SOLAR INVESTMENT TAX CREDIT (ITC)
The Solar Investment Tax Credit (ITC)
The Solar Investment Tax Credit (ITC) is an important commercial solar incentive which incentivizes businesses to invest in solar energy. The financial benefit on offer enables commercial and industrial establishments to acquire a tax credit worth up to 26% of the cost of setting up a solar energy system. This commercial solar incentive enables businesses to efficiently manage their finances by providing them with an easily accessible federal tax break, which can be used to fund the purchase and installation of solar panels. For many commercial establishments, the ITC pays off significantly by reducing their initial investment costs on renewable energy systems and providing a financial cushion for future operations.
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 30% 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 $30,000.
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 a commercial solar operating lease or Power Purchase Agreement (PPA).
How long will the ITC remain at 30%?
Businesses who install commercial solar systems between 2022 and 2032 are eligible for receive the full 30% tax credit. The credit will start to decrease to 26% in 2033 and 22% in 2034.
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.