Now is the time to consider solar energy property investments for your home and business

If you’re thinking about installing solar energy – at your home or your business – federal tax credits are available for investments in certain solar energy property. And with these credits scheduled to decrease in the next few years, now is a good time to consider this dollar-for-dollar reduction in tax liability that’s based on a percentage of the cost of the qualifying solar property.

Solar energy credits

Thanks to recent federal legislation – the Consolidated Appropriations Act, 2021, approved late last year – the “phase-down” of solar energy credits was extended for both commercial and residential properties. If you have started work on a solar property, or you’re considering doing so, it’s important to make plans to ensure maximum tax savings. Here’s what you need to know about solar energy credit eligibility and optimization for commercial and residential properties:

For your business

Businesses may qualify for the credit under IRC 48 for qualified solar energy expenditures. Eligible property must be tangible personal property for which depreciation or amortization is allowable. Other requirements:

  • the property must be constructed, reconstructed, erected, or acquired by the taxpayer.
  • the original use must commence with the taxpayer claiming the credit. The property must meet applicable performance and quality standards.

With the solar credit decreasing over time, when construction is initiated determines to what extent you can maximize the credit. Consider the following:

  • the solar energy credit is 26% of qualifying costs for construction commencing in 2020, 2021, and 2022.
  • for construction commencing in 2023, the credit drops to 22%. (The credit for construction commencing prior to 2020 was 30%.)
  • the property must be placed in service before 1/1/26 or the energy credit percentage is reduced to 10%.
  • construction is considered commenced when at least 5% of the final qualifying project costs are incurred or when physical work of a significant nature has begun. The taxpayer is required to make continuous progress toward completion once the project has begun.
  • your Rehmann advisor can help with meeting the qualification for commencement of work.

For your home

Individuals may also benefit from the credit for solar property installed on their primary residence located in the U.S., as well as on a second home such as a vacation property. Consider the following:

  • the credit for property installed in 2020-2022 is 26% of qualifying property.
  • the credit is 22% for property installed in 2023. (The credit for property installed before Jan. 1, 2020 is 30%.)
  • the credit expires after 2023.
  • qualifying solar property must be new and have never been installed before.
  • for residential property, the expenditure is considered made when the original installation of the item is completed. And in the case of an expenditure made in connection with the construction or reconstruction of a structure, the expenditure is considered made when the original use of the structure by the taxpayer begins.

Solar property may also be eligible for other benefits, such as state credits and federal bonus deprecation. Reach out to your Rehmann advisor to plan ahead and optimize these credits and depreciation deductions related to solar property.

Published in Tax

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