In August the Energy Policy Act of 2005 was signed into law, creating a new 30% federal tax credit for solar electric and solar hot water systems. The Solar Energy Industries Association (SEIA, www.seia.org) prepared a Q&A and chart to summarize provisions of the new tax credit legislation.

1. What are the dates of the credit? Is it applicable to existing systems?

The credits become available for systems that are "placed in service" between January 1, 2006, and December 31, 2007. If the installation is on a new home, the "placed in service" date is the date of occupancy by the homeowner. Systems that have already been installed are not eligible.

2. What about systems that have been purchased but not installed?

Should you sell or buy a system and even start work this year, but do not complete "original installation" of the system or "place it in service" until January 1, it will qualify for the credit.

3. Can this credit be applied to capacity additions? (i.e. I have a 1.5 kW system and I want to add 1.5 kW more.) Similarly, can I apply this credit to used equipment going into a new installation?

This is not entirely clear at present. However, the language would suggest that both scenarios are allowed - the credits apply to the amount of expenditure on solar energy property in a given year. SEIA will work with the IRS to develop regulations favorable to the solar industry and pass on additional information as it becomes available.

4. How does the residential cap on expenditures operate?

An individual can take the 30% credit up to a $2,000 cap for photovoltaics, while also taking the credit up to a separate $2,000 cap for solar water heating. The credit may be carried over to future years. Business entities have no cap on the total credit amount, provided they have a sufficient tax liability. Businesses have two years in which to take the credit.

5. How does the credit work with existing state credits or utility incentives?

The credit applies to the basis remaining after any state or utility incentives available to the taxpayer have been taken. Example: a $10,000 system that receives $5,000 in state incentives from Wisconsin's Focus on Energy program would be eligible for a $1,500 Federal credit.

6. Are there any changes to the business solar tax credit other than percent?

 The business solar tax credit will continue to be administered as before; the only change is the percentage increase to 30%. Operation and legal technicalities of the business credit are well established. An accountant or tax professional familiar with these rules should be able to inform you on any specific issues.