W
Walt Bilofsky
- Jan 1, 1970
- 0
The 7.5% California tax credit expires the end of 2005. A 30% (max.
$2000) federal tax credit begins in 2006.
So of course people are asking, is it possible to collect both of
these credits for the same system?
Before I give my opinion, a disclaimer: I'm not a lawyer or a tax
expert. My opinion is worth what you pay for it. Do not rely on it
without satisfying yourself whether or not it's accurate.
My short answer is no. My long answer is yes.
In summary: Both California and federal credits apply for the tax
year in which the system is installed. So you can't claim both
credits because you can't install the same system in both 2005 and
2006.
However - you can install much of the system in 2005 and claim the
California credit on that. Then you install the rest n 2006 and claim
the federal credit.
Why is that helpful? Because the federal credit is 30%, up to $2000.
Install $6,667* worth of stuff in 2006 and you get the entire $2000.
You lose the 7.5% California credit ($500 or more) on that amount, but
still come out up to $1500 ahead.
One big remaining uncertainly is whether the federal form will require
you to deduct any rebates from the qualifying amount, like the
California one does. We won't know until late 2006 when the forms are
published. If your guess (like mine) is that the credit will be on
the cost after rebate, then to max out the federal credit you'd have
to install $6,667 worth of panels after rebate.
Want all the details? Read on.
The California law (and the tax form, Form 3508) ask whether you
purchased and installed a solar PV system during the tax year.
The federal tax credit has been described as applying to systems
"placed in service after December 31, 2005". So some people think
they can purchase and install a system in 2005, turn it on in 2006,
and qualify for both credits.
I don't think so. The law is clear that the credit applies to
"expenditures made by the taxpayer during" the year when the credit is
claimed, and "an expenditure ... shall be treated as made when the
original installation of the item is completed." (except if it's new
construction or a remodel, it's upon occupancy.).
(http://www.fsec.ucf.edu/072705confrpt.pdf, p. 1380) The phrase
"placed in service" does appear in the federal statute (Ibid, page
1383), but not in a way that helps on this issue.
In other words, the credit is for the year the system is installed,
same as California.
So since you can't install it in both 2005 and 2006, it looks like
double dipping is out.
But.
The maximum federal tax credit of $2000 is earned on a system of
$6666.67 or more. So, suppose you install most of your system in
2005, and claim the California 7.5% credit on it. Then you install
just above $6666 worth of panels in 2006. You're entitled to the
federal credit on that amount.
What you lose is the California credit on the 2006 system, which
amounts to $500 or more. You're still ahead $1500 (and if you
itemize, you can deduct the $500 on your federal return as state tax
paid).
Just to make it clear that these are two installations, and not two
stages of the same installation, it might be prudent to get two
different building permits. So you'd be out that cost as well.
Would getting two building permits mess up your California rebate,
which amounts to more than any of these tax credits? I don't think
so. The California rebate program doesn't want you going back to them
more often than every 18 months, so they have the provision that
"Multiple systms at each site are treated as a single system for
purposes of determining the appropriate rebate."
(http://www.energy.ca.gov/2005publications/CEC-300-2005-001/CEC-300-2005-001-ED5F.PDF,
page 11).
So for tax purposes they are two installations. For rebate purposes
they're the same system.
(Yes, the panels added in 2006 don't amount to a full system. But the
federal law doesn't mention systems - just "qualified photovoltaic
property" which is "property that uses solar energy to generate
electricity" for use in the taxpayer's residence.)
Just to be safe, one might apply for the rebate as a single system
(which they are, according to the rebate people). You don't want your
application kicked back; that might push you into 2006 with a lower
rebate level. Then just send in the two completed building permits.
If necessary, you can always amend the rebate at that time, and as
long as you don't increase the rebate amount, you'll keep the 2005
rebate level.
Again, I'm not an attorney or a tax expert. No one will know what the
federal tax form looks like for another year. So there is still some
uncertainly in the process.
