Solar Consultants: Tax Credits and Loans
Home Water Heating Pool Heating Radiant Heating Library Events


NC state credits | Federal credits and loans | Other incentives

Get 65% off the cost of renewable energy equipment, and even more benefits for commercial installations.

Disclaimer: The following information has been gleaned from the tax forms and instructions published by the NC Department of Revenue and the IRS. Our interpretation of those has not been reviewed by or endorsed by the Department of Revenue or IRS. We strive to update and maintain this information, but tax laws, forms, and link URL's change continually. Please let us know if we need to correct or clarify anything you read here.

NC has some of the best tax credits in the U.S.
The following links and information will help you with residential tax credits and to forms involved in filing. For commercial installations there are additional tax advantages, such as accelerated depreciation, which are mentioned, but not covered in detail in this document. The best starting point to understand the NC credits is the NC Department of Revenue's Guidelines For Determining Tax Credit For Investing In Renewable Energy Property. [This link takes you to the guide in .html form. The guide and NC tax forms can also be had in .pdf format from the NC Solar Center's site.] This excellent document details the categories of installations and the maximum credits in each, and exactly which items of equipment qualify and which do not. No system documentation needs to be sent with the tax forms, but you should keep a copy of your equipment invoice and type of collector(s) installed so that you can provide the SRCC or other rating information if requested. Note that in calculating tax credits the total cost of the installation is used, including parts, labor, sales tax, building permit, and any other subcontractor cost (such as for wiring) that are directly related to the solar installation and not to other aspects of construction or renovation. Equipment that encompasses both solar and non-solar elements -- a Phoenix hybrid solar/gas water heater, for example -- fall in a bit of a gray area since you don't have a way to separate out the cost of the gas-fired portion. Please call or write us if you need help with cost interpretation.

The gist of the credits:

"...35% of the cost of renewable energy property constructed, purchased, or leased by a taxpayer and placed into service in this State during the taxable year. For residential property, the ceilings are:

Credit does not apply to expenditures for maintenance but does cover additions to the heating capacity (e.g., adding collectors) of an existing system.

If the credit serves a single-family dwelling it can be taken in one year or spread over as much as five years. If it does not serve a single-family dwelling it is taken over five equal installments beginning with the year the equipment went into service. Note that the credit maxima are per dwelling unit, so a six-unit apartment with solar water heating could be eligible for as much as $8400 credit.

For non-residential property the credit ceiling is $2,500,000 per installation.

Back to the top

How do you file for the credits?

 The forms you need (for residential or commercial) are:

  1. NC-478G "Investing in Renewable Energy Property". One NC-478G is filled out for each location. This is now available for download at the corporate forms page, or you can get one by calling the forms request number (919) 715-0397. Be prepared to ask for this form by number; the workers manning the telephones do not seem to know it exists. Once you get it, use the Guide (mentioned above) to determine the eligible cost(s) to enter and follow the form through to come up with the credit. This amount is next entered on...
  2. NC-478 "Summary of Tax Credits Limited to 50% of Tax", Part 1, Line 7. Here your credit is summed with other credits and then compared to ensure the credit does not come to over 50 percent of your total tax liability, and how you will allocate the credit if it is to be spread over several years.

    For individual taxpayers the result from NC-478, line 43 belongs on...

  3. D-400TC "Individual Tax Credits" Line 35: "Business Incentive and Energy Tax Credits". The total from line 36 is entered on your basic tax form...
  4. D-400, line 17.

    For corporate taxpayers, the result from NC-478 goes onto CD-425 "Corporate Tax Credit Summary," line 10. The result from this form goes to either CD-401S (for S corporations), or CD-405 (for C corporations).

If you wish to request the forms be mailed to you instead of downloading and printing them the Department of Revenue form request web page is http://www.dor.state.nc.us/request/

Back to the top

Personal: 30% Income Tax Credits

The 30% credit for solar (not including swimming pool heating) and for certain other high-efficiency appliances (including many instantaneous gas-fired water heaters) is filed on form 5695, available at: http://www.irs.gov/pub/irs-pdf/f5695.pdf.

No system documentation needs to be sent with the tax form, but you should keep a copy of your equipment invoice and type of collector installed so that you can provide the SRCC or other rating information if requested. The former $2,000 cap on solar credit was removed in the American Recovery and Reinvestment Act of 2009. In addition, that act increased the appliance credits from 10% to 30%. The tax credits that were for a specific dollar amount (ex: $300 for a Tankless Water Heater), have been converted to 30% of the cost. The maximum non-solar credit has been raised from $500 to $1500 for the two years ending 12/31/2010.

