U.S. financial bailout includes improved solar tax credits, which expand opportunities for Hawai‘i’s businesses and families. “… a great rate of re-turn… one of the safest investments out there.”Maui companies did not wait long to take advantage of extended and improved solar tax credits included in the October 2008 Emergency Economic Stabilization Act (EESA), commonly referred to as a bailout of the U.S. financial system. The $700 billion legislation was designed to address the current financial crisis playing out across headlines and in thousands of homes and businesses throughout the nation.
Last week, a packed room at Café O’Lei at the Dunes at Maui Lani Golf Course (see page 3 photo) was the setting for a solar tax credit conference held by the Kahului CPA firm of Levin & Hu. Billed as their “1st Annual Solar Tax Credit Conference,” over 100 people registered and heard Doug Levin, co-owner of the firm, outline new and expanded solar tax benefits contained in the legislation for both residential and commercial property owners.
Driving attendance were changes affecting solar tax credits in the EESA. Under previous federal legislation, the 30 percent tax credit for solar systems maxed out at $2,000 and was due to expire at the end of this year. In addition, under the previous law, solar tax credits could not be applied to the Alternative Minimum Tax (AMT).
Also presenting at the conference was Brad Albert, president of the Hawai‘i PV Coalition, a nonprofit organization composed of businesses and homeowners, which was formed to actively promote solar electric energy across the Hawaiian Islands.
The Hawai‘i PV Coalition points out that a typical residential 3kw system that has a cost of approximately $27,000 will be now be eligible for $9,000 ($27,000 divided by 30 percent equals $9,000) in federal tax credits, as opposed to the current limit of $2,000.
According to Levin, the EESA bailout was significant in removing the previous $2,000 limit on residential solar energy tax credits, but just as important is that solar voltaic energy credits can now be applied against the AMT for both residential and commercial properties.
Material distributed by Levin & Hu describes the AMT as “a different method for calculating tax that acts as a ‘floor’ under regular tax liability.” Congress originally passed AMT legislation to ensure that wealthy individuals did not escape paying taxes on their income, setting in place a formula for determining what the minimum tax should be for a taxpayer.
While the AMT was designed to apply to the wealthiest of taxpayers, it has remained unadjusted for inflation, and—unless Congress acts to delay the increase—applies to an increasing number of middle-class taxpayers each year. This is the first time that Congress has passed a law that reduces the AMT when income is used to install a solar voltaic system.
There are important exceptions: for example, one cannot apply for tax credits for a PV system used to heat a pool, and the final IRS regulations for the tax credit are still being formulated. Before making a decision to proceed with the installation of a PV system, it’s a good idea to check with your CPA, accountant or other tax professional. A call to MECO is also a good first step.
According to information from the Hawai‘i PV Coalition, Hawai‘i is more dependent on imported fossil fuel than any other state in the nation, even though the state uses more thermal solar systems per capita than any other state.
To speed the reduction in fossil fuel dependence and to increase to use of solar electric application, the PV Coalition has been active in securing legislation to raise the state business and residential tax amounts for PV applications, adopting renewable Energy Portfolio standards and increasing the size of the PV and other renewable energy systems to qualify for net metering, among other activities.
Net metering occurs when a residential or commercial PV solar system is installed by a homeowner or business that generates more electricity than the property can consume. The excess electricity can then be sold to Maui Electric Company (MECO) and the price paid by MECO for that electricity is shown as a reduction in the monthly electric bill.
One business to recently enter into such an agreement is Gammie Home Care in Kahului. According to co-owner Paul Gammie, his business saw a 75 percent reduction in their energy bill in the first month.
Other businesses and organizations that have taken advantage of this opportunity to reduce their electricity bill are the Maui Economic Development Board in Kihei, Wailuku Storage and the Realtors Association of Maui in Kahului. Cameron Center in Wailuku is preparing to put a system in place this year.
Existing Hawai‘i residential solar tax credit provisions allow a 35 percent tax credit, limited to $5,000 annually per residential property and per taxpayer.
In Hawai‘i, commercial properties are eligible for a 35 percent tax credit, a 4 percent Capital Goods Excise tax credit, a $500,000 limit on commercial projects and a five-year Modified Accelerated Cost Recovery System (MACRS) depreciation schedule.
The Modified Accelerated Cost Recovery System (MACRS) is the current method of accelerated asset depreciation required by the U.S. income tax code. Under this system, all assets are classified into various categories that then determine the number of years over which an asset’s cost is recovered.
Commenting on the expanded opportunities now available to Hawai‘i’s businesses and families, Albert said, “Solar just got a little bit brighter. People are at a point where they don’t know where to invest their money… investing in solar has a great rate of return and is one of the safest investments out there right now.”