As the name suggests solar power tax credits are simply dollars that can be deducted from your taxable income when you file your taxes at the year end. The only hitch with this incentive is that you need to bear the costs completely at the start and you will receive the benefits only when you file your tax returns.
The Investment Tax Credit increased the solar power tax credits to 30% of the tax liability after the cost of solar system. To give you a better understanding of the difference between a tax credit and a tax deduction, imagine this. Let us say you are eligible for a $1000 tax deduction and your average tax rate is 30%; then you end up saving $300 on your return. On the other hand if you have a $1000 tax incentive, you will get back the full $1000! The better choice is obvious and you can see the government is indirectly helping you get started with adopting solar power through their solar power tax credits.
Of course, it is not that government has done away with deductions, they exist too. If you’re lucky you’ll actually qualify for both and end up saving a lot more too. That would be pretty good for you financially as well as environmentally. While this all sounds great, unless you understand it well, it will become as clear as mud. So let’s use a simple example.
Let’s say you install a photovoltaic system at the cost of $30,000 to supply power for your home. On this, typically the state will give you a refund of $5000. Effectively, the price of your solar system shrinks to $25,000. Using the government’s solar power tax credits you are allowed a 30% credit on this purchase which is $7,500. So you end up saving another $12,500 on your solar power unit or in other words you get a 41.7% discount from the government’s solar power tax credits for your purchase. That doesn’t sound too bad, does it?
As they say in the TV commercials, “but wait that’s not all!” Check your state because they probably have incentives on property tax. Some states exempt the residents from property tax hikes up to the cost of the solar equipment installed. So for example, if you purchased equipment for $25,000 you don’t have to worry about the next hike on your property tax because of the solar install. Effectively, the government will be paying the property tax on your behalf.
If you have a business you can make more from these solar power tax credits than a home owner. Since businesses typically use most of the energy during the peak hours, (the way businesses are metered by their utility company) solar energy does not seem to lend itself well to them. Besides, business is driven by profits and not morals, so there’s no deliberate change of heart to go green. However, with impressive incentives and the option to depreciate the equipment, there are many benefits to be had for a business owner. Get in touch with a tax rep to maximize the benefits.
Of course adopting solar power means less business for the power company; so utilities won’t appreciate anyone going off their grid. In fact they probably would try to destroy that option to maintain profits if they could. To prevent such actions the Public Utility Regulatory Policy Act of 1978 was created. This act states that if there are manufacturers that have excess power to sell, the public utility companies must purchase it from them at wholesale rates. This concept is called metering and can pay you even more than the solar power tax credits.
If you are a Californian, you have a lot to gain. The state mandates that you get paid the same rate that you would be charged. So if you have a Time of Use schedule you can really make decent income from this act. Typically, the power utility companies charge a premium during peak hours like afternoons and summers. Since these are the hours when your solar equipment works at top efficiency, you stand to make a good income. Inquire with your local utility company for inter-tie PV specifications. If you take advantage of the governments solar power tax credits you’ll find that solar may be more affordable than you think. It’s worth looking into so what are you waiting for?