Tax season is here and everyone is hanging on the edge of their seats to find out how big their refund will be. If you caught the green fever in 2018 and went solar, you’re in luck. You’ll likely reap the benefits of your solar investment tax credit this year.
If you haven’t yet made the switch, now may be a good time to figure out the best strategy for your business.
Over the next several years, the federal income tax credit (FITC) percentage will be decreasing, which means businesses investing in solar will receive less and less of a solar investment tax credit with each passing year. On the other hand, the cost of solar power systems is also going down as time marches on.
More commercial businesses are investing in solar to benefit from long-term fixed power costs, a positive impact on load shape, and lightening the burden on the environment – to name just a few.
Here are the key factors you need to consider when deciding when to go solar.
Solar Investment Incentives, Tax Credit & Depreciation
There are three major sources of value to consider when making a solar investment:
- Utility-Based Incentives – Your utility company may give you some form of preferential credit as a thank you for going solar.
- Federal Income Tax Credit (FITC) – The federal policy that has incentivized purchasing solar power systems by providing up to a 30% tax credit.
- The Modified Accelerated Cost Recovery System (MACRS) – According to SEIA, “Qualifying solar energy equipment is eligible for a cost recovery period of five years. For equipment on which an Investment Tax Credit (ITC) grant is claimed, the owner must reduce the project’s depreciable basis by one-half the value of the 30% ITC. This means the owner is able to deduct 85 percent of his or her tax basis.”
Utility-Based Incentives
While utility-based incentives are an added bonus, they’re not nearly as sophisticated or impactful as the FITC or MACRS. Also, because utility-based incentives vary from region to region, it’s difficult to predict how they may impact your business’s bottom line.
For example, businesses based in Austin, TX, may benefit from a performance-based incentive (PBI) rate this year, but this opportunity is scheduled to be phased out soon. Similarly, CPS Energy in San Antonio and Oncor in the DFW area each offer great incentives that can significantly boost the performance of your solar investment.
However, these incentive programs are fleeting and there are several factors involved in whether or not your business will be eligible and able to obtain funds. Consult with a trusted energy advisor to determine how much your business may obtain and how to finesse the often tedious process of getting the incentive funds your project deserves.
Federal Income Tax Credit
The FITC is a true solar investment tax credit that has the potential to dramatically impact your business’s financial health. In addition to the potential for reduced electricity costs and more reliable energy, going solar can also provide your business with a bit of relief when Uncle Sam calls his tab.
Since its establishment in 2015, the FITC policy has promised that the potential solar investment tax credit a business can receive will gradually decrease over the next several years. The peak of the solar investment tax credit will be 30% in 2019 and will step down to 10% by 2022.
Many companies hesitate (understandably) to go all-in on big investments like switching to renewable energy. However, the current FITC drastically improves the ROI on such projects, particularly in areas of the country where energy costs are lower than the national average – like Texas.
Translation: 2019 is the year to capitalize on the biggest solar investment tax credit that will likely ever be available.
MACRS
The Modified Accelerated Cost Recovery System (MACRS) is another system with the potential to drive the ROI of your solar investment.
With the MACRS, your business can claim a depreciated value on the physical property of your solar power system and receive annual tax deductions that can help your business.
According to SEIA, “Qualifying solar energy equipment is eligible for a cost recovery period of five years. For equipment on which an Investment Tax Credit (ITC) grant is claimed, the owner must reduce the project’s depreciable basis by one-half the value of the 30% ITC. This means the owner is able to deduct 85 percent of his or her tax basis.”
Couple this with the recently decreasing cost of solar installation and it’s clear that now is the time to make the switch to get the biggest savings from all sides.
Going solar may seem like a big leap. However, with a solar investment tax credit, utility-based incentives, and depreciation deductions, your business can get into solar right now with and ROI that creates a big bang for your bottom line.
Still have questions? Consult with a trusted energy advisor to make sure you’re making the smartest move possible for your business.
