Can a buyer of a house that has a solar system installed receive the solar tax credit?

What is the Solar Tax Credit?

• After you purchase and install your solar system, you can receive a tax credit when you file your federal and state personal income tax forms.
• The federal tax credit for a solar PV or thermal system is 30 percent of the cost of the system. New Mexico provides additional tax credits up to $9,000.
• If you install a photovoltaic and a thermal solar system, you can receive up to $9,000 in state tax credits for each system.

How do I apply for and receive the New Mexico Solar Tax Credit?

• Download and complete the Solar System Certification Application Form, the second page of which is a checklist that will help you ensure that you provide all the required information. You will need to provide information about yourself and the installer, and information about the location, type, size, and cost of the system.
• Download and complete the Solar System Installation Form, the second page of which is a help list to assist you in providing a complete application package. You will need to provide information about yourself, the contractor (if contractor-installed), and a building code authority system inspection.
• Send the above forms to the State of New Mexico – Energy, Minerals and Natural Resources Department, 1220 S. St. Francis Drive, Santa Fe NM 87505, Attn. Edward Trujillo (address is also on the forms). Upon approval, EMNRD will send you a letter certifying the system and approving you for the tax credit. When you file your New Mexico State Income Tax return, fill out and attach form RPD-41317, Solar Market Development Income Tax Claim Form, along with the certification letter, to your income tax return.
• Your tax preparer or accountant can provide you with additional assistance.

How do I apply for and receive the Federal Solar Tax Credit?

• To apply for the federal tax credit, just complete IRS Form 5695, Residential Energy Credits, and attach it to your form 1040. Form 5695 comes with detailed instructions.

back to list of questions

Where can I get more information on the Solar Tax Credits?

• For more on the Federal Tax Credit see: IRS Form 5695 and Instructions
• For more on the State Tax Credits see:
  • The legislation creating the Solar Market Development Tax Credit Senate Bill 269.
  • State Code 3.3.28 provides the Solar Market Development Tax Credit Rule.
    

Where can I find solar systems, suppliers, and installers?

• The New Mexico Solar Energy Association

back to list of questions

Why invest in a Solar System?

• Solar energy systems are good for the environment and good for your wallet.
• For every kilowatt-hour of electricity generated by a solar photovoltaic (PV) electric system instead of a coal-fired power plant, greenhouse gas emissions are reduced by two pounds of carbon dioxide, and three-quarters of a gallon of water is saved.
• An average New Mexico household powered by a solar electric photovoltaic (PV) system would prevent the release at the power plant of 13,000 pounds of carbon dioxide to the atmosphere and save 5,000 gallons of water each year.
• Solar thermal systems for water heating, space heating, and even space cooling, cut your utility and fuel bills and benefit the environment by offsetting the use of electricity or fuels like natural gas and propane.
• The federal and state tax rebate programs, and utility net-metering and Renewable Energy Credit (REC) programs (see other incentives, below) make photovoltaic electric systems a great low-risk investment for your home.

back to list of questions

What solar systems qualify for the Solar Tax Credit?

• Basically any home owner- or contractor-installed solar thermal or PV system that meets state or local building code requirements qualifies for the credit.
• The solar thermal systems also must have collectors that are listed by the Solar Rating and Certification Corporation.
• Through New Mexico’s Solar System Certification Application process, the state will review your system to see that it meets the state’s requirements to ensure that you have invested in a high quality solar system that will provide long-term financial and environmental benefits.

back to list of questions

What about Solar Tax Credits for businesses?

• The federal tax credit for a business installing a solar PV or solar thermal system is 30 percent of the cost of the entire system. The 30 percent federal tax credit is available through December 31, 2016.
• Taxpayers who own businesses or agricultural enterprises and file an individual New Mexico income tax return are eligible for the New Mexico Solar Tax Credit for their businesses. The state tax credit is available through December 31, 2016. The amount of the tax credit is the same as that for residential taxpayers, 10 percent up to a cap of $9,000.
• As utility company customers, businesses can also take advantage of net metering. Because businesses typically have larger buildings and facilities than homes, they have the potential for generating much more solar PV electricity than homes.