There has been concern expressed that the NC credit may be considered federal taxable income for NEXT year; that is, you may be required to pay federal income tax on the “income” represented by the state tax credit. But the conclusion of our accountant is:

"A state credit would only be taxable to you on the federal return if you had previously taken it as a deduction on the federal return. If … you receive a credit that simply reduces your NC income tax liability, it is not taxable on the federal return.” If you itemize deductions, please see the instructions for Schedule A, line 5.

Commercial: 30% Investment Tax Credit/Grant

Any commercial entity which invests in or purchases qualified solar energy property can take a credit or grant. Only commercial entities are eligible. The Federal definition of energy property is: 1. Equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat (but not to heat a swimming pool). The main applicable paperwork for the credit is IRS Form 3468. There are also Instructions for Form 3468. All you have to know about your renewable energy equipment is its cost, which is entered in Part III.

The American Recovery and Reinvestment Tax Act of 2009 provides the alternative of taking a 30% Section 1603 grant in lieu of the credit.

Back to the top

Investment Tax Credit Frequently Asked Questions:

Q. Are there limitations on the amount of credit I can take?
A. In any one year you may not take any tax credit that exceeds the total tax owed. The allowable tax credit for any one year is also limited to $25,000, plus 25% of the total tax remaining after the credit is taken. For example, if you are allowed the full 10% credit for an investment of $500,000, which is $50,000, and you owe $100,000 in taxes, you may take $25,000 plus 25% of the remaining $75,000 ($18,750), which equals $43,750. Credit not allowable in one year may be taken in other tax years (see below).

Q. Do I have to use the credit in the year the purchase or investment is made?
A. No. If you cannot use part or all of the credit because of tax liability limitations, you may carry any excess back to each of the three preceding years, beginning with the earliest. If you have an unused credit after carryback, it may be carried forward to each of the 15 years after the year of the credit.

Q. Are there special tax forms needed to take the credit?
A. Yes. You will need form 3486 (Investment Credit), and you may need form 3800 (General Business Credit) and their corresponding instruction forms.

Additional Info: See DSIRE website and contact your accountant or tax professional.

Accelerated Capital Depreciation for Solar Energy Property
Changes in 2003 tax code gave stronger depreciation bonuses for solar. Prior to the 5-year accelerated depreciation, a business gets 50% depreciation in the first year.

The US Government offers a 5 year Accelerated Capital Depreciation for any commercial entity which invests in or purchases qualified solar energy property. Only commercial entities are eligible. This is part of the US Code Citation: 26 USC Section 168.

Available to: any commercial entity in all 50 states is eligible
Eligible Technology: Photovoltaics, Solar Hot Water, and Energy Storage equipment
Additional Info: the United States Government Internal Revenue Service.

USDA Rural Business Enterprise Grants

This grant program is to facilitate the development of rural small business enterprises. Various grants cover equipment installation, energy audits, and feasibility studies.

The programs are designed to assist farmers, ranchers and rural small businesses that are able to demonstrate financial need. All agricultural producers, including farmers and ranchers, who gain 50% or more of their gross income from the agricultural operations are eligible. Small businesses that are located in a rural area can also apply.
Eligible Technology: Most rural projects that reduce energy use and result in savings for the agricultural producer or small business are eligible as energy efficiency projects. These include projects such as retrofitting lighting or insulation, or purchasing or replacing equipment with more efficiency units. Eligible renewable energy projects include projects that produce energy from wind, solar, biomass, geothermal, hydro power and hydrogen-based sources. The projects can produce any form of energy including, heat, electricity, or fuel. For all projects, the system must be located in a rural area, must be technically feasible, and must be owned by the applicant.
Additional Info: Local USDA Rural Development Offices; or on the web at: http://www.usda.gov

Small Business Administration 7A+02 Energy Loan Program

The Small Business Administration offers loan guaranties for up to $750,000 or 75% of loan amount or up to 80% of loan amounts under $100,000. Maximum interest rate is prime plus 2.75%. Terms for working capital is 7 years, equipment is 10 years, and building is 25 years.

Available to: Small Businesses throughout the United States
Eligible Technology: Photovoltaics, Solar Thermal Systems
Additional Info: US Small Business Administration. Contact your local SBA office. Or on the web at: http://www.sba.gov/financing

Some electric companies offer cash incentives in exchange for the renewable energy credits allocated to your system. For example, Piedmont Cooperative offers $500 for a customer who installs a solar water heater, even if they had been heating it with gas. (Contact Jay.Berry@pemc.org for details.) Progress Energy is conducting a study of certain customers who have electric water heating and install solar and will pay $1,000 to each eligible participant. Public Service NC natural gas company offers a $100 incentive to those who install high-efficiency water heaters and furnaces. To check latest updates and especially for those who are not in North Carolina, go to the Database of State Incentives for Renewable Energy, maintained by the NC Solar Center.

Back to the top

Home Water Heating Pool Heating Radiant Heating Library Events About SC

Last modified: 31 March 2010 9:33 am