Save Money with the Federal Solar Tax Credit and other Renewable Energy Incentives

Renewable Energy Tax Forms

While many people want to setup their own renewable energy system, the often high prices of these systems can deter many. However, various financial incentives provided via federal and state governments can help reduce the overall money spent on a system; other benefits can include reduction in legal hassles. On the forefront is the federal solar tax credit which reduces a solar system’s overall cost by 30%.

This means that starting up a renewable power systems becomes a little easier and savings no longer has to only rely on the system paying itself back over the long run from having to spend less to none on utility bills.

I’ll first go over the federal solar tax credit as it is the most prominent. I’ll then uncover how to find other federal and local renewable energy incentives to take advantage of.

I. Federal Solar Tax Credit

Going Green Pays Off

The Federal Solar Tax Credit can also be called the Solar ITC(investment tax credit). This is the first and primary financial incentive to apply for when purchasing and installing any solar array. Because this is a federal program, anyone in America can apply for it.

This tax credit covers wiring, renewable power generator choice(i.e. solar panels, wind, solar water heater, and etc.), system devices like controllers and inverters, installation costs, and etc. However, any building and structural components on which the system is placed upon are generally not covered by the tax credit.

This tax credit was first sponsored by the Federal Government via Energy Policy Act of 2005. It’s was set to expire at December 31, 2016. However, due to a spending bill passed by Congress on late 2015, mainly the federal solar tax credit has been extended.

Summary for the current extended Residential ITC for solar-electric and solar water-heating(←found at energy.gov link):

  • The tax credit remains at 30 % of the cost of the system if placed in service before 12/31/2019.
  • The tax credit drops to 26 %  for systems placed in service after 12/31/2019 and before 01/01/2021.
  • The tax credit drops to 22 % for systems placed in service after 12/31/2020 and before 01/01/2022.

Originally, until Dec. 31, 2016, the Residential ITC would offer up to a 30 % tax credit for applicable RE systems besides solar, including small wind, geothermal , and fuel-cells. However, since Dec. 31, 2016 has passed, the Residential ITC has expired for nearly all other RE systems except for solar-electric and solar water heating. Hopefully, the Federal Gov’t will eventually extend the ITC for other RE systems later on.

If anyone wants to know, the current ITC rates for businesses are shown on this graph(← found at this energy.gov link):

Energy Tax Credits for Business

Unlike the Business ITC, only the Residential ITC is relevant and usable for off-grid tiny houses. Even through the current Residential ITC only covers solar-related systems, this ITC is still relevant for off-grid tiny houses because most will primarily use solar and will benefit from a 30% tax credit.

How the Federal Solar Tax Credit Works (and Example):

As for how the federal solar tax credit works, if a residential owner(including tiny house dwellers) or a business purchases a solar array system plus installation, a percentage(%) of the total cost can then be deducted from RE system(s) owner’s income tax.

For example, a home owner installed a complete and small solar array system for a tiny house and the cost of the system $5200 and the cost for an installer to set up the system, if the home owner hasn’t done so his/her self, can be $800. The total cost would be $6000. According to the current ITC (before 12/31/2019), 30% of $6000 would be $1800 and thus the home owner can apply for a tax credit that would reduce his/her next income tax payment to the IRS by $1800. Basically, the final net amount paid is $4200 instead of $6000.

Lastly, if the tax credit exceeded one’s income tax, the rest of the tax credit can be refunded after paying the income tax; this means no losses.

Example of How Savings Can Eventually Payback of the Solar System:

Here are some sample conditions:

  • Average daily W-hr usage was 4.2 kW-hr. For a tiny house, this is a reasonable value for medium to heavy use.
  • A fully installed solar power system was paid at $4800 after the ITC tax credit.
  • The utility rate is $0.13/(kW-hr) which is average in America at this time.

