The Solar ITC Tax Credit or Investment Tax Credit established by the Energy Policy Act has been encouraging solar investment since its inception, allowing solar customers to take 26% of their solar investment as a credit against their federal tax liability. The ITC applies to the complete costs of commercial solar systems, and there is no cap on its value (though the customer must have a tax liability to benefit from a tax credit).
In December of the 2021 the ITC Credit was extended at its 26% percent rate for an additional two years. This allows you to invest in a solar array that generates clean renewable power for your facility while receiving a 26% tax credit on the project cost. The ITC Credit falls under section 48 of the US Tax Code and according to that section ITC credit can be carried back on year and forward up to 20 years. This credit gives your business financial flexibility and lets you create revenue with money that would otherwise go toward your businesses tax liability.
Please note: at the end of 2022, the 26% tax credit will drop, so now’s the time to convert to solar energy to maximize your savings!
Accelerated Deprecation (MACRS)
Commercial clients may also benefit from accelerated depreciation (Modified Accelerated Cost Recovery System or MACRS) on their Solar investment. Solar Installations qualify for this method of deprecation and have an eligible cost recovery period of 5 years. This amount is calculated by reducing the projects depreciable basis by one half of the value of the current ITC amount. Therefore, after applying the 26% Federal ITC, 87% of the solar investment solar can be depreciated. Since the MACRS benefit is a deduction, the MACRS final cash impact depends on the companies marginal tax rate. This system also allows an owner to depreciate 100% of the project depreciable basis in year one if the owner has a large enough tax burden.
(For more information, refer to IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562.)
State and Local Incentives
Local Incentives are another great driver of solar investment in the commercial sector. The New England area has some of the best local incentives in the United States. For example, Massachusetts offers the Solar Massachusetts Renewable Target, SMART Program a per kWh production-based incentive that pays the customer cash for every kWh your solar array generates. This incentive is in addition to the net metered credits produced by the array.
At Oberon, our Commercial Solar Division is constantly monitoring for additional local solar incentives across the Northeast and New York to maximize your solar ROI. Each state has its own specific programs and Oberon is here to guide our customers through each state. Let us know where your business operates and our Commercial solar team will provide a detailed analysis of the benefits and the ROI of a Commercial Solar investment.
