If you are a commercial business or real estate owner interested in reducing your taxes and electricity bills, you should be aware of a looming deadline that affects the financial benefits of going solar. Deadlines are a regular occurrence when it comes to incentives for solar energy systems, but this one is a very big deal.
The U.S. Investment Tax Credit (ITC) essentially pays you back 30% of the cost of the solar array installed on your business – that means equipment and installation -- in the form of a tax credit.
This is not a tax deduction. It’s a lucrative credit that lops 30% of your solar price tag right off your tax bill. For example, a typical 200-kilowatt (kW) commercial system could generate a $150,000 tax credit, saving the owner that same amount in tax payments.
Note: This estimate is dependent on system size, type, total cost, and eligible expense.
The Decline of the Solar ITC
The ITC, which was created as part of the Energy Policy Act of 2005, has been a huge factor in the current solar movement in the U.S. “Since the ITC was enacted in 2006, the U.S. solar industry has grown by more than 10,000% -- creating hundreds of thousands of jobs and investing billions of dollars in the U.S. economy in the process,” says the Solar Energy Industries Association (SEIA).
More importantly, the ITC has motivated thousands of smart business and real estate owners to get on board with renewable energy and reap financial rewards, greatly improving their bottom lines in the process.
If you think of the government incentives -- the ITC and sometimes state tax benefits – as the cause that makes solar energy affordable today, the effect is a number of complementary business benefits. These include:
- Lower and more predictable electricity rates
- Long term lock on those rates
- Reduced overhead
- Improved cash flow.
But the longer you wait, the smaller your tax credit will be. On January 1, 2020, the ITC drops from 30% to 26%. It slips down to 22% in 2021, and shrinks to 10% in 2022.
Don’t be lulled into thinking solar prices will drop more than they already have in recent years, making it OK to wait without impacting your financial payback. That $150,000 tax credit cited above becomes $130,000 at 2020’s 26% rate. That 4% translates to $20,000 lost for that commercial enterprise.
Solar Tax Credit Eligibility
Although Solect Energy shoulders most of the work, it can take time to complete the engineering and design of a solar system, not to mention getting financial arrangements in order. But there is still time to get your full 30% ITC if you contact us today.
As long as you have a signed contract with a solar installer and pay 5% of the system cost before December 31, 2019, you should be able to claim the full 30% tax credit.
Virtually any business or property owner is eligible for the ITC, including manufacturing businesses and sports facilities. Solar works best for companies with normal or higher electricity bills with enough roof space to accommodate the panels. But even those with small or crowded roofs may still be able to reap the benefits of solar by installing solar canopies in their parking lots, adding the benefit of covered parking.
(Organizations that are exempt from paying taxes, such as municipalities and nonprofits, cannot receive the ITC. But through Solect Energy’s partnership with Power Options, they can benefit indirectly from this major solar incentive. Solect or a third-party investment partner owns the system and applies for the ITC, then incorporates that benefit into lower electric rates charged to the city, town or organization hosting the solar array.)
Solar Energy Storage Qualifies for the ITC
Business owners increasingly look to battery backup systems to store the solar energy they produce. That energy is then used either to provide some electricity during power outages, or to “shift load” and save on electricity. Let’s explain that.
Utilities charge businesses different rates at different times of day. “Peak demand” times have higher rates, because it costs the utilities more to provide electricity to their customers when demand is high. Smart businesses are realizing they can offset those high rates by storing their inexpensive solar energy in a battery system and then using that energy during peak demand times.
Guidance from the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) details which battery storage systems qualify for the I
TC, including those installed after the original solar energy system was put in.
To qualify for the full 30% ITC, the battery system must be charged by the solar panels 100% of the time, and be installed at the same time as the solar panels. (This requirement is intended to encourage batteries as a way to make better use of solar generation, and to prevent people from charging batteries with electricity from the utility grid.) Read the NREL guidance here.
If these criteria are not fully met, businesses may still receive a portion of the tax credit and/or accelerated depreciation benefits when they install battery storage systems.
NREL also suggests that storage added to an existing solar energy system is eligible for the ITC, as long as the two systems are “in close proximity and under common ownership”.
Note: Solect is not a tax advisor. We strongly recommend that you seek the opinion of a qualified tax accountant to determine ITC eligibility for your specific circumstances.
How to Get Your 30% Federal Tax Credit
Solect has installed more than 500 solar energy systems in the past 10 years. Most likely, we’ve worked with companies just like yours, so we speak your language and we understand your specific challenges and goals.
We are a single-source vendor, filling multiple roles for you: financial guide, purchasing agent, engineer, equipment provider, system installer, and maintenance and monitoring service, all rolled into one.
We are your solar partner, dedicating ourselves to optimizing your solar performance and maximizing your financial gain. That commitment is why 99% of our service customers renew every year.
Take advantage of the Investment Tax Credit and act now to get the maximum benefit. Contact us today to get started.