Your Complete Guide to the Federal Investment Tax Credit for Commercial Solar
If you’re looking for a way to save money on your utility bills while also doing your part to protect the environment, then commercial solar makes perfect sense. The sun’s endless energy is a simple way to maintain a comfortable temperature year-round inside your commercial building while keeping your computers and other electronics up and running.
But there is another important reason to install an on-site solar energy system: The federal government offers a hefty tax credit for businesses that choose to harness the power of the sun. Read on for your complete guide to the commercial solar energy tax credit.
What is the federal investment tax credit?
If your company buys a solar energy system, 26% of the cost of the system comes back to you in the form of an investment tax credit. Craig Knowlton, general manager and vice president of business development at Alder Energy Systems in Charleston explains, “to earn the tax credit in 2022, you must start construction or purchase a significant amount of materials and commit funds to your project before the end of the year. You can take part of the credit in one year and the remainder in the next year.”
“Say you didn’t have enough income to take the whole credit in one year. It doesn’t expire or go away,” Knowlton points out.
Is there a limit on the cost of your solar energy project?
You get the 26% tax rebate regardless of how much you spend on installing a solar energy system. You can also earn a rebate on multiple projects.
Are there other tax advantages to solar energy?
Many states offer a tax incentive for companies that take advantage of solar energy. For example, South Carolina provides a 25% tax credit on the cost of a system, capped at $3,500 a year for 10 years.
Besides tax incentives and knowing that you are helping to protect the environment, are there other advantages to installing a solar energy system?
Regardless of how much of your energy comes from your solar system and how much comes from the local electric company, you’ll be saving money on your utility bill and adding value and resiliency to your building.
“Some of your power will still come from the utility company, depending on how much you use and how big of a system you can put in,” Knowlton explains.
He adds that if your system produces more power than your building needs, the excess goes back to the grid through a bidirectional meter, and the utility company gives you credit for that electricity.
“On a very sunny day in the spring, you’re not using a lot of power; you are exporting most of it back to the grid and building up credit. At night, you are working off the credit you built up during the day,” Knowlton says.
How long will it take for your solar energy system to pay for itself?
Knowlton points out that with the state and federal tax credits, most solar energy systems pay for themselves in five to eight years. The system lasts for around 25 years.
“The great thing about solar is there’s very little risk to your investment,” Knowlton says. “The sun is going to keep shining, giving you a choice to produce some of your energy yourself and not be beholden to the utility company.”
Why is now the best time to install a solar energy system?
Unless Congress enacts new legislation, the federal solar investment tax credit will drop to 22% in 2023 and 10% in 2024. That’s reason enough to act this year.