New York State’s Solar Equipment Tax Credit is worth up to $5,000 and can be claimed over the course of up to five years, making it one of the most generous and flexible in the country. Provided you meet the basic eligibility criteria, you may claim the credit regardless of whether you own your system or had it installed under a solar lease/power purchase agreement (PPA). How does the tax credit work if you own your solar system?
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 your NY State tax liability affects when you can claim NY Solar Tax Credit
Tax credits are fabulous things. They are basically a discount on your tax bill, and their value is equivalent the dollar figure associated with them – in this case, 25% the price of your solar energy system, up to $5,000.
However, you can only claim this discount if you owe enough money in taxes in the first place. Given that your state tax bill is most likely significantly smaller than your federal tax bill, you may be wondering if you’ll ever be able to claim the full amount of the credit you are eligible for – even if you roll it over for 5 full years.
The two scenarios below will help you understand how the New York Solar Tax Credit works. As these scenarios illustrate, if you purchase your solar system (either with cash or by financing with a solar loan), you will most likely be able to claim the full value of the credit over the course of five years.
Scenario 1: You purchased your system and you have sufficient NY State tax liability to claim the full credit this year
If you purchased your system (with cash or a loan) and you have sufficient state tax liability that year you can claim the full credit in the first year.
Some examples (Assuming you owe $7,000 in New York State Taxes this year):
- You pay enough for your system to claim your full credit this year:
- If you paid $20,000 for your system, you’ll be able to deduct ($20,000 x 25% =) $5,000 from your tax bill for that year – the maximum potential value of the credit. (The credit would be not be higher even if you paid more than $20,000 for the system.)
- You pay enough for your system to claim your full credit this year (but don’t hit the $5,000 cap):
- If you paid $15,000 for your system, you’ll be able to deduct ($15,000 x 25% =) $4,250 from your tax bill for the year – you will not hit the maximum credit of $5,000.
Scenario 2: You purchased your system and don’t have enough NY State tax liability to claim the full credit this year
If you purchased your system (again, with cash or a loan) and you do not have sufficient tax liability that year (for example, you owe $3,000 in state taxes), you can claim the credit over two or more years (up to five).
Some examples (Assuming you owe $3,000 in New York State taxes this year):
- You pay enough for your system to claim the full $5,000 credit over 2 years:
- If you paid $20,000 or more for your system, your total tax credit eligibility will be $5,000. But because your tax liability for the year is only $3,000, you will only be able to claim $3,000 in the first year. If your state tax liability the following year is at least $2,000, however, you can ‘roll over’ the remainder of the credit from the first year – to ultimately claim a total credit of $5,000.
- You paid enough for your system to claim your full credit over 2 years (but don’t hit the $5,000 cap):
- If you paid $17,000 for your system, your total tax credit eligibility will be $4,250. If your tax liability in the first year is $3,000, you can claim $3,000 in the first year and roll over the remainder ($1,250) into the next year.
What forms do you 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.
How does New York’s Solar Tax Credit affect my eligibility for the federal Investment Tax Credit?
The federal Investment Tax Credit (ITC) is arguably the most important incentive for solar power, no matter which state you live in. The ITC allows you to claim 30% of the net cost of your solar energy system as a credit on your federal taxes. The net cost is the total price of the system minus any rebates and incentives available through your state, city, or utility. (Note that you as the homeowner can only claim the ITC if you own your system – not if you had it installed under a solar lease/PPA.)
Because New York’s Solar Tax Credit lowers the net cost of your solar energy system, it therefore reduces the amount you can claim under the ITC. The ITC was designed this way in order to prevent ‘double dipping’ on tax credits, which are in effect a kind of deferred rebate or discount. (Read more about the intricacies of the ITC.)
An example (Assuming you claimed $5,000 under the New York State Solar Tax Credit):
- You purchased your solar energy system for $20,000 and claimed $5,000 under the New York State Solar Tax Credit. When you do your federal taxes, the most you can claim under the ITC is 30% of $15,000, or $4,500. In effect, this means that the final total cost of your system is therefore $10,500 (almost a 50% discount!)
Want to learn more? EnergySage can help
The best way to know if you are getting a good deal on your solar energy system 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.