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.
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.