The IRS, via Notice 2018-59, has modified the Investment Tax Credit to allow solar projects to “begin construction” by the end of the 2019, and still receive the 30% – versus being in service by that date.
Two Year Extension
Both residential and commercial solar projects may qualify for the full 30% Investment Tax Credit (ITC) through 2019, provided the project is placed in service before 2024. The prior ruling required completion the same year. For all practical purposes – commercial scale solar power projects that expect to take a year+ for development and construction just got a two year extension on the ITC!
“Begin Construction” Defined…
The IRS notes that there are two methods for “establishing beginning of construction” – the Physical Work Test or the Five Percent Safe Harbor. The on-site physical work test can take many forms: (a) planning or designing; (b) securing financing; (c) mapping and modeling to assess a resource; (f) obtaining permits and licenses; and others. The five percent safe harbor provision states that construction will be considered having begun if the taxpayer has paid or incurred – 5% or more of the total cost of the project.
The Investment Tax Credit steps down to 26% in 2020, then 22% in 2021. In 2022, commercial and utility scale projects will continue to be eligible for an on-going 10% credit. Note: all current regulations are subject to change and should be cleared with your tax advisor.
INVESTMENT TAX CREDIT (ITC)
Businesses that install solar photovoltaic (PV) systems may be eligible to receive a tax credit in the amount of 30% of the total system cost. Unlike tax deductions, this tax credit can be used to directly offset your tax liability – dollar for dollar!
Unused tax credits related to the commercial ITC may be carried back 1 year and forward 20 years. The solar ITC was created to drive growth in the solar industry and create jobs across the country.
Additional savings can be realized through Federal MACRS & Bonus Depreciation. Example: California 10yr Straight Line Depreciation and the California Modified Accelerated Cost-Recovery System (MACRS).