SVE aims to clarify the commercial solar financial and tax incentives available to businesses. We often receive questions about the two types of tax credits available to commercial entities:
- The Clean Energy Investment Tax Credit (ITC)
- The Production Tax Credit (PTC)
This blog provides resources to help you explore commercial solar financial and tax incentives in detail.
According to the Office of Energy Efficiency & Renewable Energy‘s Solar Energy Technologies Office, there are two types of commercial solar financial & tax incentives available for businesses and other entities such as nonprofits and local and tribal governments.
The Clean Energy Investment Tax Credit (ITC)
The clean energy investment tax credit (ITC) reduces the federal income tax liability for a percentage of the cost of a solar system installed during the tax year.[1]
The Production Tax Credit (PTC)
The production tax credit (PTC) reduces the federal income tax liability by providing a per kilowatt-hour (kWh) tax credit for electricity generated by solar and other qualifying technologies for the first 10 years of a system’s operation. They adjust it annually for inflation.[2]
Generally, project owners cannot claim both the ITC and the PTC for the same property. However, one could claim different credits for co-located systems, like solar and storage, depending on further guidance issued by the IRS.
What Does The ITC Do?
The ITC reduces your tax liability by 30% of the total cost of the solar PV installation. Businesses with tax liability can benefit from a 30% tax credit on renewable energy systems upfront. Congress extended the ITC until 2032.
What Does The PTC Do?
The PTC generates a per kWh tax credit in the first 10 years of the solar system’s operation. It reduces the federal tax liability and undergoes annual adjustments. To determine which tax credit is your best option, please refer to the Federal Solar Tax Credits for Business website.
Solar Economic Benefits & Tax Advantages
Businesses cannot overstate the benefits of combining the 30% Clean Energy Investment Tax Credit (ITC) with the Tax Cut and Jobs Act’s (TCJA) first-year 100% bonus depreciation. Depending on the cost of your utility-supplied electricity and your tax liability, you can expect to realize payback periods of as low as 5 years, a mid-to high-teen Internal Rate of Return (IRR) percentage, as well as an annual Return on Investment (ROI) that is very appealing.
MACRS + Bonus Depreciation: Reduces the Cost of Commercial Solar
Under the federal tax code, renewable energy systems qualify for a five-year Modified Accelerated Cost-Recovery System (MACRS) depreciation schedule. The depreciation benefit will vary depending on your businesses’ tax rate. Typically, it offsets an additional 25% of a solar energy project’s cost through reduced tax payments.
Moreover, to further enhance this incentive, The Tax Cuts and Jobs Act of 2017 (TCJA) changed federal regulations on solar installation depreciation, making declared solar systems eligible for bonus depreciation. In 2023, a business can claim 80% of the federal savings on federal income taxes. That rate decreases by 20% per year until it drops to 0% in 2027. For reference, solar projects placed in service between January 1, 2018 and December 31, 2022 were able to claim 100% of the federal savings in the year the solar panels were placed in service).
Helpful Financial & Tax Incentive Resources
- DSIRE – Modified Accelerated Cost-Recovery System (MACRS) + Bonus Depreciation
- IRS Form 4562 – Depreciation and Amortization (Including Information on Listed Property) (PDF)
- IRS – Instructions for Form 4562 (PDF)
Corporate Tax Credits Information
- Federal Solar Tax Credit Resources
- Federal Solar Tax Credits for Businesses (ITC)
- Renewable Electricity Production Tax Credit (PTC)
Federal Grant Programs
- USDA – Rural Energy for America Program (REAP) Grants
- USDA – Reap Grants Fact Sheet
- Inflation Reduction Act (IRA) REAP Training Webinar
- Registering with SAM.gov is required to apply for federal assistance. As part of your registration, you will receive a Unique Entity ID.
Federal Loan Programs
Meet With Your Tax Advisor
Accurately calculating and filing for immediate 100% business expensing, MACRS, and/or taking other deductions is a relatively routine procedure for qualified accountants or tax specialists. We strongly recommend that you engage with your tax advisor to ensure you take full advantage of all of your solar system’s tax benefits.
Partner With SVE
Southern View Energy can help you find practical, affordable energy solutions for your business. Give us a call at 678.833.5191 or email us and let’s explore the many benefits of what a commercial solar installation can do for your business.