Federal Tax Credit (ITC)
What is the Solar Investment Tax Credit (ITC)?
The Investment Tax Credit (ITC) is a 30 % federal tax credit claimed against the tax liability of residential and commercial solar system owners. The residential ITC allows the homeowner to apply the credit to his/her personal income taxes. This credit is used when homeowners purchase a solar system and have them installed on their homes or office.
Connecticut Solar Renewable Energy Credit (SREC)
In Connecticut, once your installer has connected your PV system to the grid, you’ll earn one SREC for every 1000 Kilowatt hours (kWh) of generation, which is the same as one Megawatt hour (mWh). Mid-Atlantic states typically get 10,000-12,000 hours of usable sunlight per year, which means for every kilowatt in your PV system, you’ll get 1-1.2 SRECs annually. So if a typical home requires a 7 kilowatt system, you can expect to earn at least 7 SRECs per year. Once you install your system, you can earn SRECs for fifteen years and they last for two years once issued.
What is it that SRECs do for you? Make you money! Once you register your system with the SREC Tracking System, you’ll create an online account that will log your green power generation. You’ll be issued energy credits, which you can then post onto a message board on the website and negotiate the terms of your sale directly with utility buyers. For those who’d prefer to let someone else handle the negotiations, you can arrange to have an agent or “aggregator” handle the sales of SRECS.
Electricity suppliers, the primary purchasers of SRECs, are required to pay a Solar Alternative Compliance Payment (SACP) if they do not meet the requirements of Connecticut’s Solar RPS. One way they can meet the RPS requirements is by purchasing SRECs. The actual price of an SREC during a trading period can and will fluctuate depending on supply and demand.
How much can you expect to make? Well, in Connecticut, the state has issued what’s known as a Solar Alternative Compliance Payment. It’s the penalty per mWh that utilities have to pay if they don’t have enough SRECs relative to their target. So if you’re generating 7 SRECs per year, that’s money in cash coming in to you every year.
MACRS Depreciation For Solar
WHAT IS MACRS DEPRECIATION?
MACRS (pronounced MAKERS) stands for Modified Accelerated Cost-Recovery System and depreciation is known as the reduction in the value of an asset over time due to wear and tear or normal use.
Depreciation is classified as an expense and may be deducted from your taxable income, thus reducing the cost incurred for the solar power system. Depreciation is your business’ way of recovering the costs incurred from a solar power installation.
MACRS DEPRECIATION FOR COMMERCIAL SOLAR
Commercial solar power systems are eligible to be depreciated over a 5-year, accelerated rate schedule. You can find more information on IRS Publication 946: How to Depreciate Property by
The most important detail to note is that 85% of the cost of solar is eligible for the 5-year depreciation rates. More detail on how to calculate each year’s depreciation expense is shown below.
Qualifying solar energy equipment is eligible for a cost recovery period of five years. For equipment on which an Investment Tax Credit (ITC) or a
1603 Treasury Program
grant is claimed, the owner must reduce the project’s depreciable basis by one-half the value of the 30% ITC.
This means the owner is able to deduct 85 percent of his or her tax basis.
If you are running a profitable business and you can clearly show that the solar power you are generating is for business use, then solar and its incentives may can have a strong impact on your bottom line.