Research Solar

What is the Solar Investment Tax Credit?

The Investment Tax Credit (ITC) is a federal income tax credit that can reduce your federal income taxes by 26% of project costs. This is a dollar-for-dollar reduction (under Section 48) in income tax liability. For example, if your system costs $100,000 – you will reduce your federal income tax liability by $26,000.

If I don’t pay federal income taxes, can I monetize the credit?

If you have no income tax liability due to other assets, or as a non-profit, there is no cash back option – currently. There is some legislation in the Build Back Better plan that could turn it from a credit to cash back. However, businesses with no tax liability often look at financing options like an operating lease [link] or Power Purchase Agreement (PPA) [link].

How long will the ITC remain at 26%?

Projects that begin construction in 2022 will receive a 26% credit. Projects that begin construction in 2023 will receive 22%. And projects that begin after 2023 will receive 10%.

What does “construction begin” mean for the ITC?

To capture the current ITC credit in 2022, we must have a signed contract and complete 5% of the work. The work must be placed into service before January 1, 2026.

How Solar Depreciation Works For Businesses

Businesses can leverage the current policy for depreciating solar systems to improve ROI and ultimately lower costs for the consumer. The US tax code allows for a tax deduction for the recovery of the cost of tangible property over what it qualifies as the useful life of the system. The Modified Accelerated Cost Recovery System (MARCS) is the current method for most property.

What is the basis of depreciation for solar?

Businesses can take advantage of deprecation to accelerate their ROI on a solar system. The Tax Cut and Jobs Act of 2017 provides an option for 100% bonus depreciation.  Solar has a scheduled depreciation recovery period of 5 years – so you can spread it over 5 years or take it all in year 1.

A business cannot depreciate 100% of the project cost. The Investment Tax Credit (ITC) reduces the basis of depreciation by one-half of the tax credit amount allowed. With the current ITC at 26%, it will reduce the depreciable basis to 87% of the total cost. Therefore, if your system costs $100,000 you will be able to depreciate $87,000 of the cost. To calculate the value, you will multiply the basis by your federal income tax rate.

What is the bonus depreciation?

Through the Tax Cuts and Jobs Act of 2017, businesses can now claim 100% of bonus depreciation on qualifying capital equipment that is placed in service by January 1, 2023.

Are There Any Other Federal Incentives?

Rural and Agricultural businesses can potentially qualify for the Rural Energy for America Program (REAP). This offers both a grant and a loan option. However, you must qualify for the program and there must be available funds. Your solar expert will include this in their analysis if you qualify.

Genie Energy Ltd., (NYSE: GNE, GNEPRA) is a global energy solutions company. We supply customers in the US and Europe with electricity, including electricity generated from renewable resources and with natural gas. Through Genie Solar Energy and Prism Solar, we design, construct and install commercial solar energy solutions. We provide commercial and industrial clients with energy brokerage and consultative services through our Diversegy brand.