What happens when the ITC sunsets at the end of the year?
The Business Investment Tax Credit (ITC) has made commercial solar an affordable renewable energy solution by enabling businesses across the United States to lower their tax liability by 30% in addition to saving on their energy costs – but now, time is money.
As part of the 2019 tax season, businesses across the country are claiming a very special incentive that lowers their tax liability – and their energy costs.
This incentive, called the ITC, was created by The Energy Policy Act of 2005 and has since proved to be the most important policy for driving growth of the United States solar industry. Every tax season since the ITC went into effect in 2006, businesses across the country that have installed commercial solar photovoltaic (PV) panels have filed IRS Tax Form 3468 to claim a dollar-for-dollar tax reduction in the tax liability that they would have otherwise paid the federal government.
Since the launch of the ITC, that dollar-for-dollar reduction has been 30% of their solar PV system’s expenditures. In effect, the businesses that leverage the ITC on their tax return save on the upfront costs of investing in commercial solar power, boosting their ROI and shortening their solar payback period.
These businesses that leverage the ITC are lowering their cost to go solar – a renewable energy technology that will help reduce their energy costs, boost efficiency and sustainability, and even generate an additional source of revenue when combined with other solar incentives.
However, things are about to change. The percentage by which the ITC can reduce your business’ tax liability will soon depend on the year you begin the construction of your commercial solar system. And that percentage is ramping down.
The longer you wait, the less you save on your taxes
We can put this into a better light – the sooner you begin construction of your commercial solar system, the more you save on your 2020 taxes.
To secure best level of this incentive – you need to begin construction of your commercial solar system by December 31, 2019. The ITC is scheduled to remain at 30% of all system expenditures until the end of 2019, but it will begin to ramp down, eventually landing at 10%:
While there are still savings that your business can claim from 2020 onwards – savings that still make going solar a lucrative energy solution – why leave money on the table?
Installing commercial solar without the 30% ITC
Going solar will still be an attractive option for businesses even though the ITC will ramp down to 26% in 2020, 22% in 2021, and land at 10% in 2022 onwards. Whatever happens with the ITC, there is market certainty in that fact that installing commercial solar panels provides the opportunity of lower energy costs, a more sustainable energy supply with the use of onsite-generated renewable energy, and a positive corporate social image.
These benefits yield a powerful competitive advantage by lowering operating expenses and boosting profitability.
There is also research indicating that despite the ITC reduction over the next several years, massive growth is expected in the solar industry. According to the Solar Market Insight Report 2018 Year In Review, total installed U.S. solar PV capacity is expected to more than than double over the next five years, with annual installations reaching 15.8 GW in 2021 prior to a drop in the ITC to 10%.
There’s still time to make commercial solar an integral part of your energy strategy
With or without the 30% level of the ITC, solar power provides value to your business by lowering your energy costs, reducing reliance on grid energy, demonstrating corporate responsibility, and in many cases even generating a revenue stream. The ITC simply lowers the upfront cost of doing so.
Businesses across the country are leveraging the ITC for the 2019 tax season and maximizing their solar investment. Next tax season, your business could be doing the same.
You still have time to leverage the 30% level of the ITC – but savings will still be available from 2020 onwards. Talk to Centrica Business Solutions about leveraging the ITC and other limited-time incentives that make solar power an affordable, sustainable, and lucrative renewable energy option for your business.