The annotated statute
The information and comments included in these pages are are not from a professional attorney or tax accountant and are not given as, nor should they be used as, tax or legal advice.
5/4/08: Started the resources page and added some clarifications and revisions in other pages. Also, read that Intersolar, Europe's largest solar expo, is coming to the US in July.
4/19/08: Happy Earth Day!
4/18/08: Some clarifications on language have been obtained and more are pending. Existing and new pages of this website will updated appropriately.
~2/1/08: Site development suffered a major set back due to a hard-drive crash in early January. Recovery has been slow, but progress is being made.
With regrets,
webmaster_[at]_ncretc.org
The State of North Carolina distinguishes between applications of solar technology to residences with respect to the amount of tax credit for which an installation will qualify:
The North Carolina Solar Center provides a detailed document titled Guidelines For Determining Tax Credit For Investing In Renewable Energy Property that describes installation and\or performance requirements for installed systems.
Optimum annual performance of solar technology installations in North Carolina begins when solar collecting components face south and are pitched at latitude (≈36 degrees). Additionally, optimum performance would require that the installation have an unobstructed "view" of the sky from ≈9am through ≈3pm (referred to as "solar window"). Deviation from this ideal will reduce overall annual performance to some degree, but in many cases, performance will still be satisfactory within some deviation from the optimum. Additional collecting capacity can offset losses due to non-optimum orientation for some installations.
In the case of solar thermal technologies (hot water\air), optimizing performance for the winter season may be desirable. In the case solar electric, orienting the array towards the southwest can optimize performance to best match the late afternoon summertime peak energy demand from air conditioning systems. Sophisticated computer software modeling provides the ability to predict monthly and annual performance of a system given any regional insolation levels, spacial orientation, and solar window conditions. Some software extends the performance analysis into economic and environmental analysis. Design analysis and system performance predictions can be integral to system design.
While many North Carolinians would like to invest in renewable energy technologies for their own home, the majority of taxpayers either don't have a favorable site or can't afford the costs of systems under the current residential tax credit opportunity (detailed below). It is, in part, for this reason that the North Carolina General Assembly extended the tax credit to donors to non-profits in 2007, effectively enfranchising all taxpayers to take the credit, at a financial level they are comfortable with, in a project that is close to their concerns and presumably within their community. An exploration similar to this page regarding investing in non-profit renewable energy projects begins here.
In simple residential tax cases, three tax filing factors may be consider when investing in renewable energy property for one's home:
As listed above, the generous 35% tax credit is limited to three different dollar amounts for residential installations depending on technology type and design purpose. Solar thermal for domestic hot water systems (i.e., supplementing a hot water heater with solar, or pool heating systems) qualify for a maximum tax credit of $1400.00. This means that 35% of the cost of the system up to $4000.00 can be returned through the tax credit. Any system cost above $4000.00 will exceed the available credit amount.
Passive Solar construction and Solar Thermal systems for space heating (with, or without domestic hot water) qualify for up to $3500.00 in state tax credits. This equates to a maximum system cost of $10000.00. Passive solar construction requires careful attention to many construction details. Descriptions and worksheets can be found in the guide mentioned above.
Solar electric (i.e., photovoltaic) systems qualify for up to $10500.00 in tax credits. This equates to a total system cost of $30000.00. In 2007, on average, this amount would purchase a ≈3kW (kilowatt) system.
The State of North Carolina permits a taxpayer to reduce their taxes due, all credits combined, by a maximum of 50% in a any one year. In the case of the renewable energy tax credit, the taxpayer can "roll forward" any unqualified credit balance for a maximum of five years. Taxpayers planning on taking the renewable energy tax credit should carefully consider and plan how they will fully qualify the credit - given the factors just mentioned. Some simple hypothetical examples follow in the next section.
Based on the condition mentioned above, that taxpayers can only reduce their North Carolina taxes due by a maximum of 50% in any one year, hypothetical examples can be derived that approximate the minimum taxable income that can qualify the tax credit in a single year, and the minimum taxable income that can qualify the credit over five years.
