Commercial Solar – Clean Energy Investment Tax Credit (ITC) and Production Tax Credit (PTC)
According to the Office of Energy Efficiency & Renewable Energy‘s Solar Energy Technologies Office, there are two tax credits available for businesses and other entities such as nonprofits and local and tribal governments that purchase solar energy systems:
- The investment tax credit (ITC) is a tax credit that reduces the federal income tax liability for a percentage of the cost of a solar system that is installed during the tax year.
- The production tax credit (PTC) is 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. It reduces the federal income tax liability and is adjusted annually for inflation.
Generally, project owners cannot claim both the ITC and the PTC for the same property, although they could claim different credits for co-located systems, like solar and storage, depending on what further guidance is issued by the IRS.
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. The ITC was extended by Congress until 2032.
The PTC is a per kWh tax credit generated in the first 10-years of the solar system’s operation. It will reduce the federal tax liability and is adjusted annually. For more detailed information regarding which tax credit will help you determine the best option for your bottom line, please refer to the Federal Solar Tax Credits for Business website.
The benefits for businesses in combining the 30% U.S. Clean EnergyInvestment 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 Internal Rate of Return (IRR) percentage as well as annual Return on Investment (ROI) that is very appealing.
MACRS + Bonus Depreciation: Reduce 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 exact benefit of this depreciation is complicated and 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.
Moreover, to further heighten this incentive, The Tax Cuts and Jobs Act of 2017 (TCJA) changed at the federal level regarding how solar installations may be depreciated so that declared solar systems would also be 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 (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).
For more information
- 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
- Register with SAM.gov Registration is required as it allows you to apply for federal assistance. As part of your
registration, you will be assigned 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.