Business Tax Credit for Solar Energy

Background

• The Business Energy Investment Tax Credit has been expanded several times by federal legislation in the years leading up to 2010, largely with the intention of developing a nascent solar industry and stimulating economic recovery. The first major expansion of this tax credit took place in 2005, with the passage of the federal Energy Policy Act of 2005. In 2008, the struggling U.S. economy motivated Congress to further expand this credit, and to extend it eight years to 2016. Finally, the American Recovery and Reinvestment Act passed in early 2009 removed yet more limitations from how the credit might be used.

Eligibility

• The Business Energy Investment Tax Credit is available to all corporate tax payers who have made an investment in solar, wind, geothermal, biomass and other renewable energy systems since February 2008. In addition, the taxpayer must have invested in an energy system that meets regulatory requirements for performance and quality. Businesses are not eligible to claim the credit on solar energy systems that have already been subsidized by Treasury Department grants or other tax credits. If their system is financed in part by a local or state government, they must claim the credit after accounting for these subsidies.

Credit Amount

• The amount a corporate taxpayer can claim with this credit is based their cost to purchase and install a solar energy system. The taxpayer can claim up to 30 percent of the total expense for a new solar system, provided the system is both qualifying and placed in service during the tax year for which the credit is claimed. As taxpayers cannot claim the credit on any costs that are covered by a government grant, they must first deduct the amount of any subsidies they may have received to help finance the system. There is no maximum for a solar energy system claimed under this credit.

Deductible Expenses and Eligible Systems

• Generally speaking, any system that meets the federal requirements to be marketed will qualify for this credit. Expenses that can be claimed include also any costs associated with installing the solar energy system, including construction costs, mounting devices and building upgrades directly related to the solar system. Subsequent facility remodeling or energy efficiency improvements cannot be claimed, though they may be eligible for other tax credits such as the Energy Efficiency Commercial Buildings Tax Deduction.