The "single year" and "five year" time frames represent the shortest and longest possible time frames for qualifying the credit. The shorter the qualifying time the greater one's taxable income must be in order to qualify the credit. So "single year" and "five year" timeframes are the extremes, where annual taxable income below the minimum for the five year case will not be able to fully qualify the credit. The approximations below assumes that the hypothetical taxpayer has purchased a system that equals or exceeds the maximum qualifying system price ($4000.00, $10000.00 and $30000.00 respectively) and they have no other tax credits to claim other than the renewable energy credit. The taxable income was taken from the 2007 tax tables or calculated using the tax rate schedule for taxable incomes greater than $68000.00.
$4k Solar Domestic hot water or pool systems:
$1400.00 x 2 = $2800.00 = minimum taxes due for
qualifying the tax credit in a single year
≥ $41800.00 in taxable income - Single
≥ $43050.00 in taxable income - Married, filing jointly
≥ $41500.00 in taxable income - Married, filing separately
≥ $42400.00 in taxable income - Head-of-household
$10k Passive Solar and Solar hot water for space heating:
$3500.00 x 2 = $7000.00 = minimum taxes due for
qualifying the tax credit in a single year
≥ $ 97775.00 in taxable income - Single
≥ $102742.00 in taxable income - Married, filing jointly
≥ $ 96533.00 in taxable income - Married, filing separately
≥ $100259.00 in taxable income - Head-of-household
$30k Solar electric (photovoltaic):
$10500.00 x 2 = $21000.00 = minimum taxes due for
qualifying the tax credit in a single year
≥ $273469.00 in taxable income - Single
≥ $280782.00 in taxable income - Married, filing jointly
≥ $271641.00 in taxable income - Married, filing separately
≥ $217125.00 in taxable income - Head-of-household
The approximations below assumes that the hypothetical taxpayer has purchased a system that equals or exceeds the maximum qualifying system price and they have no other tax credits to claim other than the renewable energy credit. The taxable income was taken from the 2007 tax tables.
$4k Solar Domestic hot water or pool systems:
($1400.00/5) x 2 = $560.00 = minimum taxes due each year for
qualifying the tax credit over five years
≥ $9300.00 in taxable income - Single
≥ $9300.00 in taxable income - Married, filing jointly
≥ $9300.00 in taxable income - Married, filing separately
≥ $9300.00 in taxable income - Head-of-household
$10k Passive Solar and Solar hot water for space heating:
($3500.00/5) x 2 = $1400.00 = minimum taxes due each year for
qualifying the tax credit over five years
≥ $21800.00 in taxable income - Single
≥ $23050.00 in taxable income - Married, filing jointly
≥ $21500.00 in taxable income - Married, filing separately
≥ $22400.00 in taxable income - Head-of-household
$30k Solar electric (photovoltaic):
($10500.00/5) x 2 = $4200.00 = minimum taxes due each year for
qualifying the tax credit over five years
≥ $61650.00 in taxable income - Single
≥ $63050.00 in taxable income - Married, filing jointly
≥ $60400.00 in taxable income - Married, filing separately
≥ $62400.00 in taxable income - Head-of-household
There remains, through December 31, 2008, a Federal Tax Credit for which some of these systems may also qualify. Solar pool heating and passive solar heating systems do not qualify for the Federal credit. Other solar hot water systems and solar electric (photovoltaic) systems do qualify for the Federal credit, each separately and independently. Those who are installing both types of systems (hot water and photovoltaic) may take the 30% ($2000.00 maximum) Federal credit for each system. While the State credit remains in effect through December 31, 2010, it remains uncertain whether the Federal Credit will be extended or changed.
The Federal Credit includes some requirements regarding certification of installed solar hot water components. The North Carolina Solar Center maintains a FAQ regarding the Federal Solar Incentives.
