What purchases qualify for South Carolina's Solar Energy Credit, and how much credit can a taxpayer claim?

Plain-English summary

South Carolina Revenue Ruling #24-2 explains the state's Solar Energy Credit under § 12-6-3587. The credit covers the purchase and completed installation of a qualifying solar energy system, small hydropower system, or geothermal machinery and equipment. Qualifying costs can include the equipment, installation labor, permitting and inspection fees, developer fees, balance-of-system equipment, and sales tax on eligible expenses. Land, structural building elements, extended warranties, interest, loan-origination fees, and other financing costs do not qualify.

The credit equals 25% of qualifying costs. In each tax year, the amount used is limited to the lesser of $3,500 per facility or 50% of the taxpayer's South Carolina income tax liability. It is nonrefundable, and unused credit may be carried forward for up to 10 years. A taxpayer with qualifying systems at two facilities could have a $7,000 facility-based ceiling, but still cannot exceed 50% of total tax liability for that year.

Ownership matters. A solar or small-hydropower system must be installed in or on a South Carolina facility owned by the taxpayer, and the taxpayer must purchase rather than lease the system. A rental-property owner may qualify for solar or small hydropower installed on property it owns. Geothermal machinery and equipment must be installed at the taxpayer's owned primary South Carolina residence and meet the stated federal Energy Star requirements.

The South Carolina and federal credits have different requirements. Federal eligibility does not establish South Carolina eligibility. The ruling specifically says items such as energy-efficient appliances, light fixtures, weatherization, roofing products, and home-energy audits may qualify federally but not for this state credit.

What this means for you

Homeowners and property owners

Confirm that you own both the system and the South Carolina facility. Leased systems and typical community-solar arrangements do not qualify because the taxpayer generally does not own the installed system or the facility where it sits. Nonresidents may qualify for solar or small hydropower on South Carolina property they own if they have South Carolina taxable income and liability, but they generally cannot qualify for geothermal equipment when their primary residence is outside the state.

Buyers using financing or incentives

Financing the purchase does not prevent the credit if you are contractually obligated for the full system cost. Exclude interest, insurance, origination fees, and extended warranties. Utility or manufacturer rebates excluded from taxable income reduce qualifying system cost; taxable incentive payments do not. Federal tax credits do not reduce the South Carolina credit.

Tax return preparers

Claim the credit after installation is complete, using all qualifying purchase and installation expenses, including eligible expenses paid in an earlier year. Calculate it on Schedule TC-38, then report code 038 on SC1040TC or SC1120TC and include Schedule TC-38 with the return. The ruling says no South Carolina basis reduction is required for the credit amount.

Common questions

Q: Do rooftop solar panels qualify?
A: Residential rooftop solar panels are listed as qualifying. Related controls, tanks, pumps, heat exchangers, wiring, inverters, and mounting equipment qualify when used directly and exclusively for the eligible system.

Q: Can a taxpayer claim the credit for a leased solar system?
A: No. The taxpayer did not purchase the system, and the lessor generally does not own the facility where it is installed.

Q: When is the credit claimed?
A: In the year installation is completed. If work begins in one year and finishes the next, all qualifying costs are used for the credit claimed with the later year's return.

Q: What happens if the property is sold?
A: The taxpayer may continue using an existing carryforward. Section 12-6-3587 does not require recapture or end the carryforward because the property is sold, but the credit itself cannot be transferred to the buyer.

Q: Does the credit expire?
A: The ruling says there is no repeal date for solar energy or small hydropower systems. The geothermal provisions are scheduled for repeal on January 1, 2032.

