Commercial Federal Solar Incentives

The federal government encourages solar electricity by providing the following incentives:

  • 30% Energy Investment Tax Credit  OR 30% Federal Tax Grant

  • 5 year Accelerated Depreciation

  

Energy Investment Tax Credits/Grants

Overview

  • The 30% Federal Tax Credit allows businesses to offset their income taxes when they purchase a solar power system. The IRS tax code also allows for the tax credit to provide AMT relief.  

  • The federal business energy investment tax credit available under 26 USC § 48 was expanded significantly by the Energy Improvement and Extension Act of 2008 (H.R. 1424), enacted in October 2008.

    • This law extended the duration -- by eight years -- of the existing credits for solar energy,  and allowed taxpayers to take the credit against the alternative minimum tax (AMT), subject to certain limitations. The credit was further expanded by The American Recovery and Reinvestment Act of 2009, enacted in February 2009. 

  • Carryback / Carryforward Provisions

    • A commercial solar tax credit that a taxpayer cannot use can be carried back one year. If there is still an unused credit, then the credit can be carried forward 20 years.

  • The 30% Federal Tax Grant allows businesses to accept a grant payment IN LIEU of waiting for the aforementioned tax credit.

    • Administered through the U.S. Department of Treasury, the cash grant will be issued as a check to the eligible applicant within 60 days of eligible solar equipment installation.

    • The American Recovery and Reinvestment Act of 2009 (H.R. 1), enacted in February 2009, created a renewable energy grant program that will be administered by the U.S. Department of Treasury. This cash grant may be taken in lieu of the federal business energy investment tax credit (ITC). See the program web site for more information.

    • Only tax-paying entities are eligible for this grant program, and the grant will not count towards the applicant's taxable income.

Background / Authority 

Accelerated Depreciation

  • For solar property placed in service after 1986, the current Modified Accelerated Cost-Recovery System (MACRS) property class is five years.

  • For more information, see IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562. The IRS web site provides a search mechanism for forms and publications. Enter the relevant form, publication name or number, and click "GO" to receive the requested form or publication.

  • The depreciation schedule is:

 Table A-1. 5-Year Property
Half-Year Convention

Year 

Depreciation Rate for Recovery Period 

1

 20.00%

2

 32.00%

3

 19.20%

4

 11.52%

5

 11.52%

6

 5.76%


 

Depreciation Basis Calculation:

For the purpose of calculating depreciation on a commercial solar system, the "tax depreciation basis" is a distinct value-- separate from the tax credit basis. The tax depreciation basis that the taxpayer claims for the solar equipment must be reduced by 50% of the tax credit.

Formula:

Tax Depreciation Basis = System cost x (50% x 30% x System Cost)
Or
Tax Depreciation Basis = 85% x System cost

 

For more information, see:

 

 

Energy Facts

About 92 percent of the coal used in the United States is for generating electricity.