How Does the Federal Solar Tax Credit Work for Businesses?

how does the federal solar tax credit work for businesses

The federal solar tax credit is an incentive for business owners to invest in solar energy systems for their properties. The Inflation Reduction Act (IRA) increased and extended these benefits. That means a lower bill at tax time, which will contribute to an even faster ROI on your solar investment.

If you’re wondering how the federal tax credit works for businesses, read on to find out how your business can take advantage of commercial solar energy with the help of this and other incentives.

A Major Overhaul of the Federal Solar Tax Credit

Before President Biden signed the IRA into law, the federal solar tax credit was set to sunset in 2024. The IRA covers many different things, including increasing and extending the federal solar tax credit, which has helped business owners invest in solar energy systems since 2006. The original credit provided a 30% income tax credit, which fell to 26% in 2020 and was going to decrease to 10% in 2024. These reduced rates decreased the benefits that business owners could get from investing in solar energy systems.

However, the Inflation Reduction Act has now boosted the income tax credit back to 30%. For commercial solar energy systems, the credit will remain at 30% until 2034, when it will fall to 22.5% and 15% the following year.

This timeline means business owners should invest now to be sure they can take advantage of the full benefits available. The federal solar tax credit will expire in 2036, although changes made by future governments could extend the credit again.

What the Federal Solar Tax Credit Means for Your Bottom Line

How does the federal solar tax credit work for businesses when it comes to their bottom line? It provides an income tax credit on the purchase of solar energy systems, including the solar panels themselves, related equipment, and installation costs.

This tax credit enables a business owner to offset their tax liability once tax season comes around. Unlike some other incentives, this income tax credit is straightforward. The 30% tax credit on the purchase of a solar energy system enables you to reduce your business’s federal taxes owed by $0.30 for every dollar spent on the system, with no limit on the total cost.

Depending on the size of your business's commercial energy system and the nature of your business, this tax credit could exceed your business’s tax liability for the year. If so, you can apply the remaining tax credit amount to the immediately preceding tax year or future tax years, up to twenty years later.

This considerable tax credit can change how your business’s balance sheet looks at the end of the year. Your investment in solar energy will pay for itself even sooner, leaving you with more available capital to make smart investments in your business.

The Federal Solar Tax Credit Isn’t the Only Incentive to Invest

The federal solar tax credit is a substantial benefit that contributes to how profitable an investment in solar energy systems can be, but it’s far from the only one. A wide variety of additional programs and benefits at both the federal and state levels make solar energy an attractive investment option.

The Modified Accelerated Cost Recovery System is a significant incentive that can get your business its ROI even faster. With this, you can claim depreciation over five years instead of across your solar energy system’s twenty-five to thirty years of operation. This reduces your tax burden even further, freeing up your business to make more investments when they matter most—today.

Business owners should also know that investing in a solar energy system and receiving these benefits could be more attainable than they might think. Many different funding options for solar energy systems are available, including conventional loans and other options exclusive to solar energy systems.

There have never been more incentives for commercial solar energy systems than there are today, and business owners also have access to versatile funding options to make investing in commercial solar energy a reality.

Get the Most Out of Your Commercial Solar Investment

The federal solar tax credit and other incentives make commercial solar energy a fantastic investment opportunity with a fast ROI. If you need to know “how does the federal solar tax credit work for businesses” and want to make the most of all available incentives, choose Geoscape Solar to help you with your commercial solar energy system. The team has over 100 years of combined experience and will handle every detail of your solar energy system, including funding options, design, and installation.

At Geoscape Solar, we help businesses utilize solar energy for profit. Your business will become energy independent, be able to decrease utility costs, and leverage available solar incentives for a quick ROI.

To discover how installing solar energy on your property will increase your business profitability, contact one of our energy specialists!