Citations and references

• S.C. Code Ann. § 12-6-3587 — Solar Energy Credit
• I.R.C. § 136 — treatment of qualifying utility subsidies
• S.C. Code Ann. § 12-6-3775 — separate Solar Energy Property Credit discussed in Question 22

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR24-2.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC REVENUE RULING #24-2
SUBJECT:

Solar Energy Credit
(Income Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

REFERENCES:

S.C. Code Ann. § 12-6-3587

AUTHORITY:

S.C. Code Ann. § 12-4-320
S.C. Code Ann. § 1-23-10(4)
SC Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public.
It is an advisory opinion issued to apply principles of tax law to a set
of facts or general category of taxpayers. It is the Department’s
position until superseded or modified by a change in statute,
regulation, court decision, or another Department advisory opinion.

S.C. Code Ann. § 12-6-3587 provides a credit against a taxpayer’s income tax liability for the
purchase and installation of a qualifying solar energy system, small hydropower system, or
geothermal machinery and equipment. This credit is generally known as the “Solar Energy
Credit.” The purpose of this advisory opinion is to answer frequently asked questions about this
credit.

1. Which purchases qualify for the Solar Energy Credit?
   The Solar Energy Credit is available for the purchase and installation of a solar energy
   system, small hydropower system, or geothermal machinery and equipment for heating
   water, space heating, air cooling, energy-efficient daylighting, heat reclamation, energyefficient demand response, or the generation of energy in or on a facility in South
   Carolina and owned by the taxpayer. The solar energy system includes all controls, tanks,
   pumps, heat exchangers, and other equipment used directly and exclusively for the solar
   energy system.
   The following chart provides examples of purchases that do and do not qualify for the
   credit. Because there is continual development of new products and technology in this
   area, this is not a comprehensive list of all products that give rise to the credit. This
   Revenue Ruling is meant to provide guidance on the most common types of systems and
   products available as of the date of publication. Systems and equipment must meet
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certification requirements and licensing standards in order to qualify for the credit 1.
Taxpayers should check the specifications of the products they are purchasing and, if
necessary, ask a trusted contractor, plumber, or electrician for product specifications to
help determine if the products being installed will qualify for South Carolina credits.
Visit solar.sc.gov, a resource provided by the South Carolina Energy Office, to find more
information about solar energy systems and consumer protection resources.
System use

Examples of purchases that
qualify for the credit

Examples of purchases that do
not qualify

Heating water

Solar water heater; electric
water heater installed as part
of solar energy system

Heat pump water heater; tankless
gas water heater; gas storage
water heater

Space heating

Geothermal heat pumps;
electric heating system
installed as part of solar
energy system; active solar
heating systems

Gas furnaces; wood and pellet
heating; air source heat pump;
electric or natural gas heat
pumps; programmable
thermostats

Air cooling

Geothermal heat pumps; solar
powered fans; electric air
conditioning system installed
as part of solar energy system

High efficiency air conditioning
systems; air source heat pump;
programmable thermostats

Energy-efficient
daylighting

Windows or skylights used
for natural lighting and
temperature regulation 2

Storm windows and doors;
insulation and weatherstripping

Heat reclamation

Drain water heat recovery
system connected with solar
water heaters; geothermal
heat pump

Insulation materials

Energy-efficient Meters, sensors, and controls
demand response installed as part of home solar
energy system; 100% solar
battery storage connected
with solar energy system

Non-solar battery storage
technology; meters, sensors, and
controls to monitor energy usage
but not connected with solar
energy system installation

Generation of
electricity

Wind energy property; biomass
fuel property; fuel cell property;
electric panel upgrades

Residential rooftop solar
panels; small hydropower
system

See Question 3 for certification and licensing requirements.
Daylighting, Office of Energy Saver, Office of Energy Efficiency and Renewable Energy, U.S. Department of
Energy (February 1, 2024), https://www.energy.gov/energysaver/daylighting.
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2. Which expenses qualify for the Solar Energy Credit?
The credit is based on the costs incurred by the taxpayer in the purchase and installation
of the eligible system. This includes:

