Updated: Jan 7, 2020
The Solar Investment Tax Credit or Investment Tax Credit (ITC) is the leading incentive for solar energy in the United States. Enacted by the Federal Government, the ITC was intended as a strategy to promote renewable energy and expand the solar industry. It provides consumers with a Federal tax credit for solar, that refunds 30 percent of the cost of a solar energy project.
The primary driver of the ITC is its value, at 30 percent of the cost of a solar investment. The ITC applies for all things solar; from solar panels and energy storage devices to complete solar energy systems. However, revisions within the federal program since its inception have it even more lucrative. In this article, we will review key revisions of the federal solar tax credit that are often overlooked.
1. Eligibility for the federal Investment Tax Credit.
The ITC is available for both residential and commercial solar projects. Participants must OWN their solar energy system to qualify, whether purchased directly or through financing.
In 2018, The Internal Revenue Service (IRS) released new guidance that established when the construction of a solar facility starts to qualify for the solar Investment Tax Credit.
The guidance, Notice 2018-59, dramatically re-defined eligibility for the ITC and has since been vastly overlooked. Essentially, this guidance changed the definition of who is eligible for the tax incentive, by providing two methods for determining the "commence-construction" date, and when consumers were eligible to claim the tax benefit. The new guidelines make consumers eligible when a solar project:
1) starting physical work of a significant nature, or
2) meeting the "5 percent safe harbor test" by incurring 5 percent or more of the total cost of the facility in the year that construction begins.
What does this mean?
Thanks to this new legislation, eligibility for The Investment Tax Credit starts as soon as construction begins. Previously, consumers were not eligible until their solar panel system was in operation.
2. Timing for the Investment Tax Credit.
The Investment Tax Credit is scheduled to ramp down for both residential and commercial consumers in 2019 (at varying rates). However, under these modified terms of eligibility, solar projects may qualify for the FULL 30 PERCENT Investment Tax Credit through 2019, as long as the project is placed into service before 2024. A prior ruling required completion in the same year.
The ITC steps down to 26 percent in 2020, then 22 percent in 2021. In 2022, the residential credit (Section 25D) will drop to zero, while the commercial and utility credit will drop to a permanent 10 percent.
Under the new rules, projects that start construction in 2019 will receive the 30 percent ITC for four years, 2020 construction start projects will receive the 26 percent ITC for three years, and 2021 construction start projects will receive the 21 percent ITC for two years.
As GreenTechMedia notes:
“Analysts at Credit Suisse said the IRS announcement is better than expected as it safe harbors all solar projects for four years, through 2023, versus expectations of a fixed two-year safe harboring.
Abigail Ross Hopper, President, and CEO of the Solar Energy Industries Association (SEIA) praised the IRS notice.
“The IRS has taken an important step forward with this guidance and provided certainty that will help solar project sponsors finance and build more solar," said Hopper, in a statement. "Our members have been working hard to secure financing for projects and keep them on track to meet critical development and construction milestones. This guidance provides them with a strong timeline for keeping up momentum for new projects. In the absence of this commence construction guidance, tax equity partners were growing cautious about project risk… We look forward to working with the IRS to ensure the guidance is implemented in a way that keeps this solar economic engine moving forward.”
3. Claiming the Investment Tax Credit.
Another key benefit of the ITC are policies related to claiming the incentive.
Some homeowners might not have enough tax “liability” or enough income tax to claim the benefit in one year. Under new regulations, you can “roll over” the remaining tax credit the following year (as long as the program is still active).
Home and Business owners can claim The Investment Tax Credit when they file their federal tax return. Just inform your accountant that you have converted to solar energy in the last year. Seek tax advice for Form 5695 if you plan to file your own taxes. Be sure to inquire about state solar programs that you qualify for in the process.
2019 is the time to go solar, accompanied by the most lucrative incentives available. The longer a consumer delays, the less return they will see on their investment.
Want to take advantage of The Investment Tax Credit, and find the best path to residential and commercial solar?
Contact National Energy Partners Today for a Complimentary, No Risk Service Consultation.
About National Energy Partners:
National Energy Partners (NEP) is a solar energy development company dedicated to bringing clean, renewable energy to businesses and residential consumers alike. NEP is at the forefront of the solar energy landscape. Our passion is in fostering relationships through integrity, knowledge, and efficiency. NEP embraces the specific needs and challenges of each project. We prioritize our valued clients through strategic management, trusted relationships, and eco-friendly solar energy solutions.
NEP has 10+ years of experience in the solar industry. Our portfolio includes over $100 million of projects, with more in development.