Federal Tax Law complicates tax calculations because the Federal Tax Code requires collecting federal tax on the amount of the credit recieved back from the state (considered as "subsidized energy financing")... at a rate that depends upon one's Federal tax bracket. This federal tax will presumably be assessed in the tax year(s) that the state credit is written down, i.e. lagging the installation year by one year. The net effect of this convolution is to reduce the Federal incentive from the stated 30% ($2000.00 maximum) for project costs up to ≈ $20000.00. Above this dollar threshold (residential pv systems up to the $30000.00 maximum), the collection of Federal Tax effectively starts reducing even the State credit from 35% to as low as 29.42%. This can be illustrated by examining the effect on net saving from the combination of federal and state tax credits for each system type\state credit cap category ($1400, $3500 and $10500), across each federal tax bracket. Note: This exploration of the impacts of the Federal Tax clauses regarding "subsidized energy financing" and also the impacts of combining Federal and State Renenwable Energy Tax Credits is preliminary and may see revisions over time.
The following is one attempt at explanation of why the state tax credit is taxable at the federal level. Imagine you had an Uncle Nick who wanted you to make an investment so eagerly that he was willing to contribute to your investment with his own money. Basically, he gives you money to put towards the investment. You are under no obligation to provide anything in return for his contribution, but the money MUST go to the specific investment. From a federal tax perspective, the money your Uncle Nick gave you is taxable income. The State of NC is your "Uncle Nick" in this example, and the state tax credit is the money he's giving you toward the investment - aka, "subsidized energy financing".
For solar domestic hot water systems, the greatest net savings (52%+ savings) will occur at a system cost of ≤ $4000.00. This maximizes the available State tax credit (which occurs at a system cost of $4k). This does NOT indicate that solar domestic hot water systems costing $4000.00 are required, sufficient, preferrable or in any way optimal to design need. This is merely an examination of how the tax credit numbers work in this scenario.
Net savings with a system cost of $4000.00 (maximizes $1400 state credit):
System State Federal Net cost pre-Fed-tax
cost Credit Credit on State credit
$4000.00 - $1400.00 - $1200.00 = $1400.00
Net system cost depending on Federal tax bracket (ftb):
15% ftb = 1400.00 x 0.15 = 210.00 fed-tax-due
$1400.00 + $210.00 = $1610.00 net system cost
= 59.75% Savings over $4000.00 system cost
25% ftb = 1400.00 x 0.25 = 350.00 fed-tax-due
$1400.00 + $350.00 = $1750.00 net system cost
= 56.25% Savings over $4000.00 system cost
28% ftb = 1400.00 x 0.28 = 392.00 fed-tax-due
$1400.00 + $392.00 = $1792.00 net system cost
= 55.20% Savings over $4000.00 system cost
33% ftb = 1400.00 x 0.33 = 462.00 fed-tax-due
$1400.00 + $462.00 = $1862.00 net system cost
= 53.45% Savings over $4000.00 system cost
35% ftb = 1400.00 x 0.35 = 490.00 fed-tax-due
$1400.00 + $490.00 = $1890.00 net system cost
= 52.75% Savings over $4000.00 system cost
Net savings with a system cost of $6667.00
(maximizes state $1400 and federal $2000 credit):
System State Federal Net cost pre-Fed-tax
cost Credit Credit on State credit
$6667.00 - $1400.00 - $2000.00 = $3267.00
Net system cost depending on Federal tax bracket (ftb):
15% ftb = 1400.00 x 0.15 = 210.00 fed-tax-due
$3267.00 + $210.00 = $3477.00 net system cost
= 47.85% Savings over $6667.00 system cost
25% ftb = 1400.00 x 0.25 = 350.00 fed-tax-due
$3267.00 + $350.00 = $3617.00 net system cost
= 45.75% Savings over $6667.00 system cost
28% ftb = 1400.00 x 0.28 = 392.00 fed-tax-due
$3267.00 + $392.00 = $3659.00 net system cost
= 45.12% Savings over $6667.00 system cost
33% ftb = 1400.00 x 0.33 = 462.00 fed-tax-due
$3267.00 + $462.00 = $3729.00 net system cost
= 44.07% Savings over $6667.00 system cost
35% ftb = 1400.00 x 0.35 = 490.00 fed-tax-due
$3267.00 + $490.00 = $3757.00 net system cost
= 43.65% Savings over $6667.00 system cost
For solar hot water space heating systems, the greatest net savings (52%+ savings) will occur at a system cost of ≤ $6667.00. This maximizes the available Federal tax credit (which occurs at a system cost of $6667.00). This does NOT indicate that solar hot water space heating systems costing $6667.00 are required, sufficient, preferrable or in any way optimal to design need. This is merely an examination of how the tax credit numbers work in this scenario.
