The federal government offers an Investment Tax credit (ITC) for commercial solar photovoltaics (PV). For businesses, this credit is filed on IRS form 3468. The solar energy credit is a tax credit that can be claimed on federal income for a percentage of the cost of a solar PV system paid for by the taxpayer.
The solar ITC is a tax credit that can be claimed for 30% of the cost of a solar PC system that is placed in service during the tax year for projects commencing construction between January 1, 2006 and December 31, 2019, but placed in service before 2026 (before 2024 for projects commencing construction in 2019 and which use the IRS continuity safe harbor).
In December 2020, Congress passed an extension of the ITC, however the credit begins to phase out. The credit becomes 26% for systems commencing construction in 2020-2022, 22% for systems commencing construction in 2023 and 10% for systems commencing construction in 2024 or thereafter. Any system placed in service after 2025, regardless of when it commenced construction, can receive a maximum credit or 10%
To be eligible for the business ITC, the solar PV system must be:
- Located in the United States or U.S. territories.
- Systems must be new and limited previously used equipment
- Not used to generate energy for heating a swimming pool.
The ITC is calculated by multiplying the applicable tax credit percentage by the tax basis. The tax basis is the amount invested in eligible property.
Eligible property includes the following:
- Solar PV panels, inverters, racking, balance-of-system equipment, and sales and use taxes on the equipment
- Installation costs and indirect costs
- Step-up transformers, circuit breakers, and surge arrestors
- Energy storage devices (if charged by a renewable energy system more than 75% of the time)
There are also several rules on accelerated and bonus depreciation when it comes to the tax basis and amount of depreciation that is allowed on the solar PV systems when taking the credit.
Please consult your TBC Advisor to better discuss your situation.