How Does The Federal Solar Tax Credit Work | EnergyLink

How Does the Federal Solar Tax Credit Work

The growth of the solar energy industry in the last decade can be attributed in part to the solar tax credit. Since the solar investment tax credit’s (ITC) enactment in 2006, the solar industry in the U.S. has grown by more than 10,000%. Due to the ITC phasedown passed by congress, beginning in 2023 the ITC will decrease in value. This makes now the perfect time to begin a solar project in order to reap the full benefits of the solar tax credit.

What is the solar tax credit?

The solar tax credit is a tax credit that can be claimed on federal corporate incomes taxes towards a commercial solar photovoltaic (PV) system that was placed in service during that tax year. It can also be applied to utility-scale projects. Congress extended the ITC or delayed its phasedown in 2020. This dictated a 26 percent ITC for systems commencing construction in 2020-22, 22 percent for systems commencing construction in 2023 and 10 percent for systems commencing construction in or after 2024.

Eligibility

In order to be eligible for the business ITC the solar PV system must meet certain qualifications. The system must be used by a business that is subject to U.S. federal income taxes and located in the U.S. or U.S. territories. The system must use new equipment. No more than 20 percent of the system’s equipment may be classified as used. The solar system also may not be used to generate energy for heating a swimming pool.

“Commenced construction” in section 48 of the tax code that outlines the buisness ITC refers to projects in which at least 5 percent of final qualifying project costs are incurred or “physical work of significant nature” is commenced. Eligible expenses include solar PV panels, inverters, racking, balance-of-system equipment, sales and use taxes on the equipment, installation and indirect costs, step-up transformers, circuit breakers, surge arrestors and energy storage devices.

Benefits

The solar ITC has created hundreds of thousands of jobs and invested billions in the U.S. economy. As this ITC has benefited the U.S. overall, installing a solar PV system and taking advantage of the solar tax credit will also benefit your commercial business. In addition to the financial benefit that comes from the tax credit, there is also the possibility of added bonus or accelerated depreciation.

Outside of the tax credit, many PV systems are also eligible for other financial incentives that will not reduce the the tax basis related to the ITC. These include: revenue from the sale of renewable energy credits, payments for a state performance-based incentive, state and local income tax credits, state and local property tax exemptions on the equipment, taxable state or nonprofit grants, loan guarantees and tax-exempt and subsidized energy financing.

Interested in installing solar technology?

EnergyLink is the expert in energy project financing along with designing and building. Our team knows how to get the best financial setup for your organization by taking advantage of financial incentives like the solar tax credit and handling the tedious parts that bring your energy project to life. With the value of the solar tax credit decreasing in 2023, now is the perfect time to get started on a solar project. If you are interested in installing solar technology click the link below to learn more or speak to a team member at (866) 218-0830.

Interested in installing solar technology?

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