The Clock Is Ticking On Solar Tax Credits

Have you been considering installing solar for your business? Since 2005, the Federal Investment Tax Credit (ITC)—also known as the Federal solar tax credit—has allowed those purchasing solar to take 30 percent of the cost from their Federal tax liability. However, these savings won’t be around for much longer.

The ITC was set to expire in 2015, but thanks to the Consolidated Appropriations Act of 2015 that was passed by Congress, we were instead given an additional 8 years with a five-year phase-out known as a “sunset” on the ITC. Here’s how it works:

From 2016 to 2019, it was decided that the 30 percent tax credit would stay in place. Then, beginning Jan. 1 of 2020, it would drop to 26 percent. In 2021 it would drop to 22 percent, and in 2022 it would drop to 10 percent and remain there indefinitely for businesses.

So, what does this mean for businesses looking to install solar? This is still a very tight deadline for growers and large businesses, which require longer lead times. Solar installs can take from 6 to 12 months—or as long as 18 months—to be connected. However, in June, the IRS released a guidance referred to as “safe harbor” that clarifies the definition of “construction date” for businesses looking to benefit from the ITC.

What is Safe Harbor?

Safe harbor defines the “construction date” as either a) starting a significant amount of physical work or b) meeting the “5 percent safe harbor test” by paying five percent of the cost of the facility for the year that construction begins.

This means that, if you have already paid 5 percent into the project—or if you have already done substantial construction, like racking—before Dec. 31 of 2019, you still receive the full 30 percent credit and avoiding the step down in credit. This works for the tax credits of the following years as well. That makes now the prime opportunity to start discussing a new solar project. With the sunset quickly approaching, there are serious financial ramifications to waiting.

If you’ve been considering solar, there’s no better time than now to start your install. Don’t let the sun go down on savings! We look forward to hearing from you.

Chad Cummings