Financial incentives for solar installations are available in a growing number of states. Million Solar Roofs partners have questioned whether or not such grants and rebates are taxable at the federal or state level. If these incentives are taxable, it could mean as much as a 42% increase in a photovoltaic (PV) system's net cost for a homeowner relative to a case where the incentive is nontaxable. Although there is strong evidence that residential incentives from utilities are nontaxable but those for commercial consumers are taxable, there are no clear guidelines on the tax treatment of state government rebates or grants. However, given the federal tax incentives available to businesses, and the rules against "double-dipping," the taxation of business incentives may actually help a project's bottom line. This paper presents some of the federal tax code and guidance that may be relevant to determining taxability of incentives, highlights areas of ambiguity and confusion, and makes recommendations for resolving mis issue.
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