Solar power has come a long way in recent years. Increased production has reduced costs while advances in technology have increased the efficiency of solar panels. Increased regulation and rising fuel prices have made traditional forms of electricity more expensive. At the same time, state and federal tax credits are offsetting much of the cost of installation and causing many homeowners to give solar energy a second look.
Is the time right for you to go green? Today, we’ll discuss some of the efficiency gains and cost savings that solar energy has experienced in recent years and take a look at the tax credits available to those who add solar energy to their homes’ electrical grid.
Decreased Cost & Increased Efficiency: According to Julie Litwin, a consultant with Berkeley Springs-based MTV Solar, the overall cost of residential solar has decreased by approximately 40% in recent years while the amount of energy produced per panel has increased 10-15%. An additional perk for West Virginia solar users is the state’s status as a “Net-Metered” state. This means that homeowners with solar arrays can actually sell their unused energy back to the electric company. “Think of it as roll-over minutes for your electric bill,” says Litwin.
Solar Tax Credits Reduce Cost: There are currently two primary tax credits available to WV residents for installing solar panels in their homes: The Federal Residential Renewable Energy Tax Credit and the WV Residential Solar Energy Tax Credit. Both credits are non-refundable, meaning that each can reduce your tax liability but cannot generate a refund beyond withholdings and estimated tax payments made during the year. How much will these credits reduce the cost of adding solar energy to your home’s electrical grid? Let’s take a look at each.
Federal Residential Renewable Energy Credit: The Residential Renewable Energy Credit was enacted in 2006. Through 2008, the credit offered a non-refundable tax credit of 30% of the cost of solar electric systems placed in service, but the credit was capped at $2,000. For tax years 2009 and after, however, the credit cap was lifted. The Federal Residential Renewable Energy Credit will reimburse residential homeowners for 30% of the cost of solar electrical systems (and other forms of renewable energy) placed in service in those tax years. Installation costs can be included when determining the amount of the credit. The credit can be claimed on primary and secondary residences. Rental homes, however, will not qualify for this credit. The Credit is claimed on Part II of Form 5695, Residential Energy Credits. Any unused credit can be carried forward to the following tax year.
WV Residential Solar Energy Credit: The second credit available to West Virginia homeowners is the Residential Solar Energy Tax Credit. This non-refundable credit will reduce homeowners’ WV tax obligation by 30% of the cost of purchasing and installing solar energy systems (including solar heating, cooling, and hot water systems) up to a maximum credit of $2,000. Any unused credit can be carried forward to the following year until July 1, 2014. Any credit not used by this date is lost.
What does this mean for the average homeowner? According to Litwin, an investment in 22 solar panels would reduce the average-sized home’s energy bill by up to 40%. The estimated cost of such an array, including installation, is approximately $26,000 before applying any of the tax credits discussed below. The after-tax cost of such a system, however, would only be $16,200 ($26,000 minus 30% federal tax credit of $7,800 and the $2,000 WV tax credit). Litwin says that customers are seeing an ROI (Return on Investment: the time it takes for the energy savings to pay for the cost of the system and generate positive cash flow) of between 6 and 9 years after applying the tax credits.
Use the sun to shrink your tax bill and, as always, please remember that this article is for informational purposes only and does not constitute tax advice. If you should have any questions or need assistance preparing your return or solving your own tax “problems,” please feel free to contact our office at 304 267-2594.
Julie Litwin of MTV Solar can be reached at 304-258-4733.
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