Summary

The purchase of solar energy generally provides Solar Tax Credits to the purchaser/owner. Additionally, very generous depreciation is allowed for taxable businesses.  For the 2023 tax year the credit is 30%. As a homeowner, these means your credit is $6,000 for a $20,000 installation. Credits directly reduce your income tax bill. If your taxes compute to $7,000 your next tax after the credit is now $1,000.

Businesses

The credits are available to businesses as well, in addition to very generous depreciation allowances.  Depreciation is a deduction (as opposed to a credit) so the tax benefit is a function of the effective tax rate. For example, if the tax rate is 30%, a $100,000 depreciation deduction would reduce taxes by $30,000.

Nonprofit Organizations, Churches and HOAs

Nonprofit organizations, churches and HOAs cannot use the tax benefits so the credits and depreciation are seemingly lost. If the organization finances the solar system with a power purchase agreement (PPA) the contractor receives all of the tax benefits.

Wait a minute! Can the deal be constructed where the organization gets the credit or at least a share of the credit. The quick answer is yes, but it’s a challenge as the contractor uses fuzzy wording the proposals and you’re not sure what they are saying.

The organization or it’s advisor must pursue an agreement that is fair to all parties, which means the organization shares in the tax credits. As mentioned before, this can be a huge challenge and an outside independent advisor may needed.  This is one the major benefits I offer with my services. A medium size solar energy system may in the range of $600,000 and, with the tax credit being shared, that reduces the purchase price by about $90,000.

A Quick Summary:

Solar tax credits are available to the owner of residential installations. Depreciation is not available unless there’s a business component involved.

Solar tax credits and depreciation are available to tax paying businesses.

Nonprofit organizations, churches and HOAs cannot use the tax benefits directly however, they can share in the tax credits with the right agreement. A tax paying entity must technically own the solar system and then contractually share the benefits. The title of the solar energy will revert back to the organization once the tax benefits are past the look back time period. Most such contracts revert back after six years.  Update: the Inflation Reduction Act has sections that may be of great benefit to Nonprofit organizations and churches with a direct pay solution for the tax credit. The entity files for credit with its tax return or specific form and the IRS then sends them a check for the credit amount. This process can take up to two years. As such, some entities are utilizing the tax credit sharing arrangement as the benefit is available the day the project is completed.  This program is not available to HOAs so the tax credit sharing is the solution for them. It’s too early to know the actual effect as the Act defers the actual regulations to the Treasury Department and everything is subject to change when regulations are issued. Please check back.

Rebates

Rebates are in addition to tax credits. They are typically offer by state and local governments and sometimes the utility. They can range from fixed dollar amounts to about 30%.  100% rebates are also offered in rare circumstances.  Typically, the agency funds a program and makes it available online. It’s usually a specific dollar amount and once the funds are fully drawn down, the rebate is expired.  The solar owner submits an the online application. There is no requirement for the project to be completed to apply. The application can many times be submitted prior to the project start date. The project must be completed to actually receive the rebate.

The important thing to remember is that tax credits are obtained by filing a tax return and are most always Federal credits.  Rebates are checks written to the project owner and are not connected to the IRS tax system.  Available rebates come and go quickly making it a challenge to know when they are available.  Of interest, the of California generally does not offer tax credits but often is a part of the rebate programs.

My Services

My services are for residential owners, commercial installations as well as nonprofit organizations, churches and HOAs. I bring the most value to the nonprofit organizations, churches and HOAs as residential is somewhat straight forward and commercial seems to have in-house expertise, although I can still add value.

In Conclusion

With electricity rates beginning to rise at a faster pace and solar prices dropping now is the time to seriously consider a solar energy solution. My services can help any potential solar purchaser to ensure a fair and understandable solution and contract and can move the process along in a timely manner.