New York State is as solar friendly as it gets ranking #5 in the nation for installed capacity in 2015 with 241 megawatts! We’ve covered the reasons (policy, cost of power, and incentives) for the growth of solar in NY in previous articles. Chances are if you live in New York and your roof gets a lot of sunlight you’ve been approached about the potential of installing solar on your home. Although the awareness of solar is up, many homeowners have questions about some of the specifics of going solar. This article will explain exactly how the NY State Personal Tax Credit for solar energy systems works.
Solar Tax Credit Explained
In 1998 NY State enacted a personal income tax credit for qualified expenditures on net-metered solar electric systems installed on principal residential properties. The credit is a dollar for dollar credit against any money spent toward solar, allowing the homeowner to recoup up to 25% of their expenditure. Originally, the tax credit was capped at $3,750, but this was expanded to $5,000 for solar-energy systems placed in service after September 1, 2006. The tax credit was expanded again in August of 2012 so that it can be claimed for a system that is purchased, financed, leased, or for customers who enter a power purchase agreement (PPA).
The credit is calculated differently for systems that are directly owned by the homeowner (purchased or financed) and third party owned systems (lease or PPA), as the qualified expenditures are different.
Solar Tax Credit for Customer Owned Systems
Customers who choose to purchase or finance their system are looking for a quick return on their investment. In New York, these customers are eligible for 4 different incentives; an upfront cash rebate, the federal investment tax credit, the NY State personal tax credit, and NYC residents receive a property tax abatement for 4-years.
The NY State personal tax credit for customer owned systems is calculated by taking the gross cost of the system, subtracting the upfront cash rebate, and simply multiplying the remainder by 25%. The maximum amount of the credit is $5,000, so as long as the gross cost minus the upfront rebate is $20,000 or more the homeowner is eligible for the maximum rebate.
Example: 5 kW System Gross Cost: $22,500
Upfront Rebate: $2,500
Upfront Cost: $20,000 x 25% = $5,000
For systems owned by the homeowner, there is a 5-year carry forward allowed, so the credit can be claimed over a 5-year period. Most homeowners will want to claim the credit as quickly as possible. NY State tax is approximately 6.65% so a taxable annual income of $75,000 or more would allow the credit to be claimed in one tax year. If the system is financed the full credit can still be claimed in one year although the actual expenditure by the homeowner may not be $5,000 in that year.
Solar Tax Credit for Third Party Owned Systems
Many homeowners opt for a lease or power purchase agreement for their solar panel installation due to the zero upfront cost, immediate savings, and peace of mind that they get with a third party agreeing to service and maintain their system. These customers are also eligible to claim the NY State personal tax credit, but it is calculated differently.
The qualified expenditures for third party owned systems is the sum of the payments the customer makes over the life of their agreement. Most agreements are 20-years, some of which have a fixed monthly payment whereas others may increase over time. To calculate the qualified expenditures you simply add up the sum of the payments the customer will make, multiply that number by 25%, and take the lesser of 25% or $5,000.
Example: 5 kW System Monthly Cost: $105
Monthly Cost x 240 Months: $25,200 x 25% = $6,300
Credit in this case would be $5,000 since that is the maximum
Customers with a third party owned system have up to 15-years to claim the full amount of the credit, but are limited to claiming the amount spent in that year on their taxes. Most third party owned systems do not have an upfront payment, so the maximum amount claimed per year would be the sum of their monthly payments. If there was an upfront payment that amount could be claimed in addition to the monthly payments made in the first year, and the upfront payment would be included in the qualified expenditures calculation. In the example above the customer would spend $1,260 annually for their solar lease or PPA, and would be eligible to claim all of their payments until they collect the full $5,000. You can think of this as free electricity as your monthly payments will come back to you when you file your tax return!
Year 1: $1,260 Claimed, $3,740 Carry Forward
Year 2: $1,260 Claimed, $2,480 Carry Forward
Year 3: $1,260 Claimed, $1,220 Carry Forward
Year 4: $1,220 Claimed, $0 Carry Forward
Special Situations: Co-ops and Condos
If you live in a co-op or a condominium you are still eligible for this tax credit! A percentage of the qualified expenditures can be attributed to each unit in the building. A system installed with a qualified expenditure of $400,000 for a 20-unit co-op would mean each member would qualify for the $5,000 credit!
How to Claim Your Solar Tax Credit
You should always consult with a tax professional when claiming your NY State Personal Tax Credit, but thankfully this is one part of your taxes that is very simple! To fill out the claim form (IT-255) enter the date the system was placed in service, calculate the qualified expenditure, and in the case of a third party owned system enter the amount paid in the tax year. If you are claiming a portion of the credit that is carried forward, simply enter the amount claimed in that year and the amount carried forward from the previous year. You can find a link to this one page document and instructions below!