Commercial Solar Incentives

Find out what Federal, State and Local Tax Incentives, Tax Credits, and Solar Rebates are available for your business when adopting solar technologies for the needs of your organization.

Solar Power Federal Incentives, Federal Rebates, and Federal Tax Credits

Federal stimulus packages make grants available for commercial solar installations while residential installations enjoy a 30% tax credit. For full explanations of the American Recovery and Reinvestment Act, and the ability to track down where the federal money is going for your state, visit www.recovery.gov.

Federal Investment Tax Credit (ITC) for Solar Energy

The federal government offers a corporate tax credit to companies that invest in clean and renewable energy. This is stated under U.S. Code Title 26, (Section 48(a)(3). These solar technologies include: Solar thermal electric, solar space heat, solar water heat systems and solar thermal process heat and photovoltaics (PV). This credit or grant is placed at 30%, although the credit for businesses has no dollar value restrictions. The ITC has extended this legislation until 2016.

Renewable Energy and other Federal Incentive Programs for Solar Power

Any company that decides to take federal credit should be aware of two major contingencies. Most incentives are stipulated by income on which federal tax is already paid. Therefore, incentives do not diminish the standard on which the ITC is calibrated. If a business receives refund money from the state government, it does not affect the standard used to determine the 30% tax credit because the business will already be paying federal income tax on this amount. Grants, buydowns, state rebates and other taxable incentives will fall into this system of classification.

There is a unique segment of incentives that are not taxable. One example is non-taxable refunds from utility companies, another is a non-taxable grant. A company will be required to reduce the systems cost basis before adding the ITC amount. For example, if a company receives $50,000 in nontaxable utility rebates, the accountants would subtract $50,000 from the cost of a solar energy system when determining the ITC amount. The IRS refers to this as subsidized energy financing, which is defined as financing provided under a federal, state or local program, a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.

Added incentives will not reduce the ITC cost if a company is currently paying federal income tax on said incentives. Ee aware of what is (and is not) acceptable under state and federal law by contacting authorized state regulatory representatives. The Database for Renewables and Efficiency (DSIRE) is the industry standard for such information.

Solar Energy related ITC and Deprecation Interpretation

The Modified Accelerated Cost-Recovery System (MARCS) offers expedient depreciation over a five year period. A renewable energy system is made more cost effective by MARCS and the 30% investment tax credit.

When calculating the depreciation rate on a commercial solar power system the tax depreciation basis is an obvious value in regard to the tax credit basis. The full 30% is not counted when considering the amount to mark down in the first year. The IRS came to the conclusion that the full value of credit and expedient deprecation would negatively influence the desire for incentives.

Regulations allow businesses to assign half the amount of the tax credit when evaluating the standard on which to determine depreciation. The tax depreciation thesis that a company claims for a solar energy system is diminished by 50% of the tax credit cost. Simply stated, if a business installs a solar electrical system for $100,000, the companys tax depreciation standard will equal projected costs minus half the permitted credit:

$100,000 – (50% x $30,000) = $85,000

The final initiative concerns earnings and profit. Gross income is diminished by many aspects in order to focus on net income. As depreciation expands, net income inflates. As income declines, so does the taxable dividends owed to shareholders. When calculating earnings, a business may dismiss negative adjustments and rely on estimates regarding the actual cost and overall success of the system. Our hypothetical company might determine a depreciation rate at $100,000 as the value of the system without considering whether or not the 30% credit was ever claimed. Imagine that 5-year depreciation translates to 20% eliminated each year. 20% of $100,000 is $20,000, 20% of $70,000 is $14,000.

This form of clean technology will clearly benefit bottom lines as well as ensure a longer life for the planet we call home.

Laws are ultimately prone to change under reconsideration. Remain vigilant in regard to future energy legislation.