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There are many financial incentives available, for converting your home or business to solar energy. Click below to learn more about the leading incentives available.
INVESTMENT TAX CREDIT (ITC)
What it is.
The Investment Tax Credit (ITC) (also known as the Federal Solar Tax Credit) is available through the U.S. Federal Government. The ITC provides a dollar-for-dollar tax deduction equal to 30% of the total cost of a solar energy system from your Federal Tax filing. The ITC is available for both home and business owners who convert to solar energy. Since there is no cap to the value, it is a leading incentive driving the conversion to renewable, solar energy.
The Investment Tax Credit (ITC) is currently a 30 percent federal tax credit claimed against the tax liability of investors in solar energy property. Those eligible for the ITC include:
- Commercial and Utility-Scale Projects
The ITC allows the homeowner to apply the credit to his/her personal income taxes. This credit is used when homeowners purchase solar systems outright and have them installed on their homes.
Commercial and Utility-Scale Projects:
Projects that have commenced construction before December 31, 2021 may still qualify for the 30, 26 or 22 percent ITC if they are placed in service before December 31, 2023. The IRS issued guidance (Notice 2018-59) on June 22, 2018 that explains the requirements that a taxpayer must meet to establish that construction of a qualified solar facility has begun for purposes of claiming the ITC.
The Tax Cuts and Jobs Act (TCJA) has dramatically changed the depreciation and expensing rules for trade or business assets. Under the new law, businesses may claim 100% bonus depreciation available within first taxable year. The new bonus depreciation rules define ‘qualified property’ as tangible personal property with a recovery period of 20-years or less, that is acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. In general, bonus depreciation may enhance tax minimization for certain taxpayers. For example, those with depreciable assets that are directly owned and used in their trade or business, or tax-equity partners with both a sufficient tax capacity and a federal income tax profile that enables their institution to absorb, or carryforward the bonus depreciation.
Because solar photovoltaics (renewable energy property) is personal property that is otherwise 5-year Modified Accelerated Cost Recovery System (MACRS) property, and because the new law did not change the general rule for wind or solar 5-year MACRS, the new 100% bonus depreciation is merely an option for solar deals.
With the new law, bonus depreciation at the 100% level is also eventually phased down 20 percent each year for qualified property that is placed in service after Dec. 31, 2022, and before Jan. 1, 2027.
The new law for bonus depreciation also makes a dramatic new change as it pertains to “used” property, and this change may have an important role to play in certain renewable energy project financings. To the extent of its relevance in certain deals, this new rule may create new opportunities. It also may cause certain tax equity investors to give their historic reluctance to enter partnership deficit restoration obligations a second look.
Taxpayers may affirmatively elect to not claim bonus depreciation. Doing this is known as “electing out of bonus depreciation.” However, great care should be taken before such a tax election is made to ensure a complete understanding of the ramifications.
STATE TAX CREDITS
Rebates can vary but are typically issued by your municipality, utility company, or other organization that wants to promote solar energy. These rebates are limited in time and can vary by region.
SOLAR RENEWABLE ENERGY CERTIFICATES (SRECS)
SRECs vary by State. An SREC is a credit you can earn from your State for energy produced by your solar system. You can earn a single SREC when your solar system produces 1,000 kWhs of electricity.
PERFORMANCE-BASED INCENTIVES (PBIS)
Some states or utilities offer performance-based incentives (PBIs). PBIs pay solar energy system owners a per kilowatt-hour credit for the electricity that their systems produce. Incentive rates are determined when the system is installed. PBIs may replace or exist alongside net metering policies.
As described by The Solar Energy Industries Association:
Solar energy tax exemptions include both property and sales tax exemptions provided by state and local governments to individuals and companies that install solar energy property.
Property Tax Exemptions:
Property tax exemptions allow businesses and homeowners to exclude the added value of a solar system from the valuation of their property for taxation purposes. Such tax exemptions make it more economically feasible for a taxpayer to install a solar system on a residential or commercial property. Because property taxes are collected locally, some states have granted local taxing authorities the option of allowing a property tax incentive for solar. There are 38 states that offer property tax exemptions for renewable energy. For example, New Jersey enacted legislation exempting solar systems from local property taxes if the system is used to meet on-site electricity, heating, cooling, or general energy needs.
Sales Tax Exemptions:
Sales tax incentives typically provide an exemption from the state sales tax (or sales and use tax) for the purchase of a solar energy system. This type of exemption helps to reduce the upfront costs of a solar installation. There are 29 states that offer sales tax exemptions for renewable energy.
There are a series of State and Private programs for energy efficiency, that can be redeemed for residential and commercial solar development projects. Search for Grant opportunities by State