Solar Investment Tax Credit – Disclaimer: This website provides an overview of the federal investment and production taxes available to businesses, nonprofits, and other entities with infrastructure. This is not professional tax advice or other professional financial guidance and is subject to change based on additional guidance from the Treasury Department. It should not be used as the sole source of information when making purchasing decisions, investment decisions, tax decisions, or when entering into any other binding agreement.
Solar panels on the roof of the Tulsa Central Library in downtown Tulsa, Oklahoma. Photo by Jared Heidemann.
Solar Investment Tax Credit
There are two tax credits available to businesses and other organizations such as nonprofit organizations and local and tribal governments that purchase solar energy systems (see the Homeowner’s Guide to the Federal Tax Credit for solar photovoltaic for specific information):
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Generally, project owners cannot claim the ITC and PTC for the same property, although they can claim different credits for co-located systems, such as solar and storage. , subject to other instructions issued by the IRS. Other types of storage and innovation technologies are also eligible for ITC but are beyond the scope of this site.
Solar systems that start operating from 2022 and start construction before 2033 receive 30% ITC or 2.6¢/kWh PTC if they meet the performance criteria issued by the Ministry of Finance[ 4] or less than 1 megawatt. (MW) in size.
The ITC is an advance tax credit that does not change with the efficiency of the system, while the PTC can provide better income because the tax is earned over time. Choosing an ITC or PTC depends largely on the cost of the project, the amount of sunlight received, and whether it qualifies for capital gains tax. See the calculation example below.
In general, large scale PV projects will gain more value if they choose PTC in a sunny location, while the project is in an area that is not very sunny, expensive to install, or qualified. ITC.
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Smaller PV and CSP projects often get more value using ITCs, especially if they can use lower compensation, which is not the case with PTCs. However, as the cost of installed PV and CSP systems decreases over time (or generates more electricity), PTC may become more attractive in any field.
While PTC is calculated based on the amount of electricity produced by a system, ITC is calculated based on the cost of constructing the system, so it is important to understand the input costs. .
To calculate the ITC, you multiply the applicable mortgage rate by the “tax base” or the cost of the qualifying property. Eligible properties include:
Generally, the cost of installing a roof is not acceptable, except for the additional fees or money you have to spend if the roof is not used for solar energy. These costs may include solar shingles, solar tiles or the additional cost of installing a reflective roof covering that increases electricity production.
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Solar PV systems may be eligible for the ITC if the primary purpose of the solar PV system is to generate electricity and other uses of the system is happening. While structural components are generally not eligible for the ITC, the IRS notes that a component is “specially designed, in essence, to be a part of a machine or tool.”  – Therefore, PV integrated in a building, such as solar windows, shingles or facades that provide two functions, meet the ITC.
To qualify for a full ITC or PTC, the project must meet the Treasury Department’s staffing requirements: all construction, alteration, and repair costs—for of the first five years of the project. —must be paid at the local rate. In addition, a percentage of the total work hours for a project must be done by the student. The percentage increases over time, starting at 10% for projects starting in 2022, 12.5% for projects starting in 2023, and 15% for projects from 2023. The project starts after 2023.
The project can settle the applicable wage requirements, if they were not met in the first place, by paying the affected employees the difference plus interest and paying a fee of $5,000 to those concerned employees. The learning requirement may also be met if a good faith effort is made to comply or if a penalty is paid to the Treasury in the amount of $50/hour for non-compliance. Both penalties are increased if the request is willfully ignored.
The ITC and PTC provide additional credits in addition to credits that meet the project’s performance requirements.
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To qualify for domestic content benefits, all iron or steel used must be made in the United States and the “required percentage” of the total cost of the finished product (including parts) of houses need to be mined, repaired, or repaired there. United States.
Projects meeting the minimum domestic content are eligible for a 10 percent increase in the ITC value (eg 10% additional for 30% ITC = 40%) or 10% of PTC value (eg add 0.3 ¢/kWh for 2.6 ¢/kWh).
The “mandatory rate” of output starts at 40% for all projects starting construction before 2025, increasing to 45% for projects starting in 2025 , 50% for projects starting in 2026 and 55% for projects starting construction after 2026. 
A project located in a community receives a 10 percent increase in the amount of ITC (eg 10% extra for 30% ITC = 40%) or a 10 percent increase in the value of PTC.
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The lower allowance is only available for projects using ITC and is subject to a program cap of 1.8 GW per year. This bonus provides projects under 5 MW:
The 1.8 GW program cap is provided by the IRS for the project, which can be converted into an unused annual grant for three years. The project must be completed within four years of receiving the grant.
If Congress does not decide to renew them, the ITC, PTC, and related bonuses will begin to disappear from projects that begin construction in 2032 or in a year to be determined by the Secretary of the public fund that the construction is completed. the reduction of emissions from US electricity production compared to the 2022 academic year (or later).
Systems larger than 1 MW that start construction 60 days or more after the Ministry of Finance’s guidance and fail to meet the performance requirements will be cut by 80%, including compensation local and community wages. Example calculation:
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Organizations that do not pay federal taxes, such as nonprofit organizations or local governments, can take advantage of the loan through direct payments or credit transfers.
The IRS has not issued guidance on whether there is a difference in requirements for projects deemed to have begun construction in light of the new IRA requirements. Based on the guidelines published before the IRA, a solar project is considered to have started construction if:
Both tests require that the project progress to completion after construction begins, which the IRS automatically considers satisfactory if the project does not exceed four years. constructed on federal land ) after the year construction begins (this four-and-ten-year period is called the “continuing safe harbor”). -boats are regularly insured after four years, depending on their own events and circumstances, however, since it is not insured, the owner may bear the responsibility.
For information on incentives, including specific contact information, see the Database of State Incentives for Renewable Energy and Efficiency (DSIRE) at www.dsireusa.org.
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Most solar system rebates provided by public companies or the government are considered taxable income and do not change the tax when calculating the ITC. For example, if the tax is $1,000,000 for a PV system installed in a retail business starting in 2022, is assigned over four years, and the state refunds are $100,000 one time, the ITC will be calculated as follows:
An exception is the discount when purchasing or installing solar power on a home. In this case, the utility deduction is deducted from the tax base, reducing the amount of ITC claim; however, rebates are not considered taxable income. For example, if the tax for a PV system installed in a building is $1,000,000 and the equipment has a one-time depreciation of $100,000, the project will start in 2022 and be used in four years, the
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