The 1603/USDA two-step!

The end of 2011 is a deadline for some of the solar incentives. It makes sense to research now about those incentives and see if now might be the time to move forward with solar!

 

The news is busting with the solar module price decreases because of the increased production of China. The PV module prices have dropped significantly in the past 6 months. Now might be the very best time to install a PV system.

 

Congress is investigating a complaint of “Chinese” dumping of PV panels, and is threatening to put a tariff on Chinese panels. This threat has already started to make the future price of solar to bottom out (and to potentially rise). Now, at the bottom, is the time to see if solar is a good fit for you.

 

On December 31, 2011 there will be a few federal incentives that disappear. The first incentive is the 1603 Treasury Grant which is for 30% of the total cost of any Solar system. After installing a solar system you simply apply with the Treasury department, and within 60 days they send you 30% of the total cost of that system. It is a great program, but it only works for businesses, and it only works until December 31, 2011.

 

The second incentive that will be ending on December 31, 2011 is the 100% Bonus depreciation in year one for any installed solar system. This incentive allows businesses to depreciate the complete basis of their solar system in the very first year. This is huge, because normally real property must be depreciated over it’s complete lifespan (ie 27 years for buildings). What this fast depreciation means to the savy investor can be significant. As an example, if business installs a $100k solar system, then that complete cost can be removed from actual “income”. This lowers the tax bill for the business by $100k. If the business were in the 33% tax bracket (which many are) then the actual taxes for the year would be reduced $33k on April 14th. So, this ethereal concept of depreciation translates over to real savings of cash at tax time.

 

Both of these incentives are for businesses and together they make it very cost effective to install solar. Now is the time to get a bid, while there is still time to do the install during 2011.

 

Another business incentive (for businesses in rural counties) is the USDA reap grant. This incentive is for 25% of the cost of any solar system. As far as everyone knows it will be available again in 2012 starting in May.

 

The one problem that we run in to is how can we get both the 1603 Treasury Grant AND the USDA reap grant simultaneously? It is possible to “double dip”- using this tricky two step move…

 

First, the solar system must be under contract and in process during December 2011. The 1603 Treasury grant has what is known as a “safe harbor” built in to the grant that allows people to start the project in 2011 and still be eligible for the grant if they have either done significant installation, or if they have purchased AT LEAST 5% of the total cost on materials for the system during 2011. If so, they are still eligible for the 1603 Treasury grant until October 2012. This equipment must be set aside and not co-mingled with any other equipment, but actually be strictly for the one install that will be eligible for the 1603 grant.

 

Once those “safe harbor” requirements have been satisfied then the project can be put on “hold” until May of 2012 when you can apply for the USDA reap grant. If you get the USDA grant you will be getting 55% back of the total cost of the system. Unfortunately, the Bonus Depreciation will not be available in this circumstance, because for that to apply the project must be completed before 2012 begins. Of course, once the bonus 100% depreciation has expired all solar systems are eligible for 50% bonus depreciation year accelerated depreciation or MACRS (so you can still capture those tax benefits mentioned above, it just takes you 5 years to do it rather than in year one).

 

Anyway, I hope these strategies will be useful and beneficial to you as you approach the end of 2011. We install solar systems here in Tennessee, so contact us for a proposal to see how many incentives you qualify for.

  

With the dropping of the prices of solar panels, and these last minute incentives, this may be the perfect time for you to finally install that solar system that you have been holding out for!

 

Enjoy the sun,

 

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