How a Solar Energy Investment Tax Credit Could Work for Your Business
Harnessing the Power of the Sun for Energy and Your Pocket Book
Finding ways to minimize your taxes as a business can be daunting. You’ve probably covered the basic tax minimization strategies for your construction business with your CPA. However, you may not have realized the opportunity to implement something that is sustainable, good for the environment and your taxes.
The solar Investment Tax Credit (ITC) is a 30% federal tax credit for solar systems on commercial (under section 48) properties that, under current law, remains in effect through December 31, 2019.
How Does the Solar Investment Tax Credit Work?
Remember that a tax credit is a dollar-for-dollar reduction in the income taxes that you would otherwise have to pay the government. With a credit, you can take the amount directly off your tax bill, rather than as a deduction, in which case, the value would be dependent on your tax bracket.
Here are three reasons why you may want to implement solar into your operations:
The Federal Investment Tax Credit will be reduced after three years.
The PATH Act of 2015 extended the 30% tax credit through 2019. It will then drop to 26% in 2020 and 22% in 2021. To receive this tax credit, solar-electric, solar water heating, fuel cell, small wind energy or geothermal heat pump systems must be placed in service between January 1, 2006 and December 31, 2021. After that, this credit will be reduced to 10% for commercial projects and disappear for residential installations.
Electricity costs are starting to increase exponentially.
Knowing that the cost of energy will rise, why not use a resource that has zero costs associated with your commercial property? Installation costs for solar have leveled off, which means that being a late adopter has its benefits in this case. You can view this as an opportunity to take control of your energy costs.
Solar is financially beneficial in multiple ways.
The commercial solar market has seen an increase in financing options for companies that want to install solar. This may include capital or operational leases, power purchase agreements (PPA), and construction loans. These incentives can help make your project’s cash flow position from the start.
Business Saving Example
| Business Savings | |
| Improvement costs for business | $35,000 |
| State rebate (full amount is considered taxable income because of business status) | $15,000 |
| Total cost to business ($10,500 is applied to quarterly tax bill) | $9,500 |
| Total tax credit (may be used for up to five years – 30% of $20,000) | $6,000 |
Next Steps
According to Solar Energy Industries Association, investing in renewable energy can play a vital role in spurring economic growth, ensuring U.S. global competitiveness, lowering energy bills for construction businesses and reducing pollution.
Learn more about the maximum allowable credits and equipment technology here. Find out how to calculate your solar Investment Tax Credit here.
Our team is passionate about helping our construction clients find ways to help you achieve your goals. If you would like to further discuss the benefits of implementing solar into your construction business, please feel free to contact our construction team.
