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Investment Tax Credit for Commercial Solar
*DISCLAIMER: While this page discusses solar tax credits, you should always consult your tax professional for your specific situation. We do not assume responsibility for your tax situation or credits.
The investment tax credit (ITC) is one of the best commercial solar incentives available in the United States. Through the ITC, businesses and other commercial entities can reduce their federal corporate income tax liability by 30% of their solar photovoltaic (PV) installation costs.
This page will cover everything you need to know about claiming the commercial solar panel tax credit for your business.
A Brief History of the Solar Investment Tax Credit
The solar ITC was first introduced in 2006 for both residential and commercial solar installations. The tax credit has proven hugely successful and is a key driver behind clean energy installations in the United States. The ITC has been extended several times as a result, most recently by the Inflation Reduction Act of 2022. Thanks to this extension, the solar ITC is often referred to as the Inflation Reduction Act solar panel tax credit.
Current Timeline of the Commercial Solar Tax Credit
The commercial solar tax credit is on a declining schedule. It will be available at its 30% or more value until the end of 2032. It will then begin to phase out unless Congress issues another renewal. The current schedule is as follows:
- Projects entering construction in 2023-2033: 30% commercial solar tax credit
- Projects entering construction in 2034: 22.5% commercial solar tax credit
- Projects entering construction in 2035: 15% commercial solar tax credit
- Projects entering construction in 2036 and beyond: ineligible for commercial solar tax credit
Commercial Solar Energy Tax Credit Eligibility Requirements
To be eligible for the business solar panel tax credit, the solar system must meet the following requirements:
- Be located in the United States or its territories
- Use new and/or limited previously used equipment
Eligible Expenses for the Commercial Solar ITC
The solar credit for businesses is calculated based on the cost of the system, which includes several components. Eligible expenses include:
- Solar panels, inverters, racking, and balance-of-system equipment
- CSP equipment necessary to generate electricity, heat or cool a structure, or provide solar process heat
- Sales and use tax on eligible solar equipment
- Solar installation costs
- Step-up transformers, circuit breakers, and surge arrestors
- Energy storage devices with a capacity rating of 5-kilowatt hours or greater (does not have to be charged by solar)
- Interconnection property costs (for projects 5 MW or less)
Bonus Credits for the Commercial ITC
If you’re claiming the federal solar tax credit for your business, you may also be eligible for bonus credits. There are three bonus credits that can be claimed in addition to the commercial ITC:
- 10% Domestic Content Bonus – All steel and iron must be produced in the US. A percentage of the total cost of manufactured products must be mined, produced, or manufactured in the US (40% for projects beginning construction before 2025).
- 10% Energy Community Bonus – Project must be located in a certified energy community.
- 10-20% Low-Income Bonus – Project must be located in a low-income community, on Indigenous land, on a qualified low-income residential building, or be a qualified low-income economic benefit project. System must be 5 MW or smaller to qualify.
Nonprofits Are Eligible for Direct Pay Through the ITC
Historically, nonprofit organizations have been unable to benefit from the commercial ITC because they do not pay taxes and therefore cannot claim a tax credit. The Inflation Reduction Act solar tax credit changed that by creating a direct pay option for nonprofit organizations. Now, public schools, houses of worship, and other not-for-profit organizations can install solar panels and receive a direct payment worth 30% of their total installation costs.
Learn More About Commercial Solar Installation & Incentives
Boston Solar is the leading commercial solar company in Massachusetts with over 10 years of experience. We’ve completed over 5,000 solar installations and have worked with businesses and nonprofits of all sizes, including the MGM Music Hall at Fenway. Reach out to us today to explore solar options for your business. We will help you maximize your tax benefits and incentives.
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