Solar Incentives for All in the Inflation Reduction Act

The Inflation Reduction Act (IRA), passed in 2022, ushered in a robust set of incentives for clean energy, particularly solar. The legislation was designed not only to accelerate the adoption of solar energy widely, but to ensure that those most vulnerable to climate change impacts and high energy costs would have access to more affordable, clean energy.

Below is a summary of the federal incentives available in the IRA for solar energy development. Spatialist is available to review these incentives with your organization and begin a portfolio analysis to see which of your properties are the best candidates for hosting a solar site either as an income stream or to deliver clean power and significant energy savings to your residents.

Federal Income Tax Credit

All taxpayers and/or businesses who purchase a solar system are eligible for the federal income tax credit (ITC) to offset your tax liability, effectively reducing the cost of the system by the value of the credit. For solar projects in 2023 and beyond, the ITC is 30% of eligible project costs.

The solar project may also be qualified for “adder” ITC benefits including 20% for qualified low-income residential building projects; 10% for using solar products produced in the US; 10% for Energy Community projects; 10% for low-income community and Indian Land projects.

Organizations that don’t pay federal taxes, like non-profits or local governments, can take advantage of the tax credits through either direct pay or a transfer of credit.

The tax credit is not refundable but may be carried back 1 year and forward up to 20 years, if you do not have the full tax liability in the year of purchase. The tax credit can now be sold and transferred to a non-solar owner entity.

Federal Production Tax Credit

The production tax credit (PTC) is a per kilowatt-hour (kWh) tax credit for electricity generated by solar and other qualifying technologies for the first 10 years of a system’s operation. It reduces the federal income tax liability and is adjusted annually for inflation.

Solar owners can either claim the Income Tax Credit (Direct Pay for non-taxpaying entities) OR the Production Tax Credit, not both.

Accelerated Depreciation

The Modified Accelerated Cost Recovery System (MACRS) is a method of depreciation in which a business’ investments in certain tangible property are recovered, for tax purposes, over a specified time period through annual deductions. Qualifying solar energy equipment is eligible for a cost recovery period of five years, instead of the life of the system which is usually 25 years. This provides a significant cash equivalent of 20-30% of the project cost.

Grants and Loans

Federal and state competitive grants are also available to offset the costs of solar energy development, primarily for the benefit of low-income communities and residents. To find out more about available funding, contact Spatialist.