1. Total cost of equipment, machinery, panels, pumps, tanks, controls, heat
   exchangers, etc.;
2. Labor costs for preparation, assembly, and installation;
3. Permitting fees, inspection costs, and developer fees;
4. Balance-of-system equipment such as wiring, inverters, and mounting equipment;
   and
5. Sales tax on eligible expenses
   The taxpayer should not include any costs incurred for land or structural elements of the
   building, such as walls, roofs, or other equipment ordinarily contained in the structure.
   Taxpayers should not include the costs of extended warranties or any financing costs
   such as interest or loan origination fees.
6. What requirements does a system have to meet to qualify for the Solar Energy
   Credit?
   Solar energy systems, small hydropower systems, or geothermal machinery and
   equipment must meet the following requirements:
   Solar Energy System: The Solar Rating and Certification Corporation certifies solar hot
   water systems. For solar photovoltaic (PV) systems, the State Energy Office recognizes
   any solar interconnection agreement between a utility and an applicant as certification
   that an appropriate entity has reviewed the system. Taxpayers with systems not connected
   to the grid must certify that the system complies with the most recent safety standards,
   that it has received all applicable permits, and that the appropriate building code
   enforcement authority approved the final inspection. The Certification for PV Systems
   form is available at energy.sc.gov.
   Small Hydropower System: A small hydropower system must be new generation capacity
   on a non-impoundment or on an existing impoundment that:
7. meets the FERC’s licensing requirements;
8. is a run-of-the-river facility with a capacity up to 5MW; or
9. consists of a turbine in a pipeline or an irrigation canal.

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Geothermal Machinery and Equipment: Geothermal machinery and equipment must be
installed at the taxpayer’s residence to qualify for the credit, and must meet or exceed
federal Energy Star requirements on the date of installation. Qualifying geothermal
machinery and equipment either:

1. is a heat pump that uses the ground or groundwater as a thermal energy source to
   heat a structure or a thermal energy sink to cool a structure; or
2. uses the internal heat of the earth as a substitute for traditional energy for water
   heating or active space heating or cooling.
3. Do taxpayers who qualify for federal solar credits always qualify for the South
   Carolina Solar Energy Credit?
   No. The federal credit requirements are different from the South Carolina Solar Energy
   Credit requirements. Taxpayers making purchases that qualify for federal credits should
   review the South Carolina credit requirements carefully to confirm the purchases will
   also qualify for the South Carolina Solar Energy Credit. Energy-efficient appliances, light
   fixtures, weatherization, roofing products, and home energy audits are examples of
   purchases that may qualify for federal credits but will not qualify for the South Carolina
   credit.
4. Which facilities in South Carolina will qualify for the credit?
   A solar energy system or small hydropower system must be installed in or on a facility in
   South Carolina owned by the taxpayer to qualify for the credit. A facility is any building,
   structure, or property located in the state and owned by the taxpayer, including
   residences, properties rented out to third parties, or business properties.
   Geothermal machinery and equipment must be installed for use at the taxpayer’s primary
   residence to qualify for the credit. The taxpayer’s primary residence must be located in
   South Carolina and owned by the taxpayer to qualify as a facility for the credit for
   geothermal machinery. Geothermal machinery and equipment installed at a business
   property, or at a residence other than the primary residence, will not qualify for the credit.
5. Can taxpayers claim a Solar Energy Credit for a system installed at a rental
   property?
   The Solar Energy Credit is for the purchase and installation of a system in South Carolina
   at a facility owned by the taxpayer. Renters are typically not able to claim the Solar
   Energy Credit because the building where the system is installed is not owned by the
   renter. Taxpayers may be able to claim the credit for a solar energy system or small
   hydropower system installed at a rental property they own but rent out to third parties.

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Taxpayers are not typically able to claim the credit for geothermal machinery and
equipment installed at a property exclusively rented out to a third party, since geothermal
machinery and equipment must be installed at the taxpayer’s primary residence in order
to qualify for the credit.

