Federal Tax Credit

Residential Renewable Energy Tax Credit

Is there a tax credit for solar water heaters?

Yes, Sun-Tec Solar Water Heaters qualify for a tax credit.

How much:

30% of the cost (including installation/labor costs), with no upper limit.

Timing:

Tax credit in effect in through 2016. Must be installed in a home you own and use as a residence (no rentals, but second homes qualify) between January 1, 2006 and December 31, 2016.

Details:

At least half of the energy generated by the solar water heater (“qualifying property”) must come from the sun.
Homeowners may only claim spending on the solar water heating system property, not the entire water heating system of the household.

The system must be certified by the Solar Rating and Certification Corporation (SRCC).

The water must be used in the dwelling.

The credit is not available for expenses for swimming pools or hot tubs.

How
to apply:

IRS Form 5695 Residential Energy Credits PDF

Find out how you can take advantage of this tax credit for your home.

 

Summary:

Established by The Energy Policy Act of 2005, the federal tax credit for residential energy property initially applied to solar-electric systems, solar water heating systems and fuel cells. The Energy Improvement and Extension Act of 2008 extended the tax credit to small wind-energy systems and geothermal heat pumps, effective January 1, 2008. Other key revisions included an eight-year extension of the credit to December 31, 2016; the ability to take the credit against the alternative minimum tax; and the removal of the $2,000 credit limit for solar-electric systems beginning in 2009. The credit was further enhanced in February 2009 by The American Recovery and Reinvestment Act of 2009, which removed the maximum credit amount for all eligible technologies (except fuel cells) placed in service after 2008.

A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer. Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is at a new home, the “placed in service” date is the date of occupancy by the homeowner. Expenditures include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home.

If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. The excess credit may be carried forward until 2016, but it is unclear whether the unused tax credit can be carried forward after then. The maximum allowable credit, equipment requirements and other details vary by technology, as outlined below.

Solar-electric property

  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.
  • The home served by the system does not have to be the taxpayer’s principal residence.

Solar water-heating property

  • There is no maximum credit for systems placed in service after 2008.
  • Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2016.
  • Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.
  • At least half the energy used to heat the dwelling’s water must be from solar in order for the solar water-heating property expenditures to be eligible.
  • The tax credit does not apply to solar water-heating property for swimming pools or hot tubs. The home served by the system does not have to be the taxpayer’s principal residence.

Significantly, The American Recovery and Reinvestment Act of 2009 repealed a previous limitation on the use of the credit for eligible projects also supported by “subsidized energy financing.” For projects placed in service after December 31, 2008, this limitation no longer applies.

IRS Form 5695 Residential Energy Credits PDF
IRS Residential Energy Credits Website

If you purchase solar energy saving products for your home in the United States then you may be able to take tax credits on your investment.

Follow these steps to prepare tax schedule 5695 and take advantage of these tax credits.

  1. Select whether or not the energy efficient improvements were made on a home in the United States. If it was not then you can stop now because you don’t qualify and there is no need to fill out tax schedule 5695. If you selected yes then go to line 2a.
  2. Enter the amount you paid for insulation materials or systems that reduce heat loss or gain in your home on line 2a. Write in the cost of exterior windows including skylights and exterior doors on line 2b and 2c accordingly. Input the cost of the metal roof with the appropriate pigmented coating on line 2d.
  3. Total up lines 2a through 2d and fill that in on line 3. Multiply that total by 10% or .10 and enter it on line 4.
  4. Input the residential energy property costs on lines 5a through 5c. Total these lines together and enter the amount on line 6. Add lines 4 and 6 together and enter that total on line 7. If that total is less than 500 dollars then enter it on line 8 but if it isn’t then enter 500 dollars.
  5. Fill in the amount from line 46 of form 1040 or line 43 of form 1040NR on line 9. If you have any tax credits enter the total of them on line 10. Subtract line 10 from line 9 and enter it on line 11. If the total is 0 or less than you are done as you can’t claim the non-business energy property tax credit.
  6. Record the costs of solar electric, solar water heating and fuel cell costs on lines 13 through 22 and multiply these by 30% or .30. Enter the kilowatt capacity of your property from line 21, multiply it by 1000 dollars and enter the total on line 23. Enter the small of the totals between lines 22 and 23 on line 24.
  7. Add lines 16, 20 and 24 together and input on line 25 then record the amount from form 1040, line 46 or form 1040NR, line 43 on line 26.
  8. Document the information about form 1040 or 1040NR on line 27 then subtract that total from line 26. Enter 0 on line 28 and 29 if the total is less than 0 or of it is greater enter the amount on line 28. Enter the smaller amount of line 25 or 28 on line 29. Subtract line 29 from line 25 if line 29 is less than line 25. Add together lines 12 and 29 and enter on line 31. Tax schedule 5695 is completed.

 

  • LSCI does not state or imply that it is affiliated with a government entity or electrical utility company.
  • LSCI does not assert or guarantee any utility cost in the future. LSCI does not assert or guarantee specific savings pn Purchaser’s future electric bills. Actual savings will depend on Purchaser’s own energy use habits.
  • Tax credits from the federal government for installing solar Products may directly reduce Purchaser’s income tax obligation. Based on Purchaser’s individual tax situation, the tax credit may take more than one year to receive in full. LSCI does not give tax advice and Purchaser should consult his or her accountant regarding the applicability of tax credits.
  • Any and all rebates, incentives, or tax credits are the sole responsibility of Purchaser to inquire about, apply for, and receive, not LSCI.
  • All other warranties or guarantees must be in writing and approved by an LSCI officer.

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