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The latest from the IRS on the solar tax credit

As the end of 2018 nears, we’d like to share a recap of what we know about the federal solar tax credit. The investment tax credit (or ITC) aka solar tax credit is slated to ramp down. It will reduce from its current level of 30%. This diminishing amount of tax credit allowed will impact some planned solar projects.

The Rundown on the Phase-out: Rehashing the basics

Here’s a handy chart on the status of the solar tax credit over the coming years:

Year Residential ITC Commercial and Utility ITC
2019 30% 30%
2020 26% 26%
2021 22% 22%
2022 and thereafter 0 (see Section 25D) 10% (permanent)

Safe Harbor guidance and defining the word “commenced”

In terms of the calendar, some solar projects span the changeover of the year (2019 to 2020, for example) while still in progress. Tricky right? What does this mean relative to tax credit value eligibility?

In June, the IRS released a ruling. Watchers widely considered it to provide Safe Harbor for solar projects in some stage of progress toward commencing in the next three years.

“Commenced construction” here means either having “started work of a significant nature or… having incurred 5% or more of the cost of the facility [i.e. solar installation] in that year that construction began.”

Taking the credit over a number of years

The rules are now clearer in terms of when projects need to start construction in order to take a certain percent ITC. Solar owners can take the ITC over a multi-year period as follows:

  • Projects that start construction in 2019 will receive the 30 percent ITC for four years
  • Projects that start construction in 2020 will receive the 26 percent ITC for three years
  • Projects that start construction in 2021 will receive the 21 percent ITC for two years

Currently, our staff are in communication with a number of prospective solar clients whom this tax credit impacts.

While we do not provide accounting services or tax advice, we are happy to relay basic info such as this from the IRS that you can use to make decisions about timelines for solar projects you are pursuing.

Ultimately, solar is a smart investment even without a helping hand in the form of incentives. Of course it’s even better with these policies encouraging deployment! Cheers to a healthy industry and a good ROI on lots more solar energy projects. 

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