How does commercial solar tax credit work?

How does commercial solar tax credit work?

10 June 2021 2 min read

Solar makes sense for businesses. The solar industry has matured and is now an affordable energy option. It is a reliable source of electricity. Your business will gain in terms of cost savings and excellent ROI. Customers are also more environmentally conscious and choose to go with companies that are sustainable. With solar energy sources, you reduce the company’s carbon footprint and do your bit for a cleaner, greener future.

Moreover, the United States federal government subsidizes the purchase and installation of solar power generating systems with a federal solar tax credit. The credit is available for both residential and commercial installations. Let us dive into the working of solar tax credit for commercial users.

Solar ITC

The solar investment tax credit (ITC) is a tax credit that can be availed on federal corporate income taxes for 30% of the cost of a solar photovoltaic (PV) system placed in service during the tax year.

Eligibility Requirements

The business should have commenced setting up the solar PV system between January 1, 2006, and December 31, 2021, and it should be operational before 2024. The construction is said to have commenced if there is proof that physical construction is underway and the business has incurred at least 5% of the total project costs by the deadline specified.

The solar system for which the tax credit is claimed must be located in the United States or the U.S. territories. The business that claims the tax credit must not be a tax-exempt corporation, but there are ways to claim indirect benefits for such organizations.

Included Expenses

The tax credit can be claimed on costs incurred on:

  • Solar PV panels, inverters, racking and balance-of-system equipment, transformers, circuit breakers and surge arrestors
  • Sales and use taxes on the equipment
  • Installation costs and indirect expenses
  • Energy storage devices (subject to certain conditions)

Extent of Tax Credit

The tax credit is reducing on a continuous basis:

Year of Commencing Construction Placed in Service Solar Tax Credit
2006 – 2019 Before 2024 30%
2020 Before 2024 26%
2021 Before 2024 22%
2022 After December 31, 2023 10%

The tax rebate is calculated on the gross installed cost of the solar system. If the business cannot use all the tax credit related to the commercial ITC in one year, it can carry the tax credit back one year and 20 years forward.

Are you ready to go solar

The U.S. government is making a fast and conscious shift from fossil fuels to renewable energy sources to combat climate change. You have the opportunity to play a part in this by switching to solar. We understand that investing in solar energy is a critical financial decision. GreenBrilliance can provide an integrated solar solution that powers seamless business operations and generates quick ROI. Contact us today to obtain a free quote.