Even if solar power saves you money in the long run, the start-up costs can be intimidating. As of 2013, average costs run $50,000, though some systems only require $20,000. The federal Energy Star program lessens the pain by offering tax deductions for qualifying systems. As of 2013, the tax credit for going solar runs through the end of 2016 and applies to both solar panels and smaller photovoltaic shingles.
The Energy Star tax credit lets you deduct 30 percent of the cost of solar-power systems or solar water heaters. As it's a credit, the money comes right off your tax bill, rather than your taxable income. Unlike some credits, there's no dollar limit on how big an amount you can claim. If the credit is bigger than your tax bill, the excess isn't refundable. Instead, you carry it forward to next year and deduct it again.
To get the credit, you have to use an Energy Star-certified photovoltaic system. If you buy a solar water heater rather than a roof system, the power has to go to the house, rather than heating a pool or hot tub. The house has to be one you own, and it has to be your first or second home. You only take the credit for homes in the United States, not overseas.
To claim the write-off you fill out IRS Form 5695 to calculate the amount of your credit. Then you report the total on your Form 1040 and submit the 5695 along with it. You don't need to submit any paperwork from the purchase, but hang on to it for later, in case the IRS audits you. The key documents are your receipts for the sale and the Manufacturer's Certification Statement showing that the system meets Energy Star standards for the credit.
You can take the Energy Star write-off whether you're putting a new solar roof on your current home or installing it in a home built from scratch. The cost includes installation as well as the price of the physical system. If you claim the credit on a new home, ask the builder for specs on the price of the system. You can claim a reasonable amount of the builder's overhead as part of your credit.
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- Energy Star: Federal Tax Credits for Consumer Energy Efficiency
- Internal Revenue Service: Energy Incentives for Individuals: Questions and Answers
- Energy Star: What Is a Principal Residence?
- Energy Star: How Do I Apply for the Tax Credit ...
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