Commercial Solar – Tax Credit (ITC) and Bonus Depreciation (TCJA))
The benefits for businesses of combining the 30% U.S. Clean Energy Investment Tax Credit (ITC) with the Tax Cut and Jobs Act’s (TCJA)* first-year 100% bonus depreciation cannot be overstated. Depending on the cost of your utility-supplied electricity and your tax liability (ability to use tax reduction incentives) you can expect to see payback periods of as low as 5 years, a mid- to high-teen IRR %, and an annual ROI that is astounding!
Clean Energy Investment Tax Credit (ITC)
Businesses with tax liability can benefit from a 30% tax credit on renewable energy systems – the Clean Energy investment tax credit (ITC) was extended by Congress until 2032.
The IRS tax guidance also suggests that battery storage systems are eligible for this credit when the battery system is charged by a solar electric generation system.
More information: DSIRE – Business Energy Investment Tax Credit (ITC)
MACRS + Bonus Depreciation
Under the federal tax code, renewable energy systems qualify for a 5-year Modified Accelerated Cost-Recovery System (MACRS) depreciation schedule. The exact benefit of this depreciation is complicated, and it varies depending on your businesses’ tax rate. Typically it adds up to an additional 25% of a solar energy project’s cost being offset by reduced tax payments.
However, to further sweeten this incentive, The Tax Cuts and Jobs Act of 2017 (TCJA) changed on the federal level how solar installations may be depreciated by increasing bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. Depreciating 100% of the cost basis in the first year allows businesses to accelerate all the federal tax benefits to immediately help offset installation costs.
Given the time value of money, this depreciation benefit helps make solar energy systems more accessible to businesses in the near-term. In addition, businesses will be able to eliminate significant fossil fuel energy costs over the life of the system.
- DSIRE – Modified Accelerated Cost-Recovery System (MACRS) + Bonus Depreciation (2008-2012)
- IRS Form 4562 – Depreciation and Amortization (Including Information on Listed Property) (PDF)
- IRS – Instructions for Form 4562 (PDF)
Corporate Tax Credits
- Federal Business Energy Investment Tax Credit (ITC)
- Federal Renewable Electricity Production Tax Credit (PTC)
- Guide to the federal tax credit
Federal Loan Programs
- U.S. Department of Energy – Loan Guarantee Program
- USDA – Rural Energy for America Program (REAP) Loan Guarantees
Federal Grant Programs
- USDA – Rural Energy for America Program (REAP) Grants
See Your Tax Consultant
Properly 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, and we highly recommend that you engage one to assure that you capture all of your solar system’s tax advantages.