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How to Get the Most Out of the Solar Investment Tax Credit Extension

The solar Investment Tax Credit (ITC) has been extended, granting significant federal tax savings to owners of eligible solar photovoltaic systems through the end of 2022. Want to learn how you can take advantage of the solar ITC for your business? Keep reading to find out more.

What Is the Solar Investment Tax Credit?

The solar ITC is a federal tax incentive that encourages the residential and commercial adoption of solar energy — and it’s working. According to SEIA, “Since the ITC was enacted in 2006, the U.S. solar industry has grown by more than 10,000%.” The ITC sparks solar growth by allowing the owner of a solar system (the entity that is financially invested in it) to receive a “dollar for dollar” tax reduction equal to a certain percentage of the system’s cost. For solar installations initiated by the end of 2022 (and going into operation by the end of 2025), owners of eligible systems will receive a 26% tax credit.

In its current form, the ITC is designed to decrease (or “step down”) in predetermined increments. It once offered solar owners a 30% tax savings, but fell to 26% at the end of 2019. The credit was set to drop again at the end of 2020 until it was extended through the end of 2022 by Congress. After 2022, the ITC will step down to 22% for system installations that begin by the end of 2023, and 10% for those that begin afterward, provided they are commercial installations. (Most residential systems will not be eligible for the ITC past 2023.) So, if you’re considering solar for your business, the time to act is now so you can enjoy the maximum tax benefit.

How to Take Advantage of the Solar ITC

Companies ultimately claim the ITC by filing IRS Form 3468. The nature of your business as well as the type of solar system you’re considering, and how you choose to pay for it, are all factors that affect solar ITC eligibility. A company wanting to take advantage of the incentive must be based in the United States and carry federal tax liability (though there are exceptions). The solar system it installs must be largely new, with used equipment accounting for no more than 20% of the system’s total value. Perhaps most importantly, in order for a company to directly claim the ITC, it must own the system outright opposed to entering into a third-party arrangement such as a solar lease or power purchase agreement (you can read more about solar ownership options here). In short, the entity that owns the system on paper gets the tax break.

The solar ITC also provides tax savings to businesses that opt for energy storage as part of their system, so long as the batteries are charged using renewable energy more than 75% of the time. Solar-plus-storage is a smart investment since the supplemental energy can be used when the onsite power need is at its highest, during which utilities may impose higher “peak demand” charges.

As with most tax matters, there are many more details that can affect a company’s ability to take advantage of the solar ITC. That’s why it’s essential to work with an experienced partner like EnterSolar, and your own tax professional, to make sure you’re maximizing the monetary benefits of a solar investment. Ready to take the next step? EnterSolar can help you determine if your business is eligible for the ITC, as well as explain state and utility incentives that might also be available in your area. Not only that, we will guide you through the entire solar installation process — from system design to ownership and financing options — providing a turnkey service just like we’ve done for Amazon, Target, Medline, and many other top corporate clients. Click here to set up a free consultation.

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