Time for system to pay itself back = T = (total cost of system)/ [utility rate * average daily insolation * 365 days]

T = $4800/ [ ($0.13/(kW-hr)) * (4.2(kW-hr)/day) * (365 days/year)]

T ≈ 24.09 years

If there was no tax credit from the Federal ITC, then on the other hand:

T = $6000/ [ ($0.13/(kW-hr)) * (4.2(kW-hr)/day) * (365 days/year)] ≈ 30.107 years

Under the current electric utility rates, the ITC would enable the system to pay for itself for 6 years less from utility savings than without the ITC. If the property with the solar array had issues like no electric line(costly in install) or even a faulty, the pay back would be more significant since no money would have to be spent taking care of these costly hassles.

Additionally, according to this report, electricity costs for the utilities will increase over the years. Increasing electric utility costs means that solar systems will pay for themselves from utility savings slightly faster over the future. Between increasing utility costs and the available RE incentives, including the ITC’s federal solar tax credit, it is a good time to invest in RE early on.

Ultimately, in the spirit of off-grid living, the number one priority one should have when installing a solar array or any RE system(s) should not be about money and financial incentives; it should be about pursuing quality and self-sufficiency for one’s tiny home or for energy independence and enjoying the greater freedom provided.

Next, here are the conditions to apply for the incentive(s) provided by the Federal Renewable Energy ITC.

Conditions to Apply for the Federal Solar Tax Credit of the Renewable Energy ITC are as Follows:

Listed below are the requirements for all residential RE systems from before Dec. 31, 2016. These requirements were all listed from the 2016 edition of the IRS 5695 form(this tax form is used for applying the renewable energy ITC and I will explain this more later). After Dec. 31, 2016, the Renewable Energy ITC expired for all other RE systems except for solar power and solar water heating. The updated terms for 2017 and beyond can be seen in the Renewable Energy ITC page of Energy.gov.(<–this link was shown earlier).

Green Energy Earth

  • For Solar Water Heating(STILL VALID):
    • At least 50% of water heating must utilize solar power for the expenditures to be eligible for this credit. This credit doesn’t apply for swimming pools and hot tubs.
    • The installed system must be certified by the SRCC(Solar Rating Certification Corporation) or another comparable entity endorsed by the government.
  • For Photo-voltaic Systems(STILL VALID):
    • The home where the system is installed doesn’t have to be the primary residence.
  • For Fuel Cells(EXPIRED):
    • The home(or tiny house in this case) served by the system must be the taxpayer’s primary residence.
    • The maximum credit is $500.00 per half kilowatt(kW).
    • The fuel cell needs to have a nameplate capacity of at least 0.5 kW of electricity using an electro-chemical process and an electricity-only generation efficiency of above 30%.
    • If the primary residence with the installed system has more than one occupant, the maximum qualifying costs that can be taken into account by all occupants for figuring the credit is $1,667 per 0.5 kW. This does not apply to married individuals filing a joint return. The credit that may be claimed by each individual is proportional to the costs he or she has paid.
  • For Small Wind Power(EXPIRED):
    • The qualified property has to have a wind turbine that is connected to the home.
    • The home doesn’t have to be your main home.
    • The wind turbine(s) have to be rated at ≤ 100 kW and must meet certain certification standards as defined by AWEA(American Wind Energy Association) or the IEC(International Electrotechnical Commission); info from small wind tax credit guidance link.
  • For Geothermal Heat Pumps(EXPIRED):
    • Know that according to the ITC requirements, an eligible geothermal heat pump system is any equipment that uses the ground or ground water as a thermal energy source to heat your home or as a thermal energy sink to cool your home.
    • The home with the installed system doesn’t have to be the primary residence.
    • To apply for the credit, the geothermal heat pump must meet the the Energy Star requirements that are in effect at the time of purchase.

From above, it can be seen that despite the impressive coverage, the Renewable Energy ITC unfortunately never covered micro-hydro power. Unlike large scale hydro power, micro-hydro had little presence in the public’s consciousness compared to solar and small wind.

