Commercial Solar Tax Credits – What’s Available in Texas?

commercial solar tax credits

In today’s world, sustainability is no longer just a buzzword; it’s a commitment that businesses must make to secure a greener and more economical future. One of the most potent ways to embrace sustainability while saving significantly on energy costs is by adopting solar energy solutions. Commercial businesses, in particular, stand to gain immensely from the various rebates and tax incentives available. 

In this article, we will delve into the significant opportunities for savings, including the Investment Tax Credit (ITC), Modified Accelerated Cost Recovery System (MACRS), and Green Property Tax Abatements, with a special focus on Houston’s unique 10% Energy Community and 10% American-made provisions.

Commercial Solar Tax Credits (ITC) – 30% