What Organizations are Eligible for the Solar Tax Credit?
If they own their solar system, organizations of all sizes, including large enterprises, local governments, nonprofits, and small businesses, can benefit from the commercial solar tax credit.
Not obligated to use the credit to balance your tax burden? Companies may still be able to profit since they can claim the credit as a “refundable tax credit” (i.e., a direct cash payout from the federal government) if they are qualifying tax-exempt corporations. The credit may be sold by other organizations for money to persons who have a higher tax burden than they do. The sale’s cash proceeds are not considered taxable income.
The ITC is offered for the following technologies in addition to solar:
- Solar power
- Controllers for
- Costs of interconnection
- Systems that combine
- Heat and power
- Independent battery storage that is greater than or equivalent to 5 kWh
A company may be qualified for the ITC if it installs and owns one or more of the aforementioned and its project is located in the United States or its territories.* Additionally, the electricity generated by the eligible systems must be sold to a third party or used for the business’s own purposes.
Is there a commercial solar tax credit available in Arizona?
Solar energy has proven to be one of the best alternatives to fossil fuels to produce electricity. In recent times, the popularity of solar energy has increased a lot. Even then, only 3% of the energy produced in the US comes from the sun. The high upfront cost has been one of the main reasons for some not adopting solar. Luckily, the US government provides a Commercial Solar Tax Credit for commercial solar panel installation in Arizona.
This credit has driven many business owners to invest in installing solar panels on their property. This excellent incentive allows business owners to offset a significant portion of the cost into tax deductions and generate a positive return on their solar investment within 3 to 5 years on average!
What Commercial Solar Tax Credit is available in 2023?
Federal Solar Tax Credit
Tax credits are financial benefits the government provides that reduce the income tax owed to the government.
The U.S. Government provides federal solar tax credit, also known as an investment tax credit (ITC) to the owners of both residential and commercial solar energy systems. It was implemented in 2006 and since then, the solar industry in the U.S. has grown by a whopping 200%.
The investment tax credit provided for both residential and commercial solar panels from 2006 to 2020 is 30%. In 2021, the investment tax credit was 26%, and was set to expire by 2024.
However, with the recent Inflation Reduction Act, the 2023 tax credit is now at 30% until 2032. From then, the tax credit will go down to 26% in 2033 and 22% in 2034 before being phased out in the following year.
For now, the commercial solar tax credit is 30% until 2025 when The U.S. Department of Treasury will decide on whether the solar tax credit for commercial purposes will be reduced or not.
But to get the ITC, one needs to be qualified for the solar tax credit. Some requirements need to be met to get the solar tax credit.
First, the property must be in the United States to be eligible for the federal tax credit. The solar panels need to be installed between the years 2006 and 2032. The installed system needs to be new and used for the first time (this sounds obvious, but considerable savings can be had by using used solar panels, but they do not qualify for the tax credit).
If the solar panels were pre-installed with a property you recently bought, leased, or rented, then you will not be eligible for a solar tax credit.
Federal commercial solar tax credits can only be claimed once a year. If your annual tax is lower than the tax credit, then the ITC will roll over to the following year.
You should know that solar tax credits are not tax refunds. You can only claim a tax credit if you have a tax liability. But you cannot claim a tax refund with your solar tax credit.
State Solar Tax Credit
Other than the federal tax credit, you can also claim a state tax credit for your solar panels. State tax credit works similarly to the federal tax credit but is claimed against your state tax. The state tax credit does not reduce your federal tax credit.
Every state offers a different amount of state tax credit. The State Solar Tax Credit in Arizona is 25% of the system cost, with a maximum of a $1,000 credit, which may be claimed for up to five years.
How Do Businesses Claim the Commercial Solar Tax Credit?
A company must maintain thorough records of all costs associated with its solar installation, including contracts, invoices, and receipts, in order to be eligible for the Investment Tax Credit (ITC).
Businesses must submit IRS Form 3468, which requests information such as the following, with their federal income tax return.
- The commercial solar system’s total cost
- The date of installation of the commercial solar system
- What proportion of business solar energy systems qualify for the ITC
- The date that the solar system’s development was initiated and concluded
- The quantity of electricity generated or sold by the commercial solar system
If an eligible business has an insufficient tax burden in the year it sets the system in service, it can roll over the ITC to future years or claim it in the year the system is placed in service. If permitted by law, an eligible business may also roll over excess credits to prior years. To find out how to make the most use of their credits, businesses should speak with a qualified tax counselor.
Although there are pros and cons of installing commercial solar panels, the benefits far exceed the few cons. In all honesty, commercial solar is a no-brainer in Arizona. The returns, overhead predictability, and attraction it can provide to your business are all excellent benefits of commercial solar installation. And the commercial solar tax credit makes the decision easier than ever.
The bottom line, solar energy is essential for a sustainable future. Especially for a commercial office, having solar panels can save a lot of fossil fuels every year. Tax credits can help reduce the upfront cost of your solar panel system equipment and all related costs such as labor, installation, and ongoing monitoring equipment. This can make more businesses install solar equipment in their offices, warehouses, and factories making solar an easy option to choose.