Besides the System(s) Meeting the Requirements, Evidence of the Following are Needed to Qualify for the ITC:

  • The total cost of the system. This includes labor, piping, and/or wiring to connect the system to a home’s plumbing and/or electrical system. Evidence of this can be found on the order form(s)/receipt(s) and/or the links and catalogs for the solar system.
  • Evidence of when the system was put into service. Evidence of this can be found via any order form(s) and/or receipt(s) from the installer.

What Forms Do You Have to Fill Out

Form 5695 Residential Energy Credits

The two primary forms to fill out are the IRS 1040(or any applicable variant of this standard income tax form) and the IRS 5695(this is for the residential version of the ITC and is suitable for tiny houses) for the current year. While the 1040 form is common and standard among earning Americans, the 5695 form is new to those just getting into renewable power.

A good step-by-step guide on how to fill the IRS 5695 to apply for solar tax credit can be found at the link below:

Guide on How to Fill the 5695 Form to Claim the Renewable Energy Investment Tax Credit

Also, here is the webpage with the official IRS 5695 form (details of the form should be found here):

The IRS 5695 Tax Form and Tax Instructions

The tax form and instructions are under the ‘Current Products’ heading. At the time of this writing, it is still the 2016 tax season. After the 2016 tax season, the extensions and expiration of various RE systems will be taken into account and these forms will likely be revised.

Finally, for anyone is interested in the business version of the Renewable Energy ITC form and its requirements:

The IRS 3468 Tax Form and Tax Instructions

Similarly, the tax form and instructions are also under the ‘Current Products’ heading.

II. Incentives from Utilities, State, and Local Gov’t

Besides the still available Federal Solar Tax Credit from the Renewable Energy ITC, additional incentives for RE power can be obtained from the utilities, state, and local government. However, depending on where one lives in the U.S., the kind of incentives available vary wildly. These statewide and below incentives can be added on top of the Renewable Energy ITC.

What Kind of State-Level and Lower Incentives are Out There?

Some of the various kinds of incentives that can be found include(Examples and its links included as well):

Where can these Renewable Energy Incentives be found?

Location on Map

Despite state, local, and utility renewable energy incentives being everywhere and seemingly unorganized, fortunately, there are some websites that can be recommended for finding state level and below for incentives.

On these two sites, one has to click on his/her home state on the U.S. Map; this will give a list of available programs available to that clicked upon state. The two sites are:

  1. Whole Sale Solar state incentives
  2. DSIRE Renewable Energy Incentives Database by NC University

A third site to try is Energy.gov(←click link). Because this is the official website of the U.S. Dept. of Energy, it has a large database of renewable energy programs from across the country. After clicking open the above link and looking at the left, there should be an advanced search box one can use to find financial incentives with renewable energy for any state.

Finally, consider the possibility that not all possible incentives are found on these websites. Try some of the following options to look for incentives that might have been missed:

  • Contact and/or check your local power utility’s website and check if there are any RE-related loans, rebate, and net-metering programs.
  • Many States, and some municipalities, have their own Energy Department Website. It is possible that they may have their own policies and incentives for RE on the energy dept. website or possible on their main government site.
  • Some of the companies that sell RE generators and systems may offer incentives, besides coupons, of their own if one purchases their systems. One should contact or check their website for this.
  • Some banks can offer low-interest loans to its depositors to pursuing RE systems as well as other possible perks. Going with this option depends on whether one can accept going into debt or not until repayment.

III. Saving Money with DIY Renewable Energy Systems

With regards to the above title, I am referring to building and installing one’s own renewable energy generator and system, respectively, and reaping its financial benefits(no in-depth DIY building here).

When I talk about building one’s own RE generator, I mean for example, utilizing solar cells along with other materials(like panel base, glue, wires, soldering, and etc.) to create a complete solar panel(s) with proper (+) and (-) terminals; instead of buying a complete manufactured solar panel(s).

