Solar Panels Tax Credit for Businesses: Reducing Tax Liability

solar panels tax credit for businesses

Business owners are always looking for ways to reduce tax liability and take advantage of tax incentives. Did you know that the government offers tax credits for businesses that install solar panels? Solar energy systems will help you maximize your return on investment and reduce your overall tax liability.

This article discusses the solar energy system tax credit for businesses and how it will help your business save money.

Solar Tax Credits Will Reduce Your Tax Liability

Tax credits and other incentives will significantly reduce your tax liability. Both federal tax credits and state incentives are available for companies that install solar energy, making it a wise investment for business owners.

Federal Solar Investment Tax Credit (ITC)

Your business will reduce its tax liability by taking advantage of the ITC. Enacted as part of the Energy Policy Act of 2005, it is a major financial incentive for businesses to install solar energy. The ITC was to be permanently sunsetted at 10% for commercial properties at the end of 2023 but was extended through 2034 by the Inflation Reduction Act of 2022.

The ITC enables your business to write off a percentage of the cost of installing a solar energy system in the form of a tax rebate. The credit value is 30% for solar systems in 2022 and will decrease to 26% for commercial properties until 2033-2034. There is no limit on the number of solar tax credits that a business can claim.

Modified Accelerated Cost Recovery System (MACRS)

MACRS is a tax depreciation system that enables your business to recover the costs of certain property types quickly. It will help reduce the amount of taxes that your business pays by deducting the cost of purchasing qualifying assets over the life of those assets.

Most businesses are eligible for bonus depreciation, so they can claim 100% of the cost basis in the first year on the federal level. Starting in 2023, the bonus depreciation that your business claims will drop to 80% in 2023, 60% in 2024, and 0% in 2027. Your business will be able to claim the remaining 20% depreciation over five years.

How Claiming the ITC affects MACRS

Claiming the ITC impacts how you claim the MACRS tax depreciation. The depreciation basis is reduced by one-half of the tax credit amount. For example, if your business installs a solar system with the ITC set at 30%, your depreciation tax basis will be 85% of the total cost of your solar system. When claiming both tax incentives, your business will recover the bulk of the costs associated with installing a solar system in a few short years.

State Solar Tax Credits and Incentives

In addition to the ITC, your business is also eligible for state solar tax credits and incentives. These will further shorten the ROI for your business’s solar installation costs and enable your business to reduce its tax liability the year that your solar energy system was installed. Solar tax incentives vary by state, but most include tax breaks, rebates, and other financial incentives:

  • Net metering. Many states have solar net metering programs, which enable your business to sell excess solar power back to the utility company at the same rate that it pays for electricity. This incentive can help offset your electric bill and save your business money in the long term.
  • Solar renewable energy credits (SRECs). SRECs are solar incentives that can be sold or traded for cash. The value of an SREC is based on the solar installation's size and the state in which it is located.
  • State solar tax credits. Many states offer solar tax credits that your business can apply to state income taxes. These are typically a percentage of the total cost of the solar installation, with the solar tax credit amount varying by state. For example, New Jersey currently offers the Successor Solar Incentive Program, which “provides incentives to eligible solar facilities to enable the continued efficient and orderly development of solar renewable energy generating sources throughout the state.”

To find out what solar tax incentives are available in your state, check out the Database of State Incentives for Renewables and Efficiency.

Now Is the Time to Go Solar

With the current incentives to install a solar energy system, which include tax credits for businesses available at the federal and state level, your business will lower its tax liability and get a better return on investment in a shorter period of time.

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!