Everything You Should Know About Commercial the Solar Tax Credit
If you’re considering installing a solar system, one of the most important aspects that will help you make the decision is the federal solar tax credit. This credit has helped thousands of businesses across the country make the jump to renewable energy and save money on utility costs, and yours could be next!
As we race into the fourth quarter of 2020, another big milestone looms: the credit is currently worth 26% of the cost of a solar system purchased in 2020, but will step down to 22% on January 1st, 2021. For businesses that are planning to incorporate solar into their facilities in the future, one thing is for certain – the time is now.
For those interested in going solar but aren’t quite sure what this credit is, you’ve come to the right place! Before you can apply for the solar tax credit, you should understand exactly what it means for you as a business owner.
What exactly is the Solar Tax Credit?
Initially introduced in 2005 by the Energy Policy Act, the federal investment tax credit (ITC) was a bill passed by Congress and later extended multiple times. The purpose of this bill was to make it easier for both home and business owners to purchase solar systems and invest in renewable energy. As the cost of solar drops, it becomes more accessible for everyone to convert, saving them money on utility bills and reducing their carbon footprint in the process.
The federal solar tax credit is not the same as a tax deduction — it’s used as a way to reduce your owed taxes to the IRS, not deduct from your income. As long as you or your company purchased your solar system (as in, you don’t lease the system, you own it yourself), and you pay federal taxes, you are eligible for the solar tax credit.
To calculate how much you will receive, you can multiply the cost of your solar system by 26%, the current credit percentage. For example, if your system costs $10,000, you would use the equation $10,000 x 26% to determine that your solar tax credit equals $2,600. In addition to saving you money with a tax credit, your solar investment will continue to help you reduce utility costs and energy output.
To learn more about all of the ways solar can help, check out our blog “Benefits of Solar.”
When Should I Install a Solar System to Qualify for this Credit?
If a business elects to move forward with a solar system in 2020, their project will be eligible for the full 26% tax credit even if it is built in 2021 thanks to the Safe Harbor established by the IRS for solar investments. All that is required is an investment of 5% of the total project cost to lock in the full 26%. For the average commercial system, the difference between a 26% and 22% tax credit is about $8,000.
Until December 31st, 2020, the solar tax credit will remain at 26%, but as of 2021, it will drop to 22%. In order to get the most money possible, you should install your solar system as soon as possible! You could save yourself and your business thousands of dollars if you purchase a system by the end of the year.
How Do I Claim the Solar Tax Credit?
You can claim this credit when you file for your yearly tax return. If you have an accountant to handle your finances, make sure to alert them that you’ve installed a solar system so they know to include that when filing your taxes.
Are There Other Ways to Save Money on a Solar System?
In addition to the tax credit, solar is a depreciable asset under the Modified Accelerated Cost Recovery System (MACRS). According to the Solar Energies Industries association, MACRS is a “method of depreciation in which a business’ investments in certain tangible property are recovered, for tax purposes, over a specified time period through annual deductions.”
Most businesses are eligible for bonus depreciation and can take the full deduction in Year 1. Depending on a businesses’ federal tax rate, this is an extra 17% – 30% off the total cost of the system.
Finally, many businesses can qualify for state or utility rebates and incentives that improve a solar project’s ROI. In South Carolina, businesses can take a 25% state tax credit. North Carolina businesses served by Duke Energy may be eligible for the Duke Energy Solar Rebate.
How Solar Can Benefit Your Business
For businesses, solar gives you a sizable return on investment, meaning you’ll see your investment more than pay for itself in a short amount of time. Plus, the money you’ll save monthly that you’d normally be spending on your utility bills will be more than worth it! You can reduce your operating expenses while paying off your solar panels.
In addition to being a sound investment, you will earn recognition within your community by showing your business’ commitment to the environment.
Going Solar with Renu Energy Solutions
With over 3,000 installations since 2010, Renu Energy Solutions is an expert in the solar industry. We specialize in both commercial and residential projects and are happy to help our customers on their solar journey from start to finish. Whether you’re just beginning to research your solar options or you’re ready to install a system tomorrow, Renu can assist you in your efforts to save both money and energy! If you’re interested in converting to clean, renewable energy, give us a call or email us for a free consultation.
As businesses continue to push sustainability goals and initiatives in 2020 and beyond, savvy planning on the front end can end up saving thousands on a solar investment. If you think your business might be interested in solar, investigate now – thousands of dollars are on the table and January 1st is right around the corner!