The Costs of Manufactured vs Home-Made Renewable Energy Generators

The illustrate the cost savings of home-made RE generators vs manufactured ones, an example of how a homemade solar panel is cheaper than a manufactured one will be shown. By the way, an example of a homemade solar panels is shown on bottom-right.

Homemade Solar Panels ExampleHomemade vs Manufactured Solar Panel Example:

A typical manufactured 150 Watt solar panel can easily cost about $240. Here is a rough list of what materials are commonly needed to make a solar panel:

  • Solar Cells are needed as they are the core of a panel.
  • Wood is needed to create a panel base to hold the ‘bedding’ and solar cells. The panel base can be made of a different material as long as it performs its intended function.
  • A Masonite peg-board(with holes) or something similar to allow room for wires as well as act as a ‘bedding’ for the solar cells to rest on. The peg-board can be inserted into the wooden base.
  • Plexi-glass or something similar for as covering over the solar cells.
  • Small things like screws, wires, solder for wires, paint, and etc.

The first on the list are solar cells. Because wattage is additive, the wiring configuration(whether it’s in series, parallel, or hybrid) of the solar cells doesn’t affect how the wattage of the individual cells add up. About thirty-six 4.5 Watt mono-crystalline solar cells would suffice in creating a solar panel that produces at least 150 watts or more:

36 *4.5 watts = 162 Watts

In fact, 34 such solar cells would have been enough to get over 150 Watts, but I choose 36 instead as it will make arranging the cells into different dimensions easier like 4×9 or 6×6 cells. As for price, about thirty-six 4.5 W mono-crystalline solar cells can cost about $90-100. Cheaper solar cells, including slightly broken but functional ones, can still be used.

As solar cells are the most expensive part, the rest of the parts are much cheaper in comparison. Wood, Masonite peg-board, plexi-glass, and everything else(like screws, wires, solder for wires, paint, and etc.) in the above list couldn’t cost more than $30.

The total material costs for the finished homemade 150 Watt panel ranges around $120-130. Compared to $240, the savings were easily around 50%; costs of tools weren’t included. In actuality, the savings can be more or less depending on how one approaches this. End of example.

Regarding other types of RE generators:

Manufactured panels(or anything else) are more expensive than home-made ones simply due to all the profits needed to keep the manufacturing companies afloat. By this logic, small-wind and micro-hydro turbines that are homemade should be cheaper than manufactured commercial ones.

Speaking of turbines, they work by converting mechanical energy to electrical energy by utilizing the principles of magnetic/electromagnetic induction. Compared to homemade solar panels, a homemade small wind or micro hydro turbine isn’t as straightforward to make although it is still doable. One quick and dirty way to get specific components like the axle, rotor, fan/flail, casing, and etc. without having to make them is to take apart a used or broken small turbine(s) to scavenge for its parts. Compared to new turbines, used/broken turbines should not be costly to get.

By principle, even fuel cells, solar heating, geothermal, and even biomass power, costs can be greatly reduced if the systems are homemade. However, the most important thing to know when attempting to create any homemade RE generator(s) cheaply is to know the scientific principles behind how they work. This knowledge becomes a foundation that lets one figure out what materials are needed and what materials can be substituted for to make the RE generator(s) work successfully while being built cheaply.

Lastly, even charge controllers(including MPPT ones) and inverters can be personally created if one has a proper schematics. However, trying to create homemade inverters and charge controllers should be avoided. These require very sophisticated circuitry knowledge far beyond the understanding of laymen. Printing PCB circuit boards can be quite expensive, so homemade charge controllers and inverters are most likely not worth the trouble. In comparison, home solar panel, wind and hydro turbines, and etc are much easier for a layman to understand and recreate.

This was a basic introduction to DIY renewable energy generators and systems to illustrate that the option to build one own renewable power generator/system to save money exists. At times, one can save even more money on DIY renewable energy than just buying commercial renewable energy generators and relying on financial incentives.