What businesses are allowed to take the Solar Tax Credit?

• The business seeking to take the credit must be a sole proprietorship, or one that is required or allowed to elect to file taxes using IRS Form 1040.
• The fact that there is no provision for allowing the credit to be claimed against any other tax restricts who may claim the credit.

What other solar investment incentives are available?

• Solar GRT exemption is available for the sale and installation of a solar energy system. A solar energy system is an installation used to provide space heat, hot water, or electricity to the property in which it is installed. This includes resident and commercial property.
• Residential customers with PV systems can reduce their electricity bill through utility company net metering programs and Renewable Energy Credit (REC) programs. For example, see the PNM Solar PV Program.
• The value of PV power for net metering programs is the same as the utility company’s retail price. (In Albuquerque, for example) this is about 8 cents per kilowatt-hour.)
• It is possible for a residence to generate more electricity than is used, causing the meter to run backward, which means the utility provides a credit toward future electricity use or pays the residential customer for the excess power generated.
• Some utility companies pay a premium for the renewable energy attributes of the electricity generated by PV in addition to the going retail rate for electricity. For example, PNM currently pays 13 cents a kilowatt-hour for PV-generated electricity.
• With these added incentives, it is possible, depending on the size of the system, to get a check from the electric utility instead of a bill!

back to list of questions

How much will my solar system cost?

• To find out exactly how much your solar system will cost, contact several equipment suppliers or installers for estimates. Many will analyze your home for its power requirements and potential solar power capacity, suggest an optimum system size, and provide you with useful financial information, such as return on investment and payback period.
• As a “rule of thumb,” the installed cost of a PV system runs about $10 per watt. An average home would need a four-kilowatt system, at about $40,000, to handle all daily needs. By using federal and state tax credits, the net cost of such a system would be reduced to $24,000. Home owners can provide a portion of their electricity needs, for example 30 to 60 percent, with smaller PV solar systems.
• The cost of a solar system for your domestic hot water supply or home space heating varies with the size of the system. Typical costs for hot water systems range from $4,000 to $7,000 and for home space heating from $15,000 to $20,000. Again, check with a solar hot water or space heating system supplier.
• There are a number of websites that help to estimate the cost of a solar system and other externalities. Find Solar (www.findsolar.com) is a partnership between the American Solar Energy Society and Cooler Planet. Find Solar helps home and business owners get the information and education when researching solar power and renewable energy projects. The National Renewable Energy Laboratory has a calculator that determines the energy production and the cost of savings of grid connected photovoltaic systems through out the world.

Where can I get more information on solar systems?

• The National Renewable Energy Laboratory has extensive information about research and development of renewable fuels and electricity that advance national energy goals to change the way we power our homes, business, and cars.

back to list of questions

Can a buyer of a house that has a solar system installed receive the solar tax credit?

• Statute 7-2-18.14 NMSA 1978 says that the taxpayer who purchases and installs the system in a New Mexico residence, business or agricultural enterprise “… owned by that taxpayer” may apply for and claim the credit. The buyer did not purchase and install the system in this example; the buyer purchased a building with the system installed. The buyer cannot claim the credit.

back to list of questions

Sample tax credit calculations

Here are three examples to illustrate how to estimate the amount of your tax credit:

• Example 1: A domestic hot water supply system costing $5,000
  • Federal tax credit (FTC): 0.3 X $5,000 = $1,500
  • New Mexico STC: 0.1 X $5,000 = $500
  • The combined federal and state credits is $2,000

• Example 2: A 2.0 kW PV system costing $20,000
  • FTC: 0.3 X $20,000 = $6,000
  • New Mexico STC: 0.1 X $20,000 = $2,000
  • The combined federal and state tax credits is $8,000

• Example 3: A 9.5 kW PV system costing $95,000
  • FTC: 0.3 X $95,000 = $28,500
  • New Mexico STC: 0.1 X $95,000 = $9,500
  • This amount ($9,500) exceeds that state tax credit cap of $9,000, so the state tax credit is $9,000)
  • The combined federal and state tax credits is $37,500

- Do not forget to exclude gross receipts taxes in your calculation -

back to list of questions