Federal Tax Credits & Other Incentives for Commercial Solar Energy

First offered via the Energy Policy Act of 2005 to accelerate the adoption of solar power, the ITC has been extended several times. But the most recent extension — a “step down” plan, enacted in 2016 — will be the last.

What does this mean for commercial and industrial entities thinking of “going solar”? That you can still save big, but you need to act quickly. If you secure your project in FY2020, you can receive a dollar for dollar 26 percent tax credit on the total system cost of installing solar energy.

The solar tax credit amount “steps down” to 22 percent in 2021, then down to 10 percent in 2022. 

Non-profits and municipalities without tax liability can also benefit from the ITC program. By procuring through a Power Purchase Agreement (PPA) model, whereby you pay a lower kilowatt-hour rate for electricity, the project owner receives the solar tax credit and passes the benefit to you via a lower solar power rate.

What does this mean for commercial and industrial entities thinking of “going solar”? That you can still save big, but you need to act quickly. If you secure your project in FY2020, you can receive a dollar for dollar 26 percent tax credit on the total system cost of installing solar energy.

The solar tax credit amount​ “steps down” to 22 percent in 2021, then down to 10 percent in 2022 before disappearing completely.

Non-profits and municipalities without tax liability can also benefit from the ITC program. By procuring through a Power Purchase Agreement (PPA) model, whereby you pay a lower kilowatt-hour rate for electricity, the project owner receives the solar tax credit and passes the benefit to you via a lower solar power rate.

Other Solar Power Savings & Incentives

Sales Tax Credits

Aside from the federal ITC program, many states offer their own tax credits or other incentives for installing solar energy systems. New York State, for example, offers a 100% exemption from state sales tax on “solar-energy systems that utilize solar radiation to produce energy designed to provide heating, cooling, hot water and/or electricity.” Search for sales tax policies and solar rebates by state here.

What does the ITC “step down” mean for commercial & industrial entities looking to “go solar”? That you can still save big — but you need to act quickly.

Property Tax Exemptions

Many states — 36 in all — also offer property tax exemptions for solar energy. These additional solar tax rebates allow businesses to exclude the added value of a solar system from the valuation of their property for tax purposes. The State of New Jersey, for example, exempts solar systems from local property taxes so long as they meet on-site electricity, heating, cooling or general energy needs. You can learn more about these exemptions, and see if any solar rebates are available in your state..

RECs

Most states have now established their own renewable energy standards and goals. To help them achieve those goals, they’re incentivizing the use of renewable energy through renewable energy credits (RECs). Examples include ZRECs in Connecticut or T-RECs in New Jersey. These allow commercial entities to sell certificates into a market that helps utilities meet clean energy goals. Every solar project earns a certificate for every 1,000 kilowatt-hours (kWh) of solar energy generation. You can search for RECs that may be available in your state.

MACRS

Yet another way you can save is through the Modified Accelerated Cost Recovery System (MACRS). This federal program allows businesses to recoup the depreciation of tangible property — like those used to build solar installations — for tax purposes, over a specified time period. Qualifying solar energy equipment is eligible for an expedited cost recovery period of five years. This gives businesses the ability to invest in solar energy without the downside of higher property taxes. Learn more about these solar incentives today!

Claiming Your ITC

While this plethora of state-based incentives offers many ways to add ancillary value to your solar investment, the federal solar tax credit is the biggest single incentive a commercial enterprise can benefit from. And the time to maximize your deduction is running out.

To “lock in” your solar ITC, you must begin your project in the 2020 tax year. Your organization will claim its tax credit when it files its federal corporate tax return upon system completion. Your solar power partner should advise you on the process and any documentation you’ll need to claim your incentives. (To speak with a solar expert at DSD about what needs to be done, contact us.) Then, let your accounting team know that you’ve “gone solar” in 2020, so they can prepare all the proper paperwork to earn the full tax credit.

To learn more about the federal solar ITC, visit the SEIA website.

To ask about how your organization can benefit from ITC and other incentives, contact your DSD tax solar expert today.