Solar energy has become an increasingly popular choice for both Owners/Operators and property owners with Tenants. Businesses can lower their monthly operating costs and take control of the rising utility rates. On the other hand, Landlords with Tenants can unlock a new source of recurring cash flow by producing energy on their property.
One of the biggest drivers of commercial solar adoption has been the availability of tax incentives for commercial properties. These incentives, which are offered at both the federal and state levels, can help offset the upfront costs of installing solar panels and make the investment more attractive to businesses.
Federal Commercial Solar Tax Credit
At the federal level, the primary tax incentive for commercial solar is the Investment Tax Credit (ITC). This credit allows businesses to deduct 30% of the total cost of a solar system from their federal taxes. The ITC is in place for the next 10 years through the Inflation Reduction Act passed in 2022.
The ITC can be claimed by any business that installs solar panels on a property it owns or leases, and it can be combined with other incentives to further reduce costs. Non-profits and businesses with no use for tax incentives can sell the Tax Credit to a 3rd party conveniently. Additionally, there is no cap on the amount of credit a business can claim.
You can learn more about how to claim the ITC and see if you are eligible here.
Federal and State MACRS
Besides the federal ITC, a solar investment can be tax depreciated using the Modified Accelerated Cost Recovery System (MACRS).
- 80% can be depreciated in year 1 of the system being installed.
- About 23% of the gross investment can be depreciated over 5 years
Under the State (CA) MACRS, businesses may recover investments in solar over the first 5 years once a solar installation occurs.
Overall, a gross investment in a commercial solar system can be deducted by 60-70% in tax incentives. This reduces the payback period immensely and boosts ROI for the lifetime of a system.
The availability of tax incentives has been a major factor in the growth of commercial solar. As businesses look for ways to save money on energy costs or generate a new source of income for property owners, solar offers a compelling solution – and the tax incentives make it even more appealing. If you’re considering a commercial solar installation, be sure to explore all of the available tax incentives to maximize your savings.
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