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How to Calculate the Federal Solar Investment Tax Credit

Hypothetical Investment Tax Credit

For Informational Purposes Only

To see a hypothetical estimate of what federal investment tax credit may be available to you, input the amount of your renewables project costs in the calculator below.
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Estimated ITC

The estimated solar investment tax credit noted as above may be available to you. Please contact your tax professional and renewables contractor for more information.

PLEASE NOTE THIS HYPOTHETICAL ESTIMATE IS FOR INFORMATIONAL PURPOSES ONLY AND ACTUAL TAX CREDITS MAY VARY OR MAY BE UNAVAILABLE FOR A PARTICULAR PROJECT OR TAXPAYER. THIS INFORMATION AND THE ESTIMATE ILLUSTRATED HEREIN DOES NOT CONSTITUTE TAX ADVICE, AND ALL INFORMATION CONCERNING TAX CREDITS SHOULD BE CONFIRMED WITH YOUR TAX ADVISOR. PLEASE READ THE ARTICLE BELOW TO LEARN MORE ABOUT THE ITC AND HOW IT MAY APPLY TO YOU.

TAX INCENTIVES ARE SUBJECT TO CHANGE OR TERMINATION BY EXECUTIVE, LEGISLATIVE, OR REGULATORY ACTION AND DUKE ENERGY SUSTAINABLE SOLUTIONS MAKES NO REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OR AVAILABILITY OF ANY TAX CREDIT ILLUSTRATED IN THIS DOCUMENT

***Please note that this is for informational purposes only. We cannot offer tax advice and all information concerning tax credits should be confirmed with your tax advisor. ****

 

What is the federal solar Investment Tax Credit?

Is your organization considering commercial solar?  

If so, here’s some great news: The Internal Revenue Code provides an Investment Tax Credit (ITC) for investments in commercial solar.  

That means your company may be able to qualify for an ITC that can be used as a dollar-for-dollar reduction to its U.S. federal income tax. (Just remember, as is often the case with tax incentives, the solar ITC is subject to certain limitations. Please talk with your tax advisor for additional guidance.) 

So, if you or your organization is interested in investing in solar and would like to take advantage of the solar ITC, the time to act is now. 

Keep reading to learn more about the solar ITC and how your business may be able to qualify for it.  

 Get help with your solar ITC  

 

Does my business qualify for the solar ITC? 

aerial view of solar installation for schools

To qualify for the solar ITC, the commercial solar energy system must generally be located in the U.S. and be: 

  • Tangible depreciable or amortizable property (for U.S. federal income tax purposes)  
  • This means land and intangible assets – like power purchase agreements – are ineligible. 
  • New  
  • Keep in mind that under the 80/20 rule, energy property may be considered new even if it contains used components, as long as the value of the used components is not more than 20% of the energy property’s total value. 
  • Used by a business subject to U.S. federal income tax 
  • That means that it generally cannot be used by tax-exempt entities, governmental entities, or foreign persons or entities. 

 

What are the ITC deadlines for commercial solar energy systems? 

 

solar itc stepdown

The amount of credit your organization may be eligible for is generally equal to a percentage of the solar energy system’s cost: 

  • 30% credit for solar projects that began construction before 2020 and are placed in service before 2026 
  • 26% credit for solar projects that begin construction in 2020, 2021, or 2022 and are placed in service before 2026 
  • 22% credit for solar projects that begin construction in 2023 and are placed in service before 2026 
  • 10% credit for solar projects that begin construction after 2023 or which begin construction earlier but are not placed in service before 2026  

Please keep in mind that a solar energy system is generally considered as “placed in service” once: 

  1. The taxpayer has taken control of the property 
  2. All licenses and permits have been obtained  
  3. All critical testing has been completed 
  4. The system has been synced with the power grid (or properly connected to an inverter) and is able to deliver electricity, and 
  5. The system has begun daily and regular operations (Please note: The property doesn’t need to operate at full rated capacity, but should be capable of producing more than a minimal amount of saleable electricity) 

Also, the “start of construction” is established by either: 

  • Beginning “physical work of a significant nature” on the project (also known as the Physical Work Test) or 
  • Incurring at least 5% of the solar energy system’s total qualified cost (also known as the Five Percent Safe Harbor)  

Your organization may be required to provide evidence to demonstrate that, after starting construction, it maintained continuous progress toward project completion (or that the project was placed in service by a certain date). This requirement is generally automatically satisfied under a Continuity Safe Harbor if the solar energy system is placed in service within four calendar years (or 10 calendar years, for projects that are constructed on federal land) after the year construction began. 

However, to address delays related to the COVID-19 pandemic, the IRS extended the four-year period to six years for projects that started construction in 2016-2019 and five years for projects that started construction in 2020.  

 

Get started on your solar project 

 

How is the solar ITC calculated? 

The solar ITC is generally calculated by multiplying the applicable ITC percent (which would be between 10% and 30%, depending on the year construction began and whether placed in service by the deadline to qualify for a greater-than-10% ITC) by the cost of your organization’s solar energy system, including equipment such as: 

  • Solar PV panels, inverters, racking and balance-of-system equipment 
  • Step-up transformers, circuit breakers and surge arrestors 
  • Storage devices (provided that at least 75% of the energy source comes from solar) 

Use the calculator above to estimate your hypothetical solar ITC amount.  

 

How is the solar ITC claimed?

The solar ITC is claimed on IRS Form 3468, which must be attached to your organization’s U.S. federal income tax return for the year your solar property was placed in service.

 

Is the solar ITC refundable?

Solar Tax Credit 2020

The solar ITC is not a refundable credit – it can only be used against your organization’s U.S. federal income tax liability.  

However, the solar ITC may be carried back one year and forward up to 20 years for companies that don’t have sufficient tax liability to offset for the tax year their solar energy system was placed in service. 

A deduction is allowed for 50% of any portion of the solar ITC that remains unused after the 20-year carry forward period.
 

Ready to start your commercial solar project? 

As you can see, if you’re buying a solar energy system, timing is everything. 

We know investing in solar energy is an important financial decision for your business, and our team is here to help guide you through the process. 

Fill out the contact form below or call 844.732.7652 during business hours, and one of our solar energy advisors will talk to you about your ITC eligibility. 

 Get started 

 

 

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