
Make it a Sunny New Year!
There is bright news for both homeowners and businesses who are ready to make 2011 the year they finally go solar – several federal credits remain in place or have been extended.
In short:
- The uncapped 30% federal tax credit on residential solar electric and solar hot water systems remains in effect through 2016.
- In 2011 businesses can get a 30% federal cash grant in lieu of a tax credit, on top of state rebates (up to $2,000 in Maine, up to $50,000 in New Hampshire)
- Through 2012 bonus depreciation has been extended, allowing businesses to take up to 100% of the depreciation benefit of a solar energy system in year one for systems installed in 2011, and up to 50% in year one for systems installed in 2012 (with the rest coming over the next five years)
Read on for more specifics about each incentive.
Residential 30% Federal Tax Credit
The 30% federal tax credit is called the “Residential Renewable Energy Tax Credit” and was established by the federal Energy Policy Act of 2005.
This credit was initially capped at $2,000 for solar energy systems, but was expanded by The American Recovery and Reinvestment Act of 2009 to be an uncapped rebate for 30% of the cost of a renewable energy system (both photovoltaic and solar thermal are eligible, along with small wind and geothermal heat pumps).
The 30% includes all cost of labor as well as equipment costs for the renewable energy system. The credit can also be carried forward to future tax years if you cannot take the full credit in the year the system was installed.
More information:
Note: This credit is not to be confused with the “Nonbusiness Energy Property Credit,” which expired in 2010. That credit specifically applied to home “energy efficient” improvements, specifically:
- Biomass stoves (wood and pellets)
- HVAC equipment
- Insulation
- Windows and doors
- Roofing improvements
If you did purchase any of the above that meet Energy Star criteria, you can claim up to $1,500 on your 2010 taxes. See Energy Star’s website.
Treasury Grant in Lieu of a 30% Investment Tax Credit

In late 2010 Congress extended the 1603 Program: Payments for Specified Energy Property in Lieu of Tax Credits.
This incentive allows businesses to receive a cash grant from the US Treasury in lieu of waiting until they file their taxes to receive the 30% federal tax credit (called the Business Energy Investment Tax Credit (ITC), but with similar rules as the residential program).
By having access to the treasury grant, the program allows businesses to receive the full amount of the emergy credit even if they do not have enough tax liability to take the full 30%.
It also helps all businesses by getting cash into their hands more quickly, rather than waiting until they can file their taxes.
More information:
DSIRE – U.S. Department of Treasury – Renewable Energy Grants
DSIRE – Business Energy Investment Tax Credit (ITC)
US Treasury – 1603 Program: Payments for Specified Energy Property in Lieu of Tax Credits
MACRS + Bonus Depreciation

Under federal tax code, renewable energy systems qualify for a 5-year Modified Accelerated Cost-Recovery System (MACRS) depreciation schedule.
The exact benefit of this depreciation is complicated and varies depending on your businesses’ tax rate, but typically it adds up to an additional 25% of a solar energy project’s cost being offset by reduced tax payments.
To further sweeten this incentive, in 2011 bonus depreciation has been extended, letting a business enjoy most of the benefit in year one, rather than waiting for the entire five year schedule.
DSIRE sums it up nicely:
The federal Economic Stimulus Act of 2008, enacted in February 2008, included a 50% first-year bonus depreciation (26 USC § 168(k)) provision for eligible renewable-energy systems acquired and placed in service in 2008. This provision was extended (retroactively for the entire 2009 tax year) under the same terms by The American Recovery and Reinvestment Act of 2009, enacted in February 2009. Bonus depreciation was renewed again in September 2010 (retroactively for the entire 2010 tax year) by the Small Business Jobs Act of 2010 (H.R. 5297).
In December 2010 the provision for bonus depreciation was amended and extended yet again by The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853). Under these amendments, eligible property placed in service after September 8, 2010 and before January 1, 2012 qualifies for 100% first-year bonus depreciation. For 2012, bonus depreciation is still available, but the allowable deduction reverts from 100% to 50% of the eligible basis.
The short of this is that a business that installs a qualifying solar energy system in 2011 can enjoy a 100% bonus depreciation the first year the system is commissioned, rather than waiting for the entire 5 year depreciation schedule. Also, a 50% bonus depreciation is available through 2012.
Given the time value of money and the tough economic climate, this benefit helps make solar energy systems more accessible in the near-term by businesses that will be able to save significant fossil fuel energy costs over the life of the system.
In fact, between the treasury grant, bonus depreciation, and generous state rebates, many businesses (particularly heavy water users like inns and restaurants) can enjoy a year-one payback on solar energy systems!
More information:
DSIRE – Modified Accelerated Cost-Recovery System (MACRS) + Bonus Depreciation (2008-2012)
IRS Form 4562 – Depreciation and Amortization (Including Information on Listed Property) (PDF)
IRS – Instructions for Form 4562 (PDF)
What Do Rebates Mean for Me?
Here are a few example solar energy projects to help illustrate how federal incentives affect solar energy economics.
Scenario #1- Residential SHW system
$10,500 installed cost
-$1,000 ME Solar Rebate (avg. $2,600 NH state rebate)
-$3,150 30% Fed Tax Credit
$6,350 Final Cost (40% savings with current incentives)
Scenario #2- Residential PV system 4kw (5,200 kWh/yr)
$19,000 installed cost
-$2,000 ME Solar Rebate (currently no NH state rebate)
-$5,700 30% Fed Tax Credit
$11,300 Final Cost (40% savings with current incentives)
Scenario #3- Commercial PV system
$100,000 installed cost
-$2,000 ME Solar Rebate (up to $50,000 in New Hampshire)
-$28,900 accelerated depreciation – avoided taxes over 5 years thanks to lowered net income, assumes 34% marginal tax bracket
-$30,000 30% Fed Tax Credit
$39,100 Final Cost (60% savings with current incentives)
Interested in learning more? Contact Revision Energy for a free consultation about how to take full advantage of the current government incentives available for renewable energy projects.