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The Federal Business Energy Investment Tax Credit

Solar power pays off. Literally.

 

Solar Incentives

The Investment Tax Credit (ITC) is a tax credit that reduces your organization’s federal income tax liability for a percentage of the cost of a solar system that is installed during the tax year. For projects that start construction from 2023 to 2033, this tax credit is for 30% of the qualified expenditures of a commercial solar system. Tax-exempt organizations can also take advantage of the tax credits through either a 30% direct payment or transfer of credit. In addition to the 30% tax credit, there are three bonus adders available

 

Tax Credits

The Investment Tax Credit (ITC) is a tax credit that reduces your organization’s federal income tax liability for a percentage of the cost of a solar system that is installed during the tax year. For projects that start construction from 2023 to 2033, this tax credit is for 30% of the qualified expenditures of a commercial solar system. Tax-exempt organizations can also take advantage of the tax credits through either a 30% direct payment or transfer of credit.

Domestic Content Bonus

There is a 10-percentage-point increase in value of the ITC if the project qualifies for the Domestic Content Bonus. To qualify for the domestic content bonus, all steel or iron used must be produced in the United States and a “required percentage” of the total costs of manufactured products need to be mined, produced, or manufactured in the United States.
The required percentage of manufactured products starts at 40% for all projects beginning construction before 2025, increases to 45% for projects beginning construction in 2025, 50% in 2026, and 55% for 2027 and beyond.

 

 

Energy Community Bonus

An energy community is one of three things:
1. A brownfield site – specifically, a site that has been contaminated by the
presence of a hazardous substance, pollutant, or contaminant (excluding
petroleum), including certain mine-scarred lands;
2. An area that, after 2009, had a 0.17% or more direct employment or 25% or
more local tax revenues related to the extraction, processing, transport, or
storage of coal, oil, or natural gas, and has an unemployment rate at or above
the national average for the previous year; or
3. A census tract in which a coal mine closed after 1999 (including any adjoining census tract), or a coal-fired electric generating unit has retired after 2009. Projects sited in an energy community are eligible for a 10-percentage-point increase in value of the ITC (e.g., an additional 10% for a 30% ITC = 40%).
Check Energy Community Eligibility Here

Low-Income Bonus

The low-income bonus is available to projects under 5 MW using the ITC and is subject to a 1.8GW cap per year. This bonus provides projects an additional 10% ITC for being located in a low-income community as defined by the New Markets Tax Credit or an additional 20% ITC for being classified as a “qualified low-income residential building project” or “qualified low-income economic benefit project.” To qualify for the credit, the financial benefits of the
solar facility must be allocated equitably between the residents.

Check Low Income Community Eligibility Here.

 

Depreciation

Businesses who claim the ITC can also use an accelerated depreciation schedule. Note that while the ITC is a tax credit, depreciation is a deduction. If the ITC is claimed, accelerated depreciation rules allow the full tax basis minus half the ITC to be depreciated over a MACRS 5-year schedule. In addition, a business can elect to claim a 60% bonus depreciation in 2024. The percentage of capital equipment that can be expensed drops 20% per year (e.g., 60% in 2024, 40% in 2025, etc.).

Does your business qualify?

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