Federal Incentives
The best time to take advantage of federal solar incentives is NOW.
Tax Rebates
Overview
The Federal Tax Credit is a federal solar tax rebate that 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 Alternative Minimum Tax relief.
The federal incentive for business energy investment available under 26 USC § 48 was expanded significantly by the Energy Improvement and Extension Act of 2008 (H.R. 1424), enacted in October 2008.
In 2015, the passing of the Omnibus Appropriations Act extended the residential and commercial ITC and revised the previous “placed-in-service” standard for qualification for the credit to a “commence construction” standard for projects completed by the end of 2023.
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.
Background / Authority
The federal Energy Policy Act of 2005 (H.R. 6) expanded the federal business energy tax credit for solar installed in 2006 and 2007. These provisions of the tax credit were later extended through December 31, 2008, by Section 207 of the Tax Relief and Health Care Act of 2006 (H.R. 6111).
The Energy Improvement and Extension Act of 2008 (HR 1424) greatly extended the duration and terms of the tax credit available to business owners.
Business energy credits are claimed by attaching Form 3468 to one’s tax return.
https://www.irs.gov/pub/irs-pdf/f3468.pdf
General Business credits are claimed by attached Form 3800.
https://www.irs.gov/pub/irs-pdf/f3800.pdf
Authority: Section 48(a)(3) (Investment Credit: Energy Credit) of the IRS tax code.
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:
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 – (50% x 30% x System Cost)
or
Tax Depreciation Basis = 85% x System Cost
For more information, see:
- RS Publication 946 (https://www.irs.gov/pub/irs-pdf/p946.pdf)
- IRS Form 4562: Depreciation and Amortization (https://www.irs.gov/pub/irs-pdf/f4562.pdf)
- Instructions for Form 4562 (https://www.irs.gov/pub/irs-pdf/i4562.pdf)