We are currently living through one of the best times in commercial solar deployment history. Between the Federal Investment Tax Credit (ITC), Illinois Solar Renewable Energy Credits, and MACRS accelerated depreciation, it is possible to offset 90% of the cost to bring your business into the 21st century with a solar power system. Unfortunately, one of these incentives will be phased out very soon. But if you act quickly, it is still possible to take advantage of the savings.
The Federal Investment Tax Credit provides a huge income tax deduction for businesses that install solar, but it won’t always be that way. Today’s high Federal ITC rate of 30% is set to decline over the next few years. In 2020 it will be reduced to 26%, in 2021 it will be down to 22%, and for the foreseeable future beyond that, it will stand at just 10% of the solar power system cost.
Originally the 30% rate would only apply to systems completed and placed in service by the end of this year. However, thanks to a change in the wording of the federal tax code, this peak rate is available to any businesses that begin construction of their system before January 1st, 2020. This subtle change makes a big impact, meaning many more business will be able to take advantage of the ITC. They will not need to worry about losing their credit if construction extends into the new year.
In order for your solar system to qualify as having begun construction, it must pass the “Physical Work” test. According to the tax code, physical work is defined to include: “(a) planning or designing; (b) securing financing; (c) exploring; (d) researching; (e) conducting mapping and modeling to assess a resource; (f) obtaining permits and licenses; (g) conducting geophysical, gravity, magnetic, seismic and resistivity surveys; (h) conducting environmental and engineering studies.”
Interestingly, even off-site work such as constructing a system’s components passes the “Physical Work” test, so long as the equipment being constructed is specific to that install and not just a stock inventory item. What this means is that if your installation requires special custom engineering done at the shop before moving to the site, you can still claim the ITC for it.
While this change to the tax code is good news, there is still precious little time to secure your Investment Tax Credit. It’s already February, and several businesses will be getting on the waiting list to begin construction, so the sooner you get in line, the better. If you have ever had an inkling to invest in the security, savings, and sustainability of a solar power system for your business, this is the time to do it.
AES Solar is the only 100% local, 100% solar installer in Southern Illinois, with nearly 20 years of experience energizing our region’s businesses. Give us a call today at (618) 988-0888 or visit aessolar.com to get a free quote and get the ball rolling. You can also email me personally at firstname.lastname@example.org for more info.
-Aur Beck, AES Solar Founder and Chief Tech