Commercial Solar Incentives
Is your business taking advantage of generous solar incentives yet?
Right now, businesses can receive a 30% Federal Tax Credit to offset income taxes. That means significant savings you can use to reinvest back in your company in whichever way you see fit. That’s guaranteed cash in the bank at the end of the year that your company otherwise wouldn’t have. How often are you offered a deal with a guaranteed return on investment like that?
Rebates Extended and Upgraded – Temporarily
As an added bonus, if you get hit with the Alternative Minimum Tax, this credit allows No rebates last forever though and the clock is ticking on eligibility for federal solar incentives. The current rebate system, originally enacted in 2008, was granted a multi-year extension in 2015 with the passage of the Omnibus Appropriations Act (P.L. 114-113). As a result, the new “commence construction” language replacing “placed-in-service” extends these tax credits to projects completed by the end of 2023.
Savings Protected With Carryback and Carryforward Provisions
If you’re unable to use your commercial solar tax credit in a given year, it can be “carried back” to retroactively apply to your previous year’s income. Or, it can be carried forward to apply to future annual income totals for up to 20 years.
Federal Energy Policy Act of 2005
A provision in the 2005 Act provided an expansion of the business energy tax credit for solar systems installed in 2006 and 2007. In 2006, Section 207 of the Tax Relief and Health Care Act (HR 6111) extended these provisions through December 31, 2008.
- Business energy credits Form 3468: https://www.irs.gov/pub/irs-pdf/f3468.pdf
- General business credits Form 3800:https://www.irs.gov/pub/irs-pdf/f3800.pdf
Authority: Section 48(a)(3) (Investment Credit: Energy Credit) of the IRS tax code.
Tax Depreciation System
Under the current Modified Accelerated Cost-Recovery System (MACRS), solar systems put in service after 1986 depreciate at a rate of five years. For more details, take a look at IRS Publication 946, IRS Form 4562 on Depreciation and Amortization. Visit www.irs.gov and search for any forms you need. Solar System 5-Year Depreciation Rate
Year MACRS Depreciation Rate
|Year||MACRS Depreciation Rate|
Calculating Your System’s Rate of Depreciation for Tax Purposes
The one million dollar project example
Let’s assume your business has a solar system valued at $1 million. Under the MACRS rate of depreciation formula, the taxable basis for the system is reduced by half of the 30% tax credit. That equals 85% or $850,000.
- IRS Publication 946 (https://www.irs.gov/pub/irs-pdf/p946.pdf)
- IRS Form 4562: Depreciation and Amortization (https://www.irs.gov/pub/irs-pdf/f4562.pdf)
- Instructions for Form 4562 (https://www.irs.gov/pub/irs-pdf/i4562.pdf)
Commercial loan benefits
With a commercial loan, interest paid is tax-deductible and there is no prepayment penalty. It can be customized to suit your company’s unique payment needs.
Operating lease benefits
With an operating lease, your company will get greater long-term savings compared to a Power Purchase Agreement (PPA). It also keeps your up-front costs low and locks in a consistently low monthly rate to allow your business plan accordingly without fluctuations.
Capital lease benefits
Not unlike a bank loan, a capital lease allows the lessee to take advantage of the federal solar tax credit and is fully amortized with a $1 buyout. All tax benefits including SRECs go to the lessee.