Solar Market Development Tax Credit - Frequently Asked Questions

ECMD Contact: Mark Gaiser
(505) 476-3318
mark.gaiser@state.nm.us

Please scroll down for much more information on the Solar Tax Credit and how it works. A tax credit brochure and fact sheet are also available.
What is the Solar Tax Credit?
How do I apply for and receive the Federal Solar Tax Credit?
Where can I get more information on the Solar Tax Credit?
Where can I find solar systems, suppliers and installers?
Why invest in a solar system?
What solar systems qualify for the Solar Tax Credit?
What about solar tax credits for businesses?
What businesses are allowed to take the Solar Tax Credit?
What other solar investment incentives are available?
How much will my solar system cost?
Where can I get general information on solar systems?

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

Sample tax credit calculations

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 personal income tax forms.
  • The federal tax credit for a solar PV or thermal system is 30 percent of the cost of the system.

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

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

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

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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 credit 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.

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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.

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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, 2019 and ramps down to zero after December 31, 2021.
  • Taxpayers who own businesses or agricultural enterprises and file an individual New Mexico income tax return were eligible for the New Mexico Solar Tax Credit for their businesses. The state tax credit was 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.
  • 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 9.5 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.

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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 $4 per watt (late 2016). An average home would need a four-kilowatt system, at about $16,000, to handle all daily needs. By using federal tax credits, the net cost of such a system would be reduced to $11,200. 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 $50,000. 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.

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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.

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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
  • Example 2: A 2.0 kW PV system costing $6,000
    • FTC: 0.3 X $6,000 = $1,800
  • Example 3: A 9.5 kW PV system costing $28,500
    • FTC: 0.3 X $28,500 = $8,550

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

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