With utilities across the country continuing to raise prices, going solar can be a smart investment for businesses looking to reduce their energy costs and make a positive environmental impact. In addition to the long-term savings on energy bills, businesses can also take advantage of several tax credit options available to those who invest in solar energy systems. The Inflation Reduction Act has provided some incredible incentives that businesses, nonprofits, and local tribal governments can take advantage of. Let’s take a look at the solar tax credit options available to businesses, nonprofits, and local tribal governments.
Base Solar Tax Credit
The base solar tax credit, also known as the Investment Tax Credit (ITC), allows businesses to deduct a percentage of the cost of their solar energy system from their federal taxes. As of 2023, the base credit is 30%. This means that if a business installs a solar energy system with a total cost of $100,000, they would be eligible for a tax credit of $30,000.
Domestic Content Solar Credit
The Domestic Content Solar Credit is a bonus credit available to businesses that use solar panels manufactured in the United States. The credit is equal to 10% of the cost of the solar panels used in the system, and it can be combined with the base credit. This means that if a business installs a solar energy system with a total cost of $100,000 using solar panels manufactured in the United States, they would be eligible for a total tax credit of $40,000 ($30,000 from the base credit + $10,000 from the Domestic Content Solar Credit).
Energy Community Solar Credit
Energy communities are census tracts that had coal mine or coal-fired electric generating unit closures which occurred after a specific date. They can also include metropolitan statistical areas (“MSAs”) or non-MSAs that demonstrated specific metrics for employment related to extraction, processing, transport, or storage of coal, oil, or natural gas. The Energy Community Solar Credit is another bonus credit available to businesses that install solar energy systems in energy communities. The credit is equal to 10% of the cost of the system and can be combined with the base credit. This means that if a business installs a solar energy system with a total cost of $100,000 in a low-income community, they would be eligible for a total tax credit of $40,000 ($30,000 from the base credit + $10,000 from the Energy Community Solar Credit).
Low-Income Solar Credit
The Low-Income Solar Credit is a bonus credit available to businesses that install solar energy systems in low-income areas. The credit is equal to 20% of the cost of the system and can be combined with the base credit. This means that if a business installs a solar energy system with a total cost of $100,000 in a qualifying low-income area, they might be eligible for a total tax credit of $50,000 ($30,000 from the base credit + $20,000 from the Low-Income Solar Credit).
