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 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.

If you go solar in San Diego with Sunline Energy you will be eligible for a 30% federal tax credit. This is not a deduction but a dollar for dollar tax credit from the federal government.

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. Keep in mind that although tax credits for San Diego solar will be valid for the next few years, the amount of people on net metering (once a year billing) is capped at the first 5% of households. Without net metering solar provides a much lower return on investment.

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.

Significantly, The American Recovery and Reinvestment Act of 2009 repealed a previous limitation on the use of the credit for eligible projects also supported by “subsidized energy financing.”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.