment that you have installed at your principal residence.

Unlike most other tax credits, there is no limit on the amount of credit available for most types of property.  However, this tax credit is non-refundable.  That means if you are not able to use the entire tax credit, then the unused portion is carried forward to the next year.

The Residential Energy Efficient Property Tax Credit is available for any qualified equipment that is installed before December 31, 2016.  However, it is currently unclear whether any unused portion of the credit will be allowed to be carried forward past the 2016 tax year.

Example
Gary and Karen had solar panels installed on their principal residence on June 1, 2014 for a total installation cost of $90,000.  They are entitled to a tax credit of $27,000 (30% of the $90,000 installation cost).

Every year, Gary and Karen have a total federal income tax due of $12,000.

For the 2014 tax year, their usual $12,000 federal income tax bill was reduced to $0.  Gary and Karen will be receiving a tax refund from the IRS for any income tax withholdings or estimated tax payments that they made during the year.  They also have an unused tax credit of $15,000 that will be carried forward to 2015.

For the 2015 tax year, again their usual $12,000 federal income tax bill was reduced to $0.  Again, instead of writing a check to the IRS they will be receiving a refund for any income tax withholdings or estimated tax payments they made during the year.  They have an unused tax credit of $3,000 that will be carried forward to 2016.

For the 2016 tax year, they will finally exhaust their remaining tax credit but only have to pay $9,000 of federal income tax.

If you are interested in learning more about the Residential Energy Efficient Property Tax Credit, or other tax credits, please do not hesitate to contact me.

As always, I appreciate your feedback.  Please leave your thoughts in the comment section below.

1 comment:

  1. I would like to discuss some tax questions with you. If you can contact me at Jonathanbarrr@gmail.com thanks Jonathan

    ReplyDelete