Tax Benefits for Commercial Businesses
Return on Investment
Investing in solar energy offers significant return on investment (ROI) benefits for commercial businesses. One of the most compelling reasons is the potential for substantial cost savings on energy bills. According to the U.S. Department of Energy (DOE), commercial solar systems can reduce electricity costs by 30% to 50%, depending on the size and energy consumption of the business. Additionally, according to the Solar Energy Industries Association (SEIA) the average cost of solar systems declining by over 80% in the past decade making the payback period for these investments has shortened considerably, often falling within 5 to 7 years. (National Renewable Energy Laboratory, NREL)
Furthermore, businesses can leverage various financial incentives, such as the federal Investment Tax Credit (ITC), which allows companies to deduct 30% of the installation costs from their federal taxes. Many states and local governments also offer additional rebates and incentives, further enhancing the financial appeal. Beyond immediate cost savings, solar energy can increase property value. A study by NREL found that commercial properties with solar installations can see an increase in value by up to 20%. These ROI benefits, combined with the long-term advantages of energy independence and sustainability, make solar a smart investment for commercial businesses looking to enhance their bottom line while contributing to a greener future.
30% Investment Tax Credit (ITC)
The Investment Tax Credit (ITC) is a federal tax incentive that allows commercial businesses to deduct 30% of the total installation cost of solar energy systems from their federal taxes. This credit significantly reduces the upfront costs of solar installations, making it more accessible for businesses. By claiming the ITC in the year the solar system is installed, companies can benefit from immediate financial relief and improved cash flow, as it reduces their tax liability and allows for reinvestment into other areas of the business.
The ITC applies to Solar Photovoltaic (PV) and Battery Storage installed for commercial use. To qualify, systems must be installed before the expiration of the credit, which is set at 30% through 2032, with scheduled reductions thereafter. This makes the ITC a powerful incentive for commercial businesses to invest in solar energy, enhancing sustainability while providing significant financial benefits. Consulting with a solar energy provider can help businesses understand how the ITC can benefit them and explore potential financing options.
5 Year Depreciation for Commercial Buildings
Businesses rely on policy to make long-term investment decisions. The Solar Energy Industries Association (SEIA) supports smart tax policy that drives continued innovation in the solar industry. Depreciation is one aspect of the tax code that facilitates greater investment in renewable energy and ultimately lower costs for consumers.
Quick Facts:
The Modified Accelerated Cost Recovery System (MACRS) Established in 1986, is a method of depreciation in which a business’ investments in certain tangible property are recovered, for tax purposes, over a specified time period through annual deductions.
Qualifying solar energy equipment is eligible for a cost recovery period of five years.
The market certainty provided by MACRS has been found to be a significant driver of private investment for the solar industry and other energy industries.
The U.S. tax code allows for a tax deduction for the recovery of the cost of tangible property over the useful life of the property.
MACRS as a Method of Depreciation:
MACRS is the method of depreciation used for most property, though assets vary by class, which determines the depreciable life, or cost recovery period, of the property. Class depreciation timeframes vary between three and fifty years, depending on the certain type of property. Some examples of classes include television and radio broadcasting equipment, which qualify for a cost recovery period of five years and office furniture and equipment, which qualify for a cost recovery period of seven years.
More importantly, Qualifying solar energy equipment is eligible for a cost recovery period of five years. For equipment on which an Investment Tax Credit (ITC) grant is claimed, the owner must reduce the project’s depreciable basis by one-half the value of the 30% ITC. This means the owner is able to deduct 85% of his or her tax basis. Various other renewable energy technologies also qualify for five-year cost recovery period, including wind energy properly, geothermal, fuel cells, and combined heat and power technology.
