The Federal Business Energy Investment Tax Credit
Solar power pays off. Literally.
As trusted solar leaders in North Carolina, we’re current on all of the applicable tax credits and rebates. We’re proud to help our commercial customers identify all of the available solar energy tax credits, rebates, and other financial incentives associated with commercial solar energy systems.
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% increase in value of the ITC (for a potential total of 40%) if one 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.
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.
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 an 80% bonus depreciation in 2023. The percentage of capital equipment that can be expensed drops 20% per year (e.g., 80% in 2023, 60% in 2024, 40% in 2025) until the provision drops to 0% in 2027.
Does your business qualify?
We can help you figure it out if you aren’t sure! Give us a call.