7. Can taxpayers claim a Solar Energy Credit for a leased solar energy system?
   No. The Solar Energy Credit is only available for the purchase and installation of a
   system at a facility in South Carolina owned by the taxpayer. A taxpayer leasing a solar
   energy system would not qualify for the credit because the taxpayer did not purchase the
   system. Generally, the company leasing the solar system to the taxpayer would not
   qualify for the credit because the lessor does not own the facility where the system is
   installed.
8. Does community solar qualify for the South Carolina credit?
   Community solar includes solar projects in which the benefits flow to multiple
   customers, such as energy generated by solar panels at an off-site array. 3 Community
   solar programs may be structured in various ways, but typically, taxpayers do not own the
   facility in South Carolina where the community solar energy system is installed, and so
   will not qualify for the credit.
9. Should taxpayers adjust their South Carolina basis in solar energy property for the
   Solar Energy Credit amount?
   No. There is no requirement in S.C. Code Ann. § 12-6-3587 for taxpayers to adjust their
   basis in South Carolina property for the amount of Solar Energy Credit claimed.
10. Is the credit reduced by any rebates or other incentives the taxpayer receives?
    Rebates provided by the utility that directly subsidize the cost of the purchase and
    installation of the system, machinery, and equipment are usually excluded from federal
    taxable income under I.R.C. § 136. Rebates from manufacturers are typically treated as
    discounts on the price and are not included in federal taxable income. Except as
    otherwise specifically provided, South Carolina adopts the Internal Revenue Code, so
    these rebates are also excluded from South Carolina taxable income. Rebates excluded
    from taxable income will reduce the amount of system costs that qualify for the credit.
    For example, if the solar energy system cost $15,000, but the utility gave a one-time
    rebate of $1,000 for installing the system, the South Carolina credit would be $3,500
    (25% x 14,000) 4.

Community Solar Basics, Solar Energy Technologies Office, Office of Energy Efficiency and Renewable Energy,
U.S. Department of Energy (February 1, 2024), https://www.energy.gov/eere/solar/community-solar-basics.
4
See Question 14 for more information on the credit amount and limits.
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Taxpayers are not required to adjust their credit amount for any incentives provided by
the utility to compensate for excess power produced by the solar energy system, small
hydropower system, or geothermal machinery and equipment and delivered to the
utility’s electrical grid.
Taxpayers who receive cash or an incentive payment that is included in taxable income
will not reduce the credit by any taxable payments received.
Taxpayers who qualify for the federal tax credit will not reduce the South Carolina credit
by any federal credits received.

11. When do taxpayers claim the Solar Energy Credit?
    Taxpayers are able to claim the credit after the installation of the system is completed.
    Use all expenses incurred for the purchase and installation of the system to calculate the
    credit 5, including qualifying expenses from a prior year. For example, if a taxpayer
    begins the process of purchasing and installing a solar energy system in November, Year
    1, but the installation is not completed until February, Year 2, the taxpayer would claim
    the credit with the Year 2 tax return. The taxpayer would include all expenses for the
    purchase and installation of the system, including those incurred in Year 1.
12. Can nonresidents take the Solar Energy Credit?
    Yes. The Solar Energy Credit is for qualifying systems installed in South Carolina, but it
    is not limited to South Carolina residents. Nonresidents who own property in South
    Carolina and install a qualifying solar energy or small hydropower system on that
    property may be able to use the credit if they have South Carolina taxable income and a
    South Carolina income tax liability.
    Geothermal machinery and equipment must be installed at the taxpayer’s primary
    residence in order to qualify. A nonresident taxpayer whose primary residence is not in
    South Carolina will not be able to take the credit for geothermal machinery and
    equipment.
13. Can taxpayers claim a Solar Energy Credit for a system purchased using financing?
    Yes. A taxpayer who finances the purchase of the system and is contractually obligated to
    pay the full cost of the system can claim the credit using the purchase and installation
    costs of the system when the installation is completed. Any financing expenses, such as
    interest, insurance, origination fees, and extended warranties are not included in the
    eligible expenses used to calculate the credit amount.

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See Question 2 for qualifying expenses to use in calculating the credit.

