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FAQ
What is the ITC credit?
The Solar Investment Tax Credit (ITC) is a significant federal incentive aimed at promoting the adoption of alternative energy in the United States. Initiated in 2006, this policy has been extended multiple times. Currently, it provides a 30% tax credit for individuals who install solar systems on residential properties, as outlined in Section 25D of the tax code.
If I purchase my solar system, can I take advantage of additional tax savings through depreciation?
Yes, with the appropriate setup, you can benefit from federal tax depreciation for your solar system. Many homeowners enter into a net metering agreement when installing their systems. This agreement creates a commercial transaction and income for the solar system owner, allowing them to utilize depreciation rules in addition to the ITC. This can lead to substantial tax savings, further reducing the overall cost of the solar system and making solar energy more affordable.
If I lease my solar system, can I take advantage of additional tax savings through depreciation?
Yes, a well-structured lease agreement can also enable you to use depreciation benefits, similar to purchasing a system. Leased systems typically require a net metering agreement, which facilitates additional tax savings, potentially including depreciation, provided the lease is properly structured. When combined with other tax credits, this can result in significant tax savings for those who lease solar systems.
If I have a Power Purchase Agreement (PPA), can I take advantage of additional tax savings through depreciation?
No, PPAs are agreements to purchase power from a source other than your utility company and do not provide additional tax incentives to the homeowner. Therefore, depreciation benefits do not apply in this case.
What documents are needed to claim the ITC?
To claim the ITC, you will generally need to complete Form 5695. Depending on your specific situation, you may also need to use Form 3468 along with a Schedule C when filing your taxes.
What documents are needed to depreciate my system?
To depreciate your solar system, you will need to provide your purchase or lease agreement to your tax professional. They will use these documents to create an appropriate depreciation schedule. Additionally, you must have a net metering agreement to meet the requirements for depreciation. This documentation will be used to prepare a Schedule C or an equivalent business return at tax time.
