New York State’s Solar Equipment Tax Credit is one of a suite of generous tax incentives and rebates for solar panels available in New York State. It is an incredibly generous and flexible incentive, saving you up to $5,000, depending on how much you spend on solar. How and when can you claim the credit if you go solar under a solar lease or power purchase agreement (PPA)? Learn more in this article about solar energy in New York and the tax incentives you can take advantage of.
In this series:
- Part 1: New York Solar Tax Credit basics – How much is it and how do you claim it?
- Part 2: How to claim New York’s Solar Tax Credit if you own your system
- Part 3: How to claim New York’s Solar Tax Credit if you go solar with a lease or PPA
Please note: We here at EnergySage are solar experts, not tax experts! Tax codes are complicated, so consult your tax advisor before deciding what is best for you.
How the NY Solar Tax Credit works with a solar lease or PPA
If you had your solar system installed under a solar lease or PPA, you may claim the New York State Solar Equipment Tax Credit until you reach your calculated cap (worth up to $5,000) or until 15 years have passed – whichever comes first. The credit is equivalent to 25% of your solar energy expenditures (i.e. your payments to the company that owns your system and sells you the power).
The way that the tax credit is calculated and when you can claim it differs slightly depending on your tax liability situation and whether you went solar under a solar lease or power purchase agreement.
New to solar financing? Check out our helpful article: “Solar Leases and Power Purchase Agreements“
1. New York State Solar Tax Credit with a solar PPA
If you go solar in New York State with a solar PPA, you are eligible to claim 25% of your annual solar expenditure for your credit – up to a cap of $5,000 or 15 years have passed.
Below are some examples of how your credit would be calculated if you have a solar PPA:
- You went solar with a $0-down PPA
- You had your system installed under a $0-down solar PPA and paid a total of $1,000 on bills to the company that installed your panels over the course of the first year. You may claim a $250 credit (25% of $1,000) for that year – provided that you have at least $250 in tax liability. If you pay $250 for solar again each of the subsequent fifteen years, you will be able to claim a total of $3,750 (or $250 every year for 15 years).
- You made a custom down-payment when you signed up for your PPA
- You made a custom $2,000 down-payment on your solar PPA deal to secure a lower solar rate long-term, paying $800 per year in solar costs. In the first year, you can claim $700 (25% of $2,800) in credits (provided your state tax liability is at least $700), and $200 (25% of $800) the next year. Assuming you pay $2,800 for solar the first year and $1,000 each subsequent year, you’ll be able to claim a total of $3,700 over 15 years.
2. Examples of how the New York State Solar Tax Credit works with solar lease
If you go solar in New York State with a solar lease, you are eligible to claim 25% of the total value of the lease over the lease’s contract period. Unlike claiming the credit with a solar PPA, you will therefore be able to know from the outset exactly how much your total credit will be worth. From that point on, your credit will be equal to your full solar expenditure for that year – until you hit your credit cap or fifteen years (whichever comes first).
Below are some examples of how your credit would be calculated if you have a solar lease.
- You went solar with a $0-down solar lease
- You had your system installed under a $0-down solar lease whose total value is calculated at $15,000 over 15 years. Therefore the total credit amount you are eligible for is $3,750 (25% of $15,000). You paid a total of $1,000 on bills to the company that installed your panels over the course of the first year. You may claim an $1,000 credit for that year (provided that you have at least $1,000 in state tax liability). If your solar expenditure continues to be $1,000 annually, you may claim the credit until the $3,750 is ‘maxed out – $1,000 for each of the first three years and then $750 in the fourth year.
- You made a custom down-payment when you signed up for your solar lease
- You made a custom $2,000 down-payment on your solar lease/PPA deal to secure a lower solar rate long-term, paying $800 per year in solar costs. The total value of your solar lease contract over 15 years is calculated at $14,000, so the total credit you would be eligible to claim is $3,500 (25% of $14,000). In the first year, you will be able to claim a $2,800 credit in (provided your state tax liability is at least $2,800). After that you’ll have $700 of credit remaining. You can claim this $700 the following year because your solar costs for the year ($800) are greater than that your remaining credit. (N.B. – If you do not have enough state tax liability to claim all these credits in the first two years, you may roll your credits over into the following year for up to five years.)
Remember that it may be possible for you to claim a larger credit if you finance your system with a solar loan than with a solar lease/PPA – all while reaping many of the same benefits (including paying $0-down). Learn more: “Should you buy or lease your solar panel system?“
What forms do I need to claim the New York Solar Tax Credit?
In order to claim the Solar Tax Credit, you will need to fill out form IT-255 when you file your taxes. You can find the latest version of form IT-255 here on Tax.ny.gov.
What about the Federal Investment Tax Credit?
New York’s Solar Tax Credit is a very flexible and forward-thinking incentive program for solar energy systems – even allowing you to claim the credit if you are not the owner of the system. The same is not true for the federal Investment Tax Credit (ITC), which is a credit equivalent to 30% the net cost of your solar energy system – with no cap.
This is why the ITC is arguably the most important nation-wide incentive for solar. However, with the ITC, if you go solar under a solar lease or PPA, it is not you but rather the company that owns your system who may claim the credit. In an ideal world, the company that owns the system will pass the savings through to you in some way, but they are not obliged to.
Want to learn more? EnergySage can help
The best way to find a good deal on solar is to shop around. Our job is to make it easy for you to compare offers from a range of installers – and to understand how incentive programs like NY’s Solar Tax Credit contribute to the financial case for going solar. Get started with an instant estimate or sign up to shop on our New York Solar Marketplace today.