Business Energy Investment Tax Credit (ITC)
Businesses may take a tax credit of up to 30% of the cost of investment credit property that qualifies for the energy credit. Investment credit property is any qualifying depreciable or amortizable property including certain types of solar and energy efficient equipment. There is no maximum credit for a majority of types of solar technology eligible for this credit, however, there are limitations on certain types of property which will be discussed later.
In order to be eligible for the credit, the taxpayer must own or build the property, it must be placed in service and operational in the year the credit is taken, and must meet specific performance and quality standards in affect that the time equipment is acquired. Typically, manufacturers are be able to determine whether or not the renewable energy property is eligible for this credit.
It is difficult to locate the language that allows a solar credit to be claimed on residential rental property, but it goes like this: Sec. 48(a)(3)(C) provides that the property (solar property) must be depreciable property (i.e. trade or business), Sec. 50(b)(2) provides that the property cannot be used for lodging (not great news, but keep reading), and lastly Sec. 50(b)(2)(D) provides an exception to the lodging exception: energy property (at last, we have arrived that a solar credit is allowed for residential rental property).
The credit is equal to the amount of the cost for eligible property, including installation, multiplied by the percentage that the property was placed in service. Below are the credit percentages for common types of property beginning 2018 tax year.
|
Technology |
12/31/18 |
12/31/19 |
12/31/20 |
12/31/21 |
12/31/22 |
Future Years |
|
Solar |
30% |
30% |
26% |
22% |
10% |
10% |
|
Hybrid Solar Lighting, Fuel Cells, Small Wind |
30% |
30% |
26% |
22% |
22% |
N/A |
|
Geothermal Heat Pumps, Microturbines |
10% |
10% |
10% |
10% |
N/A |
N/A |
https://programs.dsireusa.org/system/program/detail/658
Solar property costs: Costs of property that use solar energy to generate electricity, to heat or cool water, or to provide solar process heat. Technologies that fall under this category include PV, solar water heating, solar space heating and cooling, and solar process heat. Solar pool-heating systems are not eligible for the credit.
Hybrid solar lighting costs: Costs of property that use solar energy to produce light for the interior of a structure using fiber-optic cable bundles to provide solar light. Passive solar systems, or solar daylighting are not eligible for the credit.
Fuel cells cost: Costs for fuel cells that are eligible for the credit must produce a minimum capacity of 0.5 kW. The fuel cells must also have an electricity-only generation efficiency of 30% or higher. The credit for fuel cells, unlike other equipment, is capped at $1,500 per 0.5 kilowatt (kW) of capacity.
Small Wind Turbines Costs: Costs for small wind property include wind turbines up to 100 kW in capacity. Small wind turbines must be fully certified and meet the performance and quality standards set by either the American Wind Energy Association Small Wind Turbine Performance and Safety Standard (AWEA), or the International Electrotechnical Commission (IEC).
Geothermal Systems. Costs for geothermal systems are those that produce, distribute, or use energy from ground or ground water sources such as geothermal heat. The equipment includes the cost of the equipment and installation of the processes only up to, but not including, the electric transmission stage.
Microturbines. Costs for microturbines are also eligible for an investment credit. A credit taken on this type of equipment is capped at $200 per kW of capacity. Eligible property includes microturbines up to two megawatts (MW) in capacity and must have an electricity-only generation efficiency of 26% or higher.
If the solar installation is in 2020 or after, take a look at the new provision regarding “commence construction” to attempt to get a higher credit rate of the year prior to placed in service year.