Commercial/Ag Safe Harbor: Keeping the 30% ITC for a 2020 Solar Installation
Policy always has an impact on the return on investment of particular energy sources, and solar energy is no exception. For instance, solar installations currently qualify for a 30% Investment Tax Credit this year but only a 26% credit next year, and that 4% lower tax credit means more of your investment that you’ll have to “pay back” and a longer return-on-investment time frame.
While it has been well established that solar panels are durable and useful far longer than it takes to get a return on your investment, those who invest on any scale, be it a corporate headquarters, or an entire utility company, want to get their money back faster and start generating a return as soon as they can.
The legislation that created incremental changes in the solar Investment Tax Credit (ITC) has created an interesting situation that is causing rippling changes to the market for solar energy. The big concern is that starting in 2020, the current 30% credit will step down to 26%, and further to 22% in 2021. This has resulted in a lot of new solar installation and safe harboring in hopes of taking advantage of the larger tax credit currently in effect. Compounding this issue is that this change is happening at the same time that inexpensive solar panels made outside the United States have substantial tariffs imposed upon them.
Among the many concerns with this decreasing credit is that the tax credit is contingent on both when you begin the construction and when you conclude the project and begin operating and producing energy. There are different lengths of time for which this tax credit can be used if the project requires multiple years to implement, so installers and their clients want clarity on just how long they have to complete the project and begin energy production without losing some part of their tax credit. It can also be confusing to define the beginning of construction, since these projects can very reasonably take multiple years and the actual “start date” matters a lot in the credits being offered. After all, many commercial and agricultural business owners who are contemplating solar installations but who cannot yet commit to purchasing one in full in 2019 may be willing to do some amount of work in order to prove they are “starting construction,” depending on what that entails and what the benefits they receive would be.
When considering what level ITC an installation qualifies for, a decision on whether the wording of the tax law puts the owner at risk for not receiving the ITC must be made. For this reason, it’s important to know about a tax law addendum that the IRS issued, a “guidance” to help business owners make the decision about whether and when to start construction. The resulting guidance, issued as Notice 2018-59, gives two ways to describe commencing construction: your date of construction commencement is either tied to “starting physical work of a significant nature,” or incurring 5 percent or more of the total cost of the total construction in the year that construction begins. Once that standard is met in 2019, you should be able to claim the 30% ITC provided you finish and put the project into service by 2024. Projects begun in later years have a little less time to conclude and can claim slightly lower ITCs as the ITC tapers off. Overall, the guidance means a sigh of relief for many solar installers and those who wish to invest in this technology.
Why does this news bode well to many installers and companies? If you are interested in deploying a commercial, agricultural or utility solar installation but will be mostly constructing in 2020, there are ways to claim the higher 30% ITC and get a better return on your investment by getting started, even just a little, in 2019. Making it possible for more companies to begin a project in 2019 but complete it in later years opens up opportunity to the wide variety of individuals and companies who 1. Want to invest but have a limited cash flow this year and 2. Can only make the numbers work with the 30% ITC rather than the 26% ITC. It’s a win-win for installers and clients when more people can afford the upfront costs of solar as well as receive greater long-term benefits.
It also means that your solar installer may be able to offer you a wider variety of solar panel options, since there are tariffs that will end at the conclusion of 2021 on foreign solar panels. This means that, when timing everything right, you could create an installation that gets 30% ITC and also less expensive solar panels, if that is part of your goal. The tariffs were put in place to bolster the domestic solar panel industry, so you may also consider American-Made solar panels right now, however time of is the essence – as a result of this, domestic solar panel stocks are running low.
As you work with a reputable solar installer, make sure that you make a plan for acquiring solar panels on the timeline that you need, and that you make the necessary payments or “physical work of a significant nature” in 2019 to ensure that you truly qualify for what is being called “safe harbor.” The market for solar panels is affected by every tariff and every tax credit, so talk to the professionals at Mountain View Solar to make sure that your planned timeline is both feasible and affordable for you and your project stakeholders.
While many of these rules have the biggest impact on large-scale solar installations and installations on commercial and utility levels, they are completely relevant for your home based business as well.
If you’re wondering whether going solar is worth the investment, established companies like mtvSolar offer no-pressure consultations and free energy evaluations based on your annual electricity bills. Mountain View Solar offers turn-key installation services as well as financing options that don’t place a lien on your property. It’s a low-risk investment to solarize your business with quality solar equipment and expert installation that will continue to bring savings for decades.
There has never been a better time to go solar as component prices are low, tax incentives are high, and innovative technology has increased the efficiency and durability of solar panels.
DISCLAIMER: mtvSolar does not employ tax professionals or accountants. This blog does not serve as tax advice. Please contact your accountant for tax advice.