Net savings with a system cost of $6667.00
(maximizes federal $2000 credit):
System State Federal Net cost pre-Fed-tax
cost Credit Credit on State credit
$6667.00 - $2333.45 - $2000.00 = $2333.55
Net system cost depending on Federal tax bracket (ftb):
15% ftb = 2333.45 x 0.15 = 350.02 fed-tax-due
$2333.55 + $350.02 = $2683.57 net system cost
= 59.75% Savings over $6667.00 system cost
25% ftb = 2333.45 x 0.25 = 583.36 fed-tax-due
$2333.55 + $583.36 = $2916.91 net system cost
= 56.25% Savings over $6667.00 system cost
28% ftb = 2333.45 x 0.28 = 653.37 fed-tax-due
$2333.55 + $653.37 = $2986.92 net system cost
= 55.20% Savings over $6667.00 system cost
33% ftb = 2333.45 x 0.33 = 770.04 fed-tax-due
$2333.55 + $770.04 = $3103.59 net system cost
= 53.45% Savings over $6667.00 system cost
35% ftb = 2333.45 x 0.35 = 816.71 fed-tax-due
$2333.55 + $816.71 = $3150.26 net system cost
= 52.75% Savings over $6667.00 system cost
Net savings with a system cost of $10000.00
(maximizes state $3500 and federal $2000 credit):
System State Federal Net cost pre-Fed-tax
cost Credit Credit on State credit
$10000.00 - $3500.00 - $2000.00 = $4500.00
Net system cost depending on Federal tax bracket (ftb):
15% ftb = 3500.00 x 0.15 = 525.00 fed-tax-due
$4500.00 + $525.00 = $5025.00 net system cost
= 49.75% Savings over $10000.00 system cost
25% ftb = 3500.00 x 0.25 = 875.00 fed-tax-due
$4500.00 + $875.00 = $5375.00 net system cost
= 46.25% Savings over $10000.00 system cost
28% ftb = 3500.00 x 0.28 = 980.00 fed-tax-due
$4500.00 + $980.00 = $5480.00 net system cost
= 45.20% Savings over $10000.00 system cost
33% ftb = 3500.00 x 0.33 = 1155.00 fed-tax-due
$4500.00 + $1155.00 = $5655.00 net system cost
= 43.45% Savings over $10000.00 system cost
35% ftb = 3500.00 x 0.35 = 1225.00 fed-tax-due
$4500.00 + $1225.00 = $5725.00 net system cost
= 42.75% Savings over $10000.00 system cost
For solar PV systems, the greatest net savings (52%+ savings) will occur at a system cost of ≤ $6667.00. This maximizes the available Federal tax credit (which occurs at a system cost of $6667.00). This does NOT indicate that solar PV systems costing $6667.00 are required, sufficient, preferrable or in any way optimal to design need. This is merely an examination of how the tax credit numbers work in this scenario.
