Commercial Resources
COMMERCIAL TAX INCENTIVES
Commercial solar tax incentives: A guide to maximizing your savings
With substantial tax incentives and the falling cost of equipment, going solar can significantly reduce energy bills, provide long-term savings, and enhance your company’s sustainability profile. Let’s delve into the major tax benefits available for commercial solar installations.
SolarTech diligently stays up to date about the tax incentives available to business owners in all relevant markets.
The core incentives: ITC and PTC
Investment Tax Credit (ITC)
The ITC is a powerful upfront incentive. It allows you to deduct 30% of your commercial solar system’s cost directly from your federal taxes as a non-refundable credit. This significantly lowers your initial investment, improving cash flow, and shortening your payback period.
Production Tax Credit (PTC)
The PTC is an attractive alternative to the ITC as it provides a tax credit for each kilowatt-hour (kWh) of electricity your solar system produces over the first 10 years of operation. The current tax credit rate is 2.75 cents/kWh and is adjusted annually for inflation.
TAX ADVANTAGE
Which to choose? Pros and cons of ITC vs. PTC
The ideal choice for your business depends on these factors:
- Tax Appetite: If you need to offset a large tax liability in the first year, the ITC's immediate reduction is favorable. If you prefer spreading out benefits over time, the PTC may be better.
- Production Estimates: To assess the PTC's value, you'll need accurate estimates of your solar system's electricity generation. Our team can provide these estimates.
- Risk Tolerance: The ITC is a simple, predictable benefit. The PTC's value depends on future electricity prices and potential policy changes, creating some uncertainty.
COMMERCIAL TAX INCENTIVES
Eligibility for ITC and PTC
To qualify for either the ITC or the PTC, your commercial solar system needs to meet specific eligibility requirements. Here’s a breakdown of the key points:
- System Location: Projects must be located within the United States or U.S. territories.
- Equipment: The system must use new equipment or, in certain cases, limited amounts of previously used equipment.
- Ownership: You generally need to own the solar system to claim incentives. Projects involving leases to tax-exempt organizations are ineligible, though tax-exempt entities may directly own and benefit from solar systems or receive direct payments in lieu of tax credits.
- Commencement of Construction Deadlines: To claim the ITC (and to secure the highest benefits under the PTC), your project must meet IRS "commence construction" requirements before specific deadlines. We’ll help you navigate these deadlines.
RESOURCES
Eligibility rules for solar incentives
Eligibility rules for solar incentives can be complex, with nuances and regular updates. Please see below for resources for detailed eligibility:
The IRS is the ultimate authority on tax incentive eligibility. Consult their publications and notices for the most detailed and up-to-date information.
Provides summaries and guidance on federal energy-related incentives.
Summarizes the Inflation Reduction Act provisions specifically relating to renewable energy.
Credits
Boosting your benefits: Additional credits
On top of the ITC or PTC, you may qualify for bonus credits:
- Domestic Content Adder: If your solar equipment uses a significant percentage of U.S.-manufactured components, you could increase your credit.
- Low-Income Adder: Projects directly serving low-income communities may be eligible for a credit increase.
- Energy Community Adder: Installations in specific designated energy communities (such as former coal communities) are eligible for even larger benefits. (Energy Community Tax Credit Bonus - Energy Communities)