Anyone see any holes in this?
$2000) federal tax credit begins in 2006.
So of course people are asking, is it possible to collect both of
these credits for the same system?
Before I give my opinion, a disclaimer: I'm not a lawyer or a tax
expert. My opinion is worth what you pay for it. Do not rely on it
without satisfying yourself whether or not it's accurate.
My short answer is no. My long answer is yes.
In summary: Both California and federal credits apply for the tax
year in which the system is installed. So you can't claim both
credits because you can't install the same system in both 2005 and
2006.
However - you can install much of the system in 2005 and claim the
California credit on that. Then you install the rest n 2006 and claim
the federal credit.
Why is that helpful? Because the federal credit is 30%, up to $2000.
Install $6,667* worth of stuff in 2006 and you get the entire $2000.
You lose the 7.5% California credit ($500 or more) on that amount, but
still come out up to $1500 ahead.
One big remaining uncertainly is whether the federal form will require
you to deduct any rebates from the qualifying amount, like the
California one does. We won't know until late 2006 when the forms are
published. If your guess (like mine) is that the credit will be on
the cost after rebate, then to max out the federal credit you'd have
to install $6,667 worth of panels after rebate.
Want all the details? Read on.
The California law (and the tax form, Form 3508) ask whether you
purchased and installed a solar PV system during the tax year.
The federal tax credit has been described as applying to systems
"placed in service after December 31, 2005". So some people think
they can purchase and install a system in 2005, turn it on in 2006,
and qualify for both credits.
I don't think so. The law is clear that the credit applies to
"expenditures made by the taxpayer during" the year when the credit is
claimed, and "an expenditure ... shall be treated as made when the
original installation of the item is completed." (except if it's new
construction or a remodel, it's upon occupancy.).
(http://www.fsec.ucf.edu/072705confrpt.pdf, p. 1380) The phrase
"placed in service" does appear in the federal statute (Ibid, page
1383), but not in a way that helps on this issue.
In other words, the credit is for the year the system is installed,
same as California.
So since you can't install it in both 2005 and 2006, it looks like
double dipping is out.
But.
The maximum federal tax credit of $2000 is earned on a system of
$6666.67 or more. So, suppose you install most of your system in
2005, and claim the California 7.5% credit on it. Then you install
just above $6666 worth of panels in 2006. You're entitled to the
federal credit on that amount.
What you lose is the California credit on the 2006 system, which
amounts to $500 or more. You're still ahead $1500 (and if you
itemize, you can deduct the $500 on your federal return as state tax
paid).
Just to make it clear that these are two installations, and not two
stages of the same installation, it might be prudent to get two
different building permits. So you'd be out that cost as well.
Would getting two building permits mess up your California rebate,
which amounts to more than any of these tax credits? I don't think
so. The California rebate program doesn't want you going back to them
more often than every 18 months, so they have the provision that
"Multiple systms at each site are treated as a single system for
purposes of determining the appropriate rebate."
(http://www.energy.ca.gov/2005publications/CEC-300-2005-001/CEC-300-2005-001-ED5F.PDF,
page 11).
So for tax purposes they are two installations. For rebate purposes
they're the same system.
(Yes, the panels added in 2006 don't amount to a full system. But the
federal law doesn't mention systems - just "qualified photovoltaic
property" which is "property that uses solar energy to generate
electricity" for use in the taxpayer's residence.)
Just to be safe, one might apply for the rebate as a single system
(which they are, according to the rebate people). You don't want your
application kicked back; that might push you into 2006 with a lower
rebate level. Then just send in the two completed building permits.
If necessary, you can always amend the rebate at that time, and as
long as you don't increase the rebate amount, you'll keep the 2005
rebate level.
Again, I'm not an attorney or a tax expert. No one will know what the
federal tax form looks like for another year. So there is still some
uncertainly in the process.
Anyone see any holes in this?