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Oct 16th 2017

Solar Investment Tax Credit (ITC): What Businesses Need to Know

solar investment tax credit The federal solar tax credit, also known as the solar investment tax credit (ITC) allows businesses to deduct 30 percent of the cost to install a solar energy system from federal taxes. Falling under the umbrella of the Business Energy Investment Tax Credit, it applies to both residential and commercial solar systems and can offer a significant factor in helping companies make the decision to go solar.

Why is the Solar Investment Tax Credit important for my business?

Since the solar investment tax credit was established by the Energy Policy Act of 2005, there has been a compound annual solar growth of 76% and the ITC only continues to drive growth in the industry across the country.

As a dollar-for-dollar reduction in income taxes for businesses, a solar investment tax credit is based on the amount of investment in eligible solar property for solar systems on commercial (section 48) properties. As long as a business owns the solar energy system, they are eligible for the solar investment tax credit. If the system is leased, the tax credit will not be applicable.

What does the Solar Investment Tax Credit cover?

The solar investment tax credit covers eligible solar energy technologies, which include:

  • Equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat.
  • Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, are eligible.
  • Passive solar systems and solar pool-heating systems are not eligible.

Solar Investment Tax Credit Extension

Thanks to a bill passed by Congress in late 2015, the ITC remains at 30 percent of the cost of the system through 2019. After that, owners of commercial solar can expect to see a drop. Here are the solar investment tax credit extension specifics:

  • Businesses that have commenced construction through 2019 can take advantage of the current ITC equal to 30 percent.
  • In 2020, the ITC decreases to 26 percent.
  • In 2021, it drops to 22 percent.
  • And after 2021, the commercial and utility credit will decrease to a permanent 10 percent. At this time, there will be no federal credit for residential solar energy systems.
  • According to seia.org, “Commercial and utility projects which have commenced construction before December 31, 2021 may still qualify for the 30, 26 or 22 percent ITC if they are placed in service before December 31, 2023.”

Full-Service Engineering Solutions Provider

Considering the above timeline, the sooner businesses act, the more they can save on solar PV installation. At KMB, our solar engineering team offers a unique comprehensive, design-driven approach for each of our clients. As a full-service engineering solutions provider licensed in 50 states within the US, Europe and Puerto Rico, we engineer all installation types and have extensive solar experience. Contact us to find out more about PV design and layout considerations to help you improve your ROI and maximize your solar investment tax credit.