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14. What is the Solar Energy Credit amount?
The Solar Energy Credit is equal to 25% of the costs incurred by the taxpayer for the
purchase and installation of the solar energy system, small hydropower system, or
geothermal machinery and equipment. The credit allowed in a tax year is limited to the
lesser of:

1. $3,500 for each facility; or
2. 50% of the tax liability.
   The Solar Energy Credit is a nonrefundable credit. Nonrefundable credits reduce the
   South Carolina tax liability, but not below zero. Only taxpayers with a South Carolina
   income tax liability are able to take advantage of a nonrefundable credit. Taxpayers
   without South Carolina taxable income, such as retirees who only have Social Security
   income or individuals with zero federal taxable income, typically do not have a South
   Carolina tax liability so would not be able to use a nonrefundable income tax credit.
   Taxpayers may carry any unused Solar Energy Credit forward for up to 10 years. Credits
   claimed in carryforward years are still limited each year to the lesser of $3,500 per
   facility or 50% of the tax liability.
3. Can taxpayers claim the Solar Energy Credit for systems installed in multiple
   locations?
   Yes. Taxpayers may claim a credit for systems installed in multiple locations or facilities
   owned by the taxpayer. For example, a taxpayer may claim credit for a solar energy
   system installed at the taxpayer’s primary residence and for a solar energy system
   installed at a second residence. The credit for a taxpayer installing systems at two
   different locations would be limited to the lesser of $7,000 ($3,500 per facility) or 50% of
   the total tax liability for the tax year.
4. Can taxpayers claim multiple Solar Energy Credits for the installation of separately
   qualifying equipment at the same facility?
   Yes. Taxpayers who complete an installation that qualifies for the Solar Energy Credit
   can claim the credit again if they install additional equipment that qualifies for the credit.
   The second installation must qualify for the credit on its own as a solar energy system,
   small hydropower system, or geothermal machinery and equipment. For example, a
   taxpayer who installs a solar energy system at their home that qualifies for the credit, and
   later adds additional solar capacity would be able to qualify for an additional credit.
   Conversely, a taxpayer who installs a solar energy system at their home that qualifies for
   the credit and later adds an electric water heater to the solar energy system would not be
   able to qualify for additional credit. The water heater purchased separately is not a solar
   energy system, small hydropower system, or geothermal machinery and equipment
   eligible for the credit.

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Taxpayers calculating an additional credit for a later installation can only include the
costs incurred for the purchase and installation of the addition, not for the original system
cost that has already been included in the credit calculation in a prior year. Credits earned
from the later installation are added to any remaining credit carryovers from the original
system installation to arrive at the total credit available for the tax year.
S.C. Code Ann. § 12-6-3587 limits the Solar Energy Credit that can be taken in a year to
$3,500 per facility. Multiple installations at a single facility would still be subject to the
$3,500 limit.

17. Can a taxpayer continue to claim credit carryforwards of the Solar Energy Credit if
    the property is sold?
    Yes. The Solar Energy Credit is earned in the year the installation of the solar energy
    system, small hydropower system, or geothermal machinery and equipment is completed.
    The credit is limited in a tax year to the lesser of $3,500 per facility or 50% of the tax
    liability for the year, but any unused credit can be carried forward for up to 10 years.
    There are no provisions in S.C. Code Ann. § 12-6-3587 requiring a credit to be
    recaptured or the carryforward period ended if the property is sold or transferred. The
    amount of credit available in future years would still be limited to either $3,500 per
    facility each year or 50% of the taxpayer’s income tax liability, whichever is less.
18. Can the Solar Energy Credit be transferred to another taxpayer?
    No. South Carolina income tax credits cannot be transferred unless the Code Section
    allowing the credit includes transfer provisions. There are no provisions in S.C. Code
    Ann. § 12-6-3587 allowing for the credit to be transferred. Taxpayers who sell a system
    or equipment that qualified for the credit, or who sell the facility where the system was
    installed, do not sell or transfer the South Carolina credit along with the property, system,
    or equipment.
19. How does a taxpayer with multiple different types of credits calculate the Solar
    Energy Credit limits?
    Unless otherwise provided in the particular credit statute, a taxpayer may apply tax
    credits in any order. Credit limits are calculated one at a time. S.C. Code Ann. § 12-63587.
    For example, a taxpayer with a $5,000 tax liability who earns both a $3,500 Solar Energy
    Credit and a $3,000 Apprenticeship Credit 6 during a tax year can choose between the
    following two options:
20. Take the Solar Energy Credit first, limited to 50% of the tax liability. Take the
    Apprenticeship Credit second.

