Financial Overview & Next Solar Helping You Understand California Solar
| FEDERAL TAX INCENTIVES |
| Sample Project |
3MWp Solar Array on 28 acres of unused farm land |
| Incentive Type |
Corporate Tax Credit |
| State |
Federal |
| Eligible Renewable/Other Technologies |
Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process Heat, Photovoltaics, Wind, Biomass, Geothermal Electric, Fuel Cells, Geothermal Heat Pumps, CHP/Cogeneration, Solar Hybrid Lighting, Direct-Use Geothermal, Microturbines |
| Applicable Sectors: |
Commercial, Industrial, Utility |
| Amount |
30% for solar, fuel cells and small wind**;
10%** for geothermal, microturbines and CHP |
| Maximum Incentive |
Fuel cells: $1,500 per 0.5 kW
Microturbines: $200 per kW
Small wind turbines placed in service 10/4/08 – 12/31/08: $4,000
Small wind turbines placed in service after 12/31/08: no limit
All other eligible technologies: no limit |
Summary
Note: The American Recovery and Reinvestment Act of 2009 (H.R. 1) allows taxpayers eligible for the federal renewable electricity production tax credit (PTC)** to take the federal business energy investment tax credit (ITC) or to receive a grant from the U.S. Treasury Department instead of taking the PTC for new installations. The new law also allows taxpayers eligible for the business ITC to receive a grant from the U.S. Treasury Department instead of taking the business ITC for new installations. The Treasury Department issued Notice 2009-52 in June 2009, giving limited guidance on how to take the federal business energy investment tax credit instead of the federal renewable electricity production tax credit. The Treasury Department will issue more extensive guidance at a later time.
The federal business energy investment tax credit available under 26 USC § 48 was expanded significantly by the Energy Improvement and Extension Act of 2008 (H.R. 1424), enacted in October 2008. This law extended the duration — by eight years — of the existing credits for solar energy, fuel cells and microturbines; increased the credit amount for fuel cells; established new credits for small wind-energy systems, geothermal heat pumps, and combined heat and power (CHP) systems; extended eligibility for the credits to utilities; and allowed taxpayers to take the credit against the alternative minimum tax (AMT), subject to certain limitations. The credit was further expanded by The American Recovery and Reinvestment Act of 2009, enacted in February 2009.
SECTION 179 ACCELERATED DEPRECIATION
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the US Government to encourage businesses to buy equipment and invest in themselves.
Limits of Section 179
Section 179 does come with limits – there are caps to the total amount written off ($250,000 in 2009), and limits to the total amount of the equipment purchased ($800,000 in 2009.) The deduction begins to phase out dollar for dollar after 800k, so this makes it a true small and medium-sized business deduction. Additionally, if a business takes the Federal 30% grant in lieu of credit then Section 179 does not apply. Section 179 is valid using the 30% tax credit.
However, in 2009, businesses that exceed the $250k deduction limit can take a bonus depreciation of 50% on the amount that exceeds the limit. And then also take normal depreciation on the rest. Nice.
Who Qualifies for Section 179?
All businesses that purchase or finance less than $800,000 in business equipment should qualify for the Section 179 Deduction. In addition, most tangible goods qualify for the Section 179 Deduction. Also, to qualify for the Section 179 Deduction, the equipment purchased must be placed into service between January 1, 2009 and December 31, 2009.
The deduction begins to phase out if more than $800,000 of equipment is purchased – in fact, the deduction decreases on a dollar for dollar scale after that, making Section 179 a deduction specifically for small and medium-sized businesses.
| SECTION 179 EQUIPMENT PURCHASE OVERVIEW |
| Equipment Purchase Installed Cost |
$ 305,000.00 |
| First Year Write Off – Under the law, $250,000 is the maximum Section 179 write off for 2010 |
$ 250,000.00 |
| Bonus First Year Depreciation – for purchased in excess of $250,000 – You can deduct 50% on the remaining value |
$ 27,500.00 |
| Normal First Year Depreciation – Depreciation on remaining cost calculated at 5 years meaning 20% per year |
$ 5,500.00 |
| Total First Year Deduction |
$ 283,000.00 |
| Tax Savings – Assume 35% tax rate |
$ 99,050.00 |
| Equipment Cost after Section 179 Benefits – Purchase price less all tax deductions |
$ 205,950.00 |
Evacuated Tube Cutaway Diagram
PG&E Solar Thermal Rebate Program
The California Public Utilities Commission (CPUC) plans to offer $100 million in incentives over the next ten years for solar thermal technologies under the California Solar Initiative.
The program includes all systems installed from August 1st, 2009 and provides an initial tier of $12.82/therm of system production. The program is scheduled to begin processing rebates April of 2010. Although all the details are not yet available the solar array proposed here will qualify for the rebate. The rebate amount shown in this proposal is a best guess and may be higher or lower once the final program details are released. However we calculated the rebate on only 50% of the therms saved which we feel is a conservative approach to the rebate estimate.
Disclaimers & Assumptions
Tax Credits & Deductions. Income tax rate assumed: 40.00% (Federal 34.00% – State: 6.00%)
Although the information in this proposal is intended to be current as of December 2009, Commercial Soalr Design makes no warranty or guarantee of any kind that it is correct, complete or wholly-up-to-date. Please note that this document is intended to provide only general guidance. You should not rely upon or construe the information herein without first seeking the counsel from a financial specialist. You are strongly urged to obtain specific advice from a tax specialist, as the U.S. tax code is complex. Interpretations of tax law are frequently established based on the merits of individual cases that come before the IRS, as opposed to pre-conceived rules.
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