Net savings with a system cost of $6667.00
(maximizes federal $2000 credit):
System State Federal Net cost pre-Fed-tax
cost Credit Credit on State credit
$6667.00 - $2333.45 - $2000.00 = $2333.55
Net system cost depending on Federal tax bracket (ftb):
15% ftb = 2333.45 x 0.15 = 350.02 fed-tax-due
$2333.55 + $350.02 = $2683.57 net system cost
= 59.75% Savings over $6667.00 system cost
25% ftb = 2333.45 x 0.25 = 583.36 fed-tax-due
$2333.55 + $583.36 = $2916.91 net system cost
= 56.25% Savings over $6667.00 system cost
28% ftb = 2333.45 x 0.28 = 653.37 fed-tax-due
$2333.55 + $653.37 = $2986.92 net system cost
= 55.20% Savings over $6667.00 system cost
33% ftb = 2333.45 x 0.33 = 770.04 fed-tax-due
$2333.55 + $770.04 = $3103.59 net system cost
= 53.45% Savings over $6667.00 system cost
35% ftb = 2333.45 x 0.35 = 816.71 fed-tax-due
$2333.55 + $816.71 = $3150.26 net system cost
= 52.75% Savings over $6667.00 system cost
Net savings with a system cost of $30000.00
(maximizes state $10500 and federal $2000 credit):
System State Federal Net cost pre-Fed-tax
cost Credit Credit on State credit
$30000.00 - $10500.00 - $2000.00 = $17500.00
Net system cost depending on Federal tax bracket (ftb):
15% ftb = 17500.00 x 0.15 = 1575.00 fed-tax-due
$17500.00 + $1575.00 = $19075.00 net system cost
= 36.42% Savings over $30000.00 system cost
25% ftb = 17500.00 x 0.25 = 875.00 fed-tax-due
$17500.00 + $2625.00 = $20125.00 net system cost
= 32.92% Savings over $30000.00 system cost
28% ftb = 17500.00 x 0.28 = 980.00 fed-tax-due
$17500.00 + $2940.00 = $20440.00 net system cost
= 31.87% Savings over $30000.00 system cost
33% ftb = 17500.00 x 0.33 = 1155.00 fed-tax-due
$17500.00 + $3465.00 = $20965.00 net system cost
= 30.12% Savings over $30000.00 system cost
35% ftb = 17500.00 x 0.35 = 1225.00 fed-tax-due
$17500.00 + $3675.00 = $21175.00 net system cost
= 29.42% Savings over $30000.00 system cost
As revealed in the last assessment above, depending on one's Federal tax bracket, there exists a project cost maximum afterwhich the Federal tax credit is entirely offset by the federal taxes collected on the state tax credit. For project costs above this amount the federal taxes collected on the state tax credit will begin to reduce the 35% savings from the state credit.
Formula:
max_federal_credit /
(fed_tax_bracket x
state_tax_credit_percentage}
= Max_project_cost
15% ftb... 2000.00 / (0.15 x 0.35) =
$38,095.24* = Maximum project cost
fully offsetting Federal credit
25% ftb... 2000.00 / (0.25 x 0.35) =
$22,857.14 = Maximum project cost
fully offsetting Federal credit
28% ftb... 2000.00 / (0.28 x 0.35) =
$20,408.16 = Maximum project cost
fully offsetting Federal credit
33% ftb... 2000.00 / (0.33 x 0.35) =
$17,316.02 = Maximum project cost
fully offsetting Federal credit
35% ftb... 2000.00 / (0.35 x 0.35) =
$16,326.53 = Maximum project cost
fully offsetting Federal credit
The 15% ftb example above (*) maximum project cost exceeds the $30000.00 project cost coverable by the State tax credit for PV systems. This is the only ftb where the benefits of Federal tax credit has not been exhausted when maximizing the State tax credit with a $30k PV system. However, qualifying the $10500.00 state tax credit amount over the maximum time period of 5 years requires a minimum taxable income of ≈ $63050.00 per year. It appears that the only filing status in the 15% Federal Tax bracket that could have taxable income that high would be those "Married filing jointly" or "Qualifying widow(er)".
If the system is a Solar Hot Water for space heating with domestic hot water system, the State tax credit is for a system up to $10000.00. The Federal credit offsets the federal taxes on the state tax credit for system costs ≤ the thresholds calculated above. Because the State tax credit extends to system costs > $6667.00 (for PV and solar hot water\space heating systems), the potential savings from the $2000.00 Federal tax credit will be progressively exhausted as the system costs approaches those thresholds.
The State renewable energy tax credits for residential property are significant. Siting, financial resources and planning are important details for investing in a renewable energy system and effectively qualifying the tax incentives. Combined with the Federal tax credits available through the end of 2008, solar domestic hot water systems can be installed with savings up to 59.75% and tax credits fully qualified by most taxpayers within 2 years. PV systems (solar electric) qualify for 35% savings on systems up to $30000.00, and the maximum renewable energy State tax credits can be fully qualified within 5 years for those households with taxable incomes ≥ ≈ $63050.00.