Because covering the entirety of this topic is beyond the scope of this post, I might cover DIY renewable energy in-depth in future posts.

Financial Incentives with Renewable Energy Generators Made at Home

Saving Your Money

Can financial incentives, like the ones referred to earlier, apply with homemade RE generators?

The answer ranges from ‘maybe’ to ‘it depends’. First of all, before seeking financial incentives, it is very likely that any large noticeable homemade solar panels, small wind turbines, and etc. may require some kind of certification to prove to the authorities that the system is functional and legitimate. Another thing that may be necessary is the evidence of the purchase of parts as well as a cost tally. The cost tally is used when factoring percentage calculations for incentives associated with rebates, loans, and taxes.

For all the different types of tax/financial incentives listed here, here is how home made RE generators can or can’t work with these incentive types:

  • Tax Credits: I believe it is possible to apply with a homemade RE generator and system as long as system meets the Tax Credit’s requirements, like those of the Federal ITC. For this to be possible, one has to have a materials list and cost tally as evidence of the RE system being in place.
  • Net-Metering: Net-metering should be doable with a homemade RE system because net-metering is about turning extra power into credits. There shouldn’t be a reason for utility companies with net-metering programs to be picky about whether the RE is from a homemade or a manufactured system. A better description can be found at this link.
  • Green Building: For places that offer a permit fee reduction for building a RE system(s), getting one should be possible as long as it is proven that an RE system is being built even if it contains homemade parts instead of manufactured ones. Needed proof will likely include a materials list and cost tally as well as any needed certification.
  • Leasing or Lease-Purchase: Because one is pursuing to use a homemade RE system, using a leased system shouldn’t even come up. Also one should not used leased parts when building a homemade RE system no matter what to avoid physical and legal complications later on.
  • Local, State, and Utility Loan Programs: Even if one’s tiny house/home passes an energy efficiency assessment, applying for a loan to purchase materials to build a homemade RE system will be difficult because proving the materials will be used for a RE system will be a challenge. However, some obviously RE-related parts like solar panels, wind/hydro turbines, and etc. can be obtained via loan. Overall, the loan will like be a partial loan for the entire system.
  • Local, State, and Utility Rebate Programs: Several municipalities have cash rebate programs for homeowners who install RE systems. Rebates for homemade RE systems are plausible as long as the system(s) is certified as proof of authenticity. If accepted for a rebate program, the material list and cost tally of the homemade system will be needed to do any rebate calculations.
  • Exemption from Sales Taxes: For places where this incentive is available, this can be difficult to get because some of the parts purchased may not be normally used for a RE system. This makes convincing the ones who enforce this sales tax exemption a difficult task. For parts more readily associated with RE systems like solar panel cells and wind/hydro turbines, attempting to get a sales tax exemption should  be much easier.
  • Exemption from Property Taxes: As long the finally built homemade RE system is property certified by a relevant authority(ies), applying for property tax increase exemption can be done.

IV. Ending Comments

Within the limits of this blog post, I believe that I have sufficiently explained the Renewable Energy ITC’s Federal Solar Tax Credit as well as how to find other existing RE incentives from the utilities, state, and local gov’ts.

As stated earlier, the reason to consider the Federal Solar Tax Credit as well as local tax/financial incentives is to make obtaining a renewable power system financially easier. The tax and financial incentives that lower the long-term payback for the RE system(s) are a nice bonus, but to focus solely on that is same as missing the main point; which are the benefits and satisfaction of having self-generated power that is beyond the control of anyone else but yourself.

Later on, I went over lightly on how making one’s own RE generator(or system) can significantly cut overall costs as opposed to spending on a manufactured RE system. I even illustrated this with a mini-example on the costs savings of a homemade solar panel over a manufactured one.