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S.C. Code Ann. § 12-6-3477

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Tax Liability
Solar Energy Credit
Apprenticeship Credit
Tax Liability After Credits

$5,000
($2,500)
($2,500)
$0

(50% of tax liability)

In this scenario, the taxpayer is able to reduce his tax liability to $0 and has
$1,000 of Solar Energy Credit to carry forward to the next year. The
Apprenticeship Credit does not have a carryforward provision, so the taxpayer is
unable to use the remaining $500 of Apprenticeship Credit.

2. Take the Apprenticeship Credit first. Take the Solar Energy Credit second,
   limited to 50% of the remaining tax liability after the Apprenticeship Credit is
   applied.
   Tax Liability
   Apprenticeship Credit
   Solar Energy Credit

$5,000
($3,000)
($1,000)

Tax Liability After Credits

$1,000

(50% of remaining tax
liability)

In this scenario, the taxpayer has a remaining tax liability of $1,000, but is able to
use the entire Apprenticeship Credit and has $2,500 of Solar Energy Credit to
carry forward to the next year.

20. How does a taxpayer claim the Solar Energy Credit on a South Carolina income tax
    return?
    A taxpayer who has purchased and completed installation of a qualifying system in the
    tax year should first use the Schedule TC-38 to calculate the credit amount. Taxpayers
    will need to know the full cost of the system and their tax liability for the year, before
    credits, in order to complete the Sch. TC-38. The Sch. TC-38 is available at
    dor.sc.gov/forms or may be included with electronic filing software.
    The taxpayer will then enter the total Solar Energy Credit amount for the tax year onto
    the SC1040TC (for individuals, fiduciaries, or partnerships) or the SC1120TC (for
    corporate taxpayers) using the code 038. For taxpayers who file electronically, this is
    typically incorporated into the electronic filing process.
    The taxpayer carries the total nonrefundable credits from the SC1040TC or SC1120TC to
    the Nonrefundable Credits line on the income tax return, and then subtracts the credits
    from the tax liability.
    Taxpayers claiming the Solar Energy Credit must include the Sch. TC-38 with their
    return, either through the electronic filing software provider or by filing a paper return.

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21. When does the Solar Energy Credit expire?
S.C. Code Ann. § 12-6-3587 does not provide a repeal date for the credit for a solar
energy system or a small hydropower system. The credit provisions for geothermal
machinery and equipment are scheduled to be repealed on January 1, 2032.

22. What is the difference between the Solar Energy Credit and the Solar Energy
    Property Credit?
    The Solar Energy Property Credit is found in S.C. Code Ann. § 12-6-3775 and claimed
    using Schedule TC-58. It is only available for qualifying solar energy property located in
    South Carolina and on:
23. The Environmental Protection Agency’s (EPA) National Priority List;
24. The EPA’s National Priority List Equivalent Sites;
25. A list of related removal actions certified by the South Carolina Department of
    Health and Environmental Control (DHEC);
26. Land subject to a Voluntary Cleanup Contract with DHEC as of December 31,
    2017;
27. Land subject to corrective action under the Federal Resource Conservation and
    Recovery Act of 1976; or
28. Land owned by the Pinewood Site Custodial Trust.
    The Solar Energy Property Credit is not available for individual taxpayers installing solar
    panels, or other solar energy systems, at their residence.
    SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
March 26
, 2024
Columbia, South Carolina

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