There are plenty of tax credits out there for businesses, but if there’s one that you want to take advantage of in 2019, it’s the Solar Investment Tax Credit (ITC). That’s because the credit is at its peak this year and in 2020 it’s going to drop.
What is the Solar Investment Tax Credit?
In 2006, the federal government enacted the tax credit to help businesses and residents switch to solar power.
It allows for a 30 percent tax credit for the installation of solar in a residence or business. The rule is that you must “commence construction” before December 31, 2019, to be eligible for the full 30 percent tax credit.
The Solar Investment Tax Credit is Phasing Out
After this year, the tax credit will slowly phase out.
It will step down to 26 percent in 2020 for both commercial and residential.
In 2021, it will step down to 22 percent for both commercial and residential.
In 2022, the residential credit completely disappears and the commercial credit drops down to 10 percent permanently.
All of this bars an act of Congress, but at this time it looks like this is how things are going to go.
How Do I Qualify for the Solar Investment Tax Credit?
To claim the Solar ITC, you must install the photovoltaic (PV) solar panels. The U.S. Office of Energy Efficiency & Renewable Energy says, “When the sun shines onto a solar [PV] panel, photons from the sunlight are absorbed by the cells in the panel, which creates an electric field across the layers and causes electricity to flow.”
What Qualifies for the Solar Investment Tax Credit?
The Solar ITC doesn’t just cover 30 percent of the cost of the solar panels but also covers 30 percent of the work needed to get the panels installed and 30 percent of the installment of the energy storage systems that accompany the panels.
Most solar providers can give you details on what is and is not covered under the Solar ITC.
Do I Have to Use a Specific Contractor to Qualify for the Solar Investment Tax Credit?
No. Unlike some programs, the federal government does not have specific contractors that it requires you to use to qualify for the tax credit. It’s in your best interest to find a reputable contractor that will offer a competitive price, but that’s just good business practice, not something the federal government requires.
Will I Still Receive the Solar Investment Tax Credit if I Lease the Solar Panels?
No. The person who pays for the solar panels is the one that gets the credit. If you’re leasing from the solar company or even leasing to own, it’s the solar company that will receive the tax credit.
If you’re leasing to own, it may be in your best interest to shop around for a solar company that will work the tax credit into the cost of the installation so that the 30 percent credit goes toward paying off the cost of the installation.
State Solar Benefits
That 30 percent tax credit is just what the federal government offers, many states in the U.S. offer their own tax credits and incentives for businesses to add solar power.
The Dsire USA website has a list broken down by state here.
Is the Solar Investment Tax Credit Worth It?
Of course, there’s no reason to install solar panels if you don’t end up saving money in the end.
According to the site Energy Sage, there’s a large initial outlay of cash for solar installation but anywhere between 5 and 10 years after the investment, you should hit a breakeven point.
How much you pay out initially is dependent on how large of a building you’re putting solar panels on. While the breakeven point will depend on the roof size, amount of shade on that roof, and the initial outlay of cash.
To determine if the Solar ITC is worth it for your business, it’s important to take all factors into account. Think about how much money you’ll have to pay upfront and how long it will take to recoup that investment. You also want to look at how much you stand to save every year in electricity costs.
Increased Appraisal Value
You should also look at possible long term benefits. According to a study published in the Appraisal Institute’s Magazine, the addition of solar panels increased the value of homes across six states.
It stands to reason that solar panels could also increase the value of your commercial property.
As always, the advice in this post is a general overview and cannot be considered advice specifically for your business. It’s important that before you take any steps, you consult your accountant or contact us here at the Tax Credit Group. We’re always happy to answer any questions you may have.
If you’re looking for other ways to help the environment, be sure to check out our post Ways to Go Green and Save Your Business Money.
And if your company spends a lot of money every year on transportation, it might be a good idea to look at our post on Alternative Motor Vehicle Tax Credits.