Every year, commercial solar continues its meteoric rise as more of the world's most successful businesses tap into a clean and virtually limitless energy alternative to reduce operating expenses, secure their financial futures, and dramatically improve their bottom line. For companies like TJ Maxx, Target 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. Arizona State Tax Credit
Many states offer their own solar incentive programs. It’s best to consult a local solar expert to determine the benefits available in your area. Arizona's Commercial/Industrial Solar Energy Tax Credit Program currently offers a tax credit of 10% up to $25,000 for any one building. A single business can apply for this incentive twice per year to cover multiple buildings up to $50,000, or $25,000 per building.
To be eligible for the Arizona state tax credit, you first have to apply for the program on the AZ Commerce's website. We recommend doing this once you've signed your contract with your solar provider as you'll need a copy of the estimate, cost, panel count, and the projected energy savings. Once submitted, you'll receive a pre-approval letter, which you'll need for the post-approval application that will begin once your system is installed. Click here for the pre-approval application.
2. 30% Federal Tax Credit (ITC)
With the federal tax credit (ITC), you can deduct 30% 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 30% rate decreases to 26% starting in 2020, so it's important to take advantage of the higher rates while they last.
The IRS recently detailed the requirements a commercial solar energy project must meet in order to qualify for the ITC in a given year. There are 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.
3. MACRS Depreciation
Every commercial solar system qualifies for the Modified Accelerated Cost Recovery System (MACRS), which was established in 1986 as 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.
4. 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).
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!