Turnkey services; Solar Nation identifies the available federal incentives and prepares everything necessary to qualify.
The federal government has created a number of programs to encourage the adoption of solar power. Solar Nation identifies federal incentives that are available for our customers and prepares all paperwork necessary to qualify. When combined with state and local incentives, including exemptions from property and sales tax and Solar Renewable Energy Credits (SREC), these federal incentives typically effectively help underwrite the cost of installing large solar-electric system by as much as 100%, allowing for returns on investment of 15%-25%.
Federal Renewable Energy Grant
- 30% of solar property that is part of a qualified solar property.
- Paid within 60 days of project completion from U.S. Treasury
- Available for entities with no tax liability
Summary of Federal 1603 Grant Program
- Federal 1603 Grant Program is available for property for which construction commences prior to the end of 2011.
- Section 1603 of the American Recovery and Reinvestment Act of 2009 (“ARRA") created a cash grant equal to the value of the ITC, payable within 60 days of a completed installation of an eligible solar generation property and a completed grant application (“Treasury Grant” or “1603 Grant”). A taxpayer may choose to take the ITC pursuant to Section 48 or the 1603 Grant, but cannot claim both.
- The grant is equal to 30% of the basis of the solar energy property, with eligible solar-energy property including equipment that uses solar energy to generate electricity.
- The 1603 Grant is not included in the Federal gross income of the taxpayer. However, the basis of the property for depreciation purposes is reduced by 50% of the grant. State tax treatment of the grant and depreciation amounts vary, so separate analysis of those items will be necessary for state tax purposes.
- Only tax-paying entities are eligible for the 1603 Grant. Federal, state and local government entities and other non-profits are not eligible to receive this grant, except in cases where the ineligible party only owns an indirect partnership interest in the applicant through a taxable C corporation. Grant applications must be submitted by October 1, 2011.
- Grants are available for eligible property placed into service by December 31, 2011 , or placed into service by 2016, if construction began in 2009, 2010 or 2011. The guidelines include a “safe harbor” provision that sets the beginning of construction at the point where the applicant has incurred or paid at least 5% of the total cost of the property, excluding land and certain preliminary planning activities. Alternatively, construction will be considered to be qualified if “physical work of a significant nature” has occurred.
- Recapture rules for the grant apply in a similar manner as with the investment tax credit. If the taxpayer disposes of the property within 5 years of the property being placed in service a portion of the grant must be repaid.
Federal Investment Tax Credit (“ITC”)
- 30% credit of the total cost of the solar system is available to offset federal tax liability.
- “ITC” can be taken as an alternative to the Federal Grant (above).
Summary of Federal “ITC”
- Pursuant to Section 48 of the Internal Revenue Code.
- Allows for a 30% investment tax credit for solar energy equipment placed into service before January 1, 2017.
- Qualifying solar energy property includes equipment which uses solar energy to generate electricity.
- Credit is claimed by the taxpayer that constructs the property, or if the property is acquired by the taxpayer it will qualify for the credit if the original use of the property commences with the taxpayer.
- In the case of a lease, the credit is typically claimed by the lessor, unless the lessor allocates the credit to the lessee.
- The credit is not allowed if the property is used predominantly outside the United States or if the property is used by a tax exempt entity.
- The credit is claimed in the year the property is placed in service.
- The credit can be used as an offset to either regular tax or alternative minimum tax. If the credit is not used in the current tax year, the credit can be carried back one year and forward 20 years.
- Recapture rules (pursuant to IRC Section 50) apply if the taxpayer disposes of the property before the end of five full years following the date on which the property was placed in service. The amount recaptured is equal to 20% times the number of years (full or partial) remaining in the five-year recapture period multiplied by the total credit amount.
Modified Accelerated Cost Recovery System (“MACRS”)
- MACRS - Federal tax law permitting solar systems to be depreciated over 5 yrs weighted to the early years.
Summary of MACRS Depreciation
- Pursuant to Section 168 of the Internal Revenue Code (often referred to as the MACRS depreciation system)
- Allows for solar energy property to be treated as 5 year property
- If the Section 48 credit is claimed, the depreciable basis of the property is reduced by ½ of the credit. This results in the depreciable basis for Federal tax purposes being equal to 85% of the original cost.
Summary of MACRS Bonus Depreciation
- Use of additional first – year (“bonus”) depreciation is available for “Qualified property” as follows:
- For qualified property acquired and placed in service after September 8, 2010 and before January 1, 2012, a 100% first year deduction is allowed.
- For qualified property acquired before September 9, 2010 and placed in service before January 1, 2012, a 50% first year deduction is allowed.
- For qualified property placed in service during 2012, a 50% first year deduction is allowed.
- If bonus depreciation is claimed, the net amount of cost not taken as bonus depreciation is eligible to be depreciated as is typical for 5 year property.
- “Qualifying Property” for bonus depreciation purposes must be new (i.e. original use) property and cannot be 1) Used predominantly outside the U.S., 2) tax exempt use property or 3) tax exempt bond financed property.
- Due to the use of the mid-year or mid-quarter convention (whichever is applicable), depreciation expense for 5 year property will be reportable in years 1 through 6, beginning in the year the property is placed into service.
- Depreciation of this property for state tax purposes may differ, including potential use of bonus depreciation, so additional analysis will be required for each applicable state.
USDA Grant and Loan Guarantee
USDA Grants and Loan Guarantees are available for certain taxpayers in certain rural locations.
- The Rural Energy for America Program (“REAP”) provides matching grants to rural small businesses and agricultural producers for the purchase and installation of renewable energy generation systems in rural areas. Grants are limited to $500,000 or 25% of the project cost, whichever is less. Grants are awarded upon merit through national competition.
REAP Loans are similar to the REAP grant program, but provide loan guarantees to commercial lenders to finance such projects. Loans up to $25 million can be guaranteed. The combined value of the grant and loan guarantee cannot exceed 75% of the total project cost.