The solar investment tax credit (ITC) can be claimed by businesses that invest in commercial solar energy systems. By taking advantage of this tax credit, businesses can offset the cost of solar energy installation and reach a return on investment faster. The ITC gives business owners an incentive to invest in renewable energy: a credit on their federal taxes based on a percentage of the total solar installation cost.In order to take advantage of the corporate solar tax credit, business owners should understand how much the solar tax credit is, what expenses are covered, whether a project qualifies, and how to apply. This guide will provide a general overview of the federal tax credit and how it applies to businesses.
How Much Is the Solar Tax Credit for Businesses?
In 2006, the US government enacted the ITC, which can be claimed on federal corporate taxes for the installation of solar energy systems.
With the passing of H.R.5376—Inflation Reduction Act of 2022, the ITC has been increased from 26% to 30%. The 30% applies to solar energy projects installed in 2022 through the end of 2032. Solar power projects eligible for a 30% tax credit can increase their tax credit to 40% by purchasing hardware produced in the US. Details of the Inflation Reduction Act of 2022 are currently being finalized.
The ITC can be filed one time for the tax year that you install your energy system. The credit amount is calculated as a dollar-for-dollar reduction of your federal tax liability. There is no cap on the dollar amount that can be claimed for credit for a solar installation.
This tax deduction means that if you spend $100,000 on the installation of a solar project, at the current ITC of 30%, you would be credited $30,000 on your taxes owed for the year. So, if you owed $40,000 in taxes for the year, by utilizing the ITC, you would only have to pay $10,000 to the IRS.
The ITC is non-refundable. If your tax credit exceeds the amount that you owe, you will not receive money back. Note, however, that you can “roll over” the surplus tax credit into the next year.
What Expenses Are Eligible for the Solar Tax Credit for Businesses?
According to the US Department of Energy, eligible property includes solar panels, racking/mounting equipment, inverters, wire, conduits, junction boxes, etc. It also includes sales and usage taxes and labor costs for installation.
A solar energy advisor at Geoscape can help determine the maximum number of qualifiers that can be claimed for ITC eligibility based on the specific factors of both your project and your property.
What Projects Qualify for the Solar Tax Credit for Businesses?
The IRS lists specific guidelines regarding which projects qualify for the ITC:
- First, the ITC can only be used by a business that pays US federal income taxes. Tax-exempt organizations do not qualify.
- Second, the business must be located in the United States or US territories.
- Third, systems must be new and primarily use new equipment. Specific limits are in place for utilizing used equipment.
- Fourth, you must own the system (by purchasing it outright or using a bank loan) and not lease it or use a power-purchase agreement.
Additional guidelines are as follows:
- The IRS uses the term “continuity safe harbor,” referring to projects that have commenced construction but are not completed. The business must have invested at least 5% of the total project cost to qualify for safe harbor.
- IRS regulations involving the ITC will be satisfied automatically if the project is placed in service no later than four calendar years after the calendar year in which construction began.
- To claim the ITC, a taxpayer must complete and attach IRS Form 3468 to their tax return.
Unlock Your Return on Investment
The solar tax credit for businesses can significantly lower the overall cost of a solar installation. You will be on your way to solar energy savings and able to realize a return on your solar investment.
At Geoscape Solar, we help businesses utilize solar energy for profit. Your business will become energy independent, be able to decrease utility costs, and leverage available solar incentives for a quick ROI.
To discover how installing solar energy on your property will increase your business profitability, contact one of our energy specialists!