Yesterday US lawmakers announced that the Investment Tax Credit (a dollar-for-dollar reduction in the income taxes that a person or company would otherwise pay the federal government) of 30% was not extended and will step down to 26% in 2020. In 2021 the ITC will further step down to 22%, and in the following year it will permanently decrease to 10%. Eligibility for the ITC in a given year is based on a standard “commence construction.”
The guidance on defining ‘commence construction’ given by the IRS in 2018 states:
“Under the Notice, taxpayers will be deemed to satisfy the requirement that they (1) maintain continuous efforts to advance towards completion for purposes of the Five Percent Safe Harbor or (2) maintain a continuous program of construction for purposes of the Physical Work Test, if the project is placed in service by the end of the fourth calendar year after the year in which construction began.”
The Physical Work Test focuses on the nature of the work performed, not the amount or the cost. This may include both on-site work, such as a site visit, and off-site work, such as filing SREC and interconnection paperwork, as well as permitting. This can include any work performed by the taxpayer, by a contractor, or sub-contractor – any work performed by a contractor only counts if there is a binding contract.
The Five Percent Safe Harbor considers construction begun if the customer has paid at least 5% of total project cost and makes continuous efforts towards completion of the project.
Genie Solar Energy continues to work with you through the end of the year to accomplish both the Physical Work Test and the Five Percent Safe Harbor to maximize all tax credits. While we acknowledge the 4% decrease may disincentive customers, we see 2020 as a pivotal year to maximize the decreasing tax credits and state incentives, and simultaneously taking advantage of improving economics. Genie Solar Energy and our affiliated subsidiaries of Genie Energy (NYSE:GNE) continue to work with new products and improve the economics for our customers.
I look forward to helping you reduce your energy operating cost by implementing a solar arry whilst maximizing all tax benefits and state incentives. Please let me know if you would like a refreshed proposal.
Happy New Year!