Finally, depending on the available incentives and circumstances, it is also possible to utilize additional financial incentives on top of the cost savings of a homemade RE system for more savings. Even if financial incentives cannot be utilized on a homemade RE generator, the savings which can easily range 50% or more and less can often be greater than the financial savings on a manufactured RE generator using the same financial incentives. Even if one has to go through the troubles of learning the fundamental principles behind a RE generator in order to build it, it is still worth heavy consideration as an option.

If you like this post, consider sharing(via social media bar) and subscribing for email updates(if you already haven’t). Leave a comment below about your thoughts, ideas, and experiences regarding how the federal solar tax credit and other renewable energy incentives are applicable.

 

Federal Solar Tax Credit Pin

 

 


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  1. Header Image: Tax Forms header image was made by Me(website owner). I reserve all my rights to this image so under no circumstances can anyone else use this header image.
  2. Coins, Graph, and Arrow Sign: “Going Green Pays Off” by Laura Leavell via Freeimages.com
  3. Green Globe(slightly modified): “Globo verde” (CC BY 2.0) by Aproximando Ciência e Pessoas via Flickr
  4. Form 5695: Cut-out and transformed section of an actual 5695 form. You may use if you give proper attribution as explained in this site’s “Content Reuse & Attribution Policy” from the bottom.
  5. Location on Map: “Where to Next 1” by mailsparky
  6. Backside of Homemade Solar Panel: “Solar Panels” (CC BY-SA 2.0) by hardwarehank via Flickr
  7. Scrabble Pieces on Money: “Save Money” (CC BY-SA 2.0) by 401(K) 2013 via Flickr
  8. Hidden Pinterest Image(visible only with Pinterest Browser Button): I reserve ALL RIGHTS to this image as I created this for my Pinterest sharing needs. This composite pin image consists of:
    • The top image is custom-made using the 5695 Tax Form in #4. Follow its attribution policy.
    • Green Field Background” via [publicdomainpictures.net]
    • Image used in #7
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2 Responses

  1. The Simple Retiree says:

    What is the percentage of people now using solar or renewable energy in their houses? Do you think these incentives go far enough to encourage people to implement their own home system? How long would it take for the average Joe to build a renewable energy system?
    If I had my own house on a property I’d have a solar panel up in days. I don’t understand why more people aren’t on this bandwagon to get off the grid.
    Well done, I thoroughly enjoyed your article, Thanks!

    • Bobby Kundu says:

      It is hard to say how many households total in America are now using renewable power. However, according to this TIME article, over 700,000 households get solar power in 2015. This is a pretty small number compared to the fact America has about 320 million people. Solar power is growing pretty quickly though as it is projected that by 2020, over 4 million Americans will have a solar installation.

      As for these incentives, I believe that the Federal ITC I talked about in the post is the incentive that best encourages people to pursue solar power. The other incentives from the state level seem small by comparison. In places like California that have A LOT of renewable energy incentives, solar power will still be appealing even if the Federal ITC expires by Dec. 31, 2016(hopefully it gets expanded by then). While I hope these incentives encourage people, I personally think that the benefit of having one’s own personal power generation for self-sufficiency is more valuable than the incentives which are mainly a bonus to save money with.

      As for how long it takes to build a renewable energy system, it mostly depends on the scale. A large scale could take several weeks and a micro-scale could only take a week or less. Also, if you are doing the building and installation yourself, it will take longer than hiring someone to do the work for you.

      Lastly, the reason more people don’t get on this bandwagon even if they should is because most American’s still have this preconception that renewable energy is too expensive and too much a hassle to install; there is also the convenience of ‘unlimited’ electricity from the utilities. If one truly takes the initiative to find the most affordable options like personally building the renewable energy system, utilizing the Federal ITC(and other incentives), and etc., the final price and benefits would exceed the expectations of most. Although most people don’t have that kind of initiative to seek the cheaper options, I believe that solar power and other renewable energy will still eventually catch on.

      Finally, thank your for liking my article.

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