Benefitting and Applying Your IRS Tax Credit When You Install a Solar System
In 2008, there was a limit to the amount of a tax credit available to home owners for a solar installation. That limit was $2000. In 2009, that limit was removed and now there is no limit at all. The IRS will give you a tax credit based on 30% of the net cost of your solar installation (materials and labor). The net cost would be the amount you invested for your system less any utility company rebates that you may have received.
For example:
In this example, the IRS will give you a 30% tax credit in the amount of $9,000 (which is 30% of $30,000).
Furthermore, $21,000 is the capital improvement value to your home that the IRS will allow you to assess.
What is a tax credit? Simple!
If you owe the IRS $9,000 in taxes, because of the tax credit from your solar installation, you would NOT pay them that money. It is considered PAID IN FULL.
There is a form 5695 (which will be available for the new tax year) being posted on December 29, 2009 (anticipated IRS posting date) that you use to provide the IRS with your solar installation costs and information.
You DO NOT send them a copy of your receipt. It is not necessary and IS NOT REQUIRED.
Just complete form 5695.
After installing solar panels a $177 electric bill became a 77 cent electric bill --- sweet! There are some stipulations... but you are going to love it!
- We already mentioned that you have to owe taxes to benefit from the tax credit.
- You MUST install solar by 12/31/2016 to take advantage of the 30% IRS tax credit. (But why wait with the rising cost of electricity... ouch!)
- Here's the GREAT NEWS: As of now, there is NO LIMIT in place by the IRS as to how long you have in order to use up your tax credit. If it takes you 20 years to do so... so it shall be.
Item 3 means that if you only owe $500 or $600 a year in taxes, no problem. Using our example above, your $9,000 tax credit will get used up in about a dozen years. You will not have sent the IRS one red cent! ZERO! You have an unlimited amount of time to use it up.
The IRS calls this a "carry over" tax credit.
It's that simple. The timing for a solar installation on your home could not be any better.
THE BIG QUESTION (wait for it...)
I owe the IRS estimated taxes. What am I supposed to do?
First, let me provide some general information to help you get an overall view of estimated taxes and how they work.
Estimated taxes are sorely misunderstood. Typically, you pay the IRS an estimated tax payment - quarterly. The amount you pay is based on your taxable income from the year that just ended - calculated on the tax return you just completed.
So, if your tax liability was $10,000 last year (that gut-grinding check you wrote to the IRS when you mailed in your tax return), then your estimated taxes for the new year would also be $10,000 - payable in the amount of $2,500 each quarter. The government presumes you earn your income bit by bit throughout the year. Their goal is to collect "taxes" each quarter from the money you've already earned.
Suppose the year went by and you did not have any income from January through November. Then, in December you earned the entire year's income all in one quick lump sum. You would NOT of had to make an estimated tax payment until after December's earning (that estimate is due 1/15 of the new year).
There are forms available to "amend" what you thought you were going to owe. See IRS Publication 505 and 1040ES at IRS.gov.
Furthermore, the IRS can NOT access any penalties until the taxes are filed in April of the new year since they do not know WHAT your income was or WHEN your income was earned.
As you can see, you have more control over your estimated tax payments than you may have understood.
Now, back to our burning question "I owe the IRS estimated taxes. What am I supposed to do?"
Using our example, you have a tax credit of $9,000. Suppose you owe the IRS an estimated $9,000 for this year and you are supposed to send $2,250 each quarter as your estimated tax payment. DO NOT send them $9,000 - it's PAID IN FULL since you installed solar. You're all set. There will be no penalties and you are all set to enjoy that instant government kick back.
The bottom line is if you are going to give the IRS that amount of money this year anyway, DON'T. Use that money to lower your monthly energy bill by installing solar panels.
By the way, this program is formally called a, "Residential Energy Efficient Property Credit."
ADDITIONAL INFORMATION: You can contact the IRS to speak with a tax specialist. They are extremely helpful and want to take the time to answer any questions you have.
Contact the IRS by calling (toll-free) 1 800 829-1040
Press option 1, then option 4.
Ask the operator for the Energy and Tax Credit Area.
You'll be transferred to a specialist.
http://IRS.gov http://www.irs.gov/newsroom/article/0,,id=206875,00.html?portlet=7
http://www.irs.gov/newsroom/article/0,,id=206869,00.htmlFollowing is the definition of an eligible solar installation taken from IRS.gov website
| Photovoltaic Systems Photovoltaic systems must provide electricity for the residence, and must meet applicable fire and electrical code requirement. 30% of cost |
There is a 30% tax credit available for the installation of Solar Hot Water Heating too. Visit IRS.gov to learn about other energy-based incentives the Federal Government has in place to help you.
Interested in putting solar on your home? You should be. Our work has taken us into numerous homes that we have helped with qualit¥ solar installations. We have personally seen meters spinning backwards, bills go from hundreds a month to minus eleven dollars. The technology is quite good now. There are a number of companies that offer solar and pricing is all over the map. We know what products are good and which ones are, well, not as good - to keep things polite. Contact us if you want some intimate information on solar. We can help and we will help.
DISCLAIMER: Although Sungate went over the contents of this article intimately with actual IRS tax specialists AND verified the information at length with the IRS's Northern California Media Public Relations Officer it's always best to consult your tax professional. The information contained herein is, to the best of our knowledge, completely accurate and within the laws that are in place mandated by the Department of Treasury of the United States of America. Therefore, the information in this article is for educational purposes only.