Small Business Personal Solar Property Credit
Presented by Paystrubmakr.com By John Wolf and Tom Collen CPA
Personal Solar Property Credit §25D
For property placed in service after 2005 and before 2017, §25D provided a personal tax credit for the purchase of qualified solar electric property, qualified solar water heating property, fuel cell plants (up to $500 for each one-half kilowatt of electric capacity), small wind energy property and qualified geothermal heat pump property that was used exclusively for purposes other than heating swimming pools and hot tubs.
The credit was equal to 30% of qualifying expenditures, with a maximum credit of $2,000 with respect to qualified solar water heating property. There was no cap with respect to the eligible solar electric property.
Note: Since 2009, the American Recovery & Reinvestment Act removed the
$2,000 cap on the 30% credit for a solar thermal and geothermal property, as well as the $4000 cap on small wind property. The ARRA also eliminated the prior law basis reduction for subsidized energy financing.
Section 25D was scheduled to expire in 2017 but, the PATH act extended this provision for solar electric property and solar water heating property placed in service before January 1, 2022. However, the extension did not apply to the other residential energy-efficient properties placed in service after December 31, 2016.
Thus, for qualified solar electric property and qualified solar water heating
the property, the credit is 30% of the cost of the property placed in service in 2017,2018, or 2019, then is reduced to 26% of the cost of property placed in service in 2020, and to 22% of the cost of property placed in service in 2021.
Renewable Energy Production Tax Credit – §45 & §48
Under §45, an income tax credit is allowed for the production of electricity from qualified energy resources at adequate facilities (the “renewable electricity production credit”). To be eligible for the credit for electricity produced from accepted energy resources at qualified facilities must be sold by the taxpayer to an unrelated person.
Note: The credit is limited to electricity produced during the credit period
(usually ten years) that starts on the date that the facility is originally placed in service.
Qualified energy resources comprise wind, closed-loop biomass, open-loop bio-
mass, geothermal energy, solar energy, small irrigation power, municipal solid waste, eligible hydropower production, and marine and hydrokinetic renewable energy. Qualified facilities are, generally, facilities that generate electricity using adequate energy resources.
Plug-In Electric Drive Motor Vehicle Credit – §30
Under §30D, a credit is available for each qualified plugin electric drive motor vehicle placed in service after 2009. This credit was scheduled to terminate after
2014 but was made permanent by ARRA.
The credit is equal to:
(a) $2,500, plus
(b) $417 for a vehicle drawing propulsion energy from a battery with at least
5-kilowatt hours of capacity, plus
(c) $417 for each additional kilowatt-hour of magnitude above 5-kilowatt
hours, up to a maximum aggregate of $5,000.
In December 2014, the Tax Increase Prevention Act of 2014 (H.R. 5771) retro-
actively conformed provisions related to reductions to the basis, other credits and deductions for the qualified plugin electric vehicle credit, the qualified plugin electric drive motor vehicle credit, the alternative motor vehicle credit, and the alternative credit for fuel vehicle refueling property.
Advanced Energy Investment Credit – §48C
Effective February 17, 2009, the American Recovery & Reinvestment Act established a 30% credit for investment in qualified property used in a qualified advanced energy manufacturing project that re-equips expands or establishes a
manufacturing facility for the production of certain types of advanced energy
property (§48C). In December 2014, the Tax Increase Prevention Act of 2014
(H.R. 5771) clarified that the amount subject to the limitation in §48C(b)(3) is
the amount which is treated as a qualified investment.
The credit is not allowed for any investment if any of the following credits are al-
(1) the §48 advanced coal project credit(2) the §48 energy credit, or
(3) the §48B qualifying gasification project credit.
Business Income of Individuals – 20% Deduction
Firms organized as sole proprietorships, partnerships, limited liability companies, and S corporations are generally treated for Federal income tax purposes as “pass-through” entities subject to tax at the individual owner or shareholder level rather than the entity level.
Because of the TCJA, from 2018 through 2025, sole proprietors, S corporation
shareholders, and partners in a partnership are entitled to a deduction equal to
20% of their allocable share of business income (§199A). The deduction does not reduce adjusted gross income, nor is it an itemized deduction, but it is available to individuals who itemize and to those who claim the standard deduction. For partnerships and S corporations, the §199A deduction is applied at the partner or shareholder level.
There are several limitations, including:
(1) the deduction cannot generally exceed 50% of the taxpayer’s share of
the W-2 wages paid by the business or, in the alternative, 25% of the tax-
payer’s shares of the W-2 wages paid by the company, plus 2.5% of the un-
adjusted basis (the original purchase price) of property used in the pro-
duction of income (§199(b)(2)), and
Note: The W-2 wages/property limit does not apply if the taxpayer’s taxable
revenue is equal to or less than a $157,500 ($315,000 if married filing jointly).
If the taxpayer’s income is more than $157,500 ($315,000 if married filing
jointly) but not more than $207,500 ($415,000 if married filing jointly), the
W-2 wages/qualified property limit can be phased in (see §199A(b)(3)(B) for
(2) certain personal service businesses ( i.e., accountants, doctors, law-
yers, etc.) are not eligible for the deduction unless their taxable income is
less than $157,500 ($315,000 if married filing jointly).
The deduction is calculated using a complex formula. Under §199A(a),
a noncorporate taxpayer can claim an annual deduction equal to the sum of:
(1) the lesser of:
a) the taxpayer’s combined qualified business income (as defined by
Note: Qualified business income of a business is the net amount of the business’s qualified items of income, gain, deduction, and loss effectively connected with the conduct of a trade or business within the U.S.
(b) 20% of the excess of the taxpayer’s taxable income over the sum of:
(i) the taxpayer’s net capital gain (as defined by §1(h)), and
(ii) the taxpayer’s aggregate qualified cooperative dividends; plus
(2) the lesser of:
(a) 20% of the taxpayer’s aggregate qualified cooperative dividends; or
(b) the taxpayer’s taxable income minus the taxpayer’s net capital gain.
However, in no event can the deduction be more than the taxpayer’s taxable
income (reduced by net capital gain) for the tax year.
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