Every year, commercial solar continues its meteoric rise as the world's most successful businesses continue to tap into a clean and virtually limitless energy alternative. Going solar is one of the best ways to reduce operating expenses while dramatically improving bottom line performance. For companies like Sub-Zero Group, Inc., Voya Financial, and PepsiCo, who have all recently gone solar right here in Arizona, it’s no longer a question of “if” solar will save them money, but how much and how quickly.
Despite this growing acceptance and popularity, a number of small and medium-sized business owners are still largely unaware of the available tax credits that can dramatically reduce the costs of installing their own solar energy plant.
Below is a quick summary of the most utilized commercial solar tax incentives. Our commercial solar team can also help you determine if there are any additional programs available in your specific industry or line of business. So read on and learn how available incentive programs can help you dramatically offset your commercial solar purchase while setting you on a path toward a cleaner and a lower-cost energy future.
1. 26% Federal Tax Credit (Drops to 22% in 2023)
With the federal tax credit (ITC), you can deduct 26% of the cost of your solar energy system from your business taxes. This is a dollar-for-dollar credit toward in the income taxes the company claiming the credit would otherwise have to pay the federal government. The 26% rate decreases to 22% starting in 2023, so it's important to take advantage of the higher rates while they last.
The best part is that your commercial solar project only needs to be started in 2020 in order for your business to claim the full 26%. The IRS outlines two methods that can be used to prove that a commercial solar project qualifies. The first is the Physical Work Test, which must show the commencement of physical work of a significant nature. The second is the Five Percent Safe Harbor Test, which requires that the taxpayer demonstrates that they've payed five percent or more of the total cost of the facility in the year construction begins. Click here to read more about the revised IRS requirements.
2. MACRS Depreciation
Every commercial solar system qualifies for the Modified Accelerated Cost Recovery System (MACRS), which is a method of depreciation in which a business’ investments are recovered, for tax purposes, over a specified period of time via annual deductions. Qualifying solar equipment is eligible for a cost recovery period of up to five years.
As part of the Tax Cuts and Jobs Act of 2017, qualifying equipment and property is eligible for an increased bonus depreciation of 100% in year one. This property must be in service after September 17th, 2017 and before January 1, 2023. Click here to learn more about the MACRS depreciation.
3. Arizona State Depreciation
The state of Arizona also has a depreciation system in place that can be applied towards qualifying solar equipment. The rules for this depreciation are the same as the federal department's MACRS depreciation (see #3).
4. USDA REAP Grants
The Rural Energy for America Program (REAP) grant was established by the USDA to assist agricultural producers with renewable energy investments. This REAP grant is available in select rural towns across the country with a population below a certain threshold and covers 25% of a solar investment up to $500,000 for qualifying businesses.
There’s never been more help available to those businesses who’d like to start offsetting the rising cost of energy with their own solar power plant. Contact our commercial solar team to find out what’s available for your business. Act now before these and other incentives expire!
*This blog has been updated since its original publication to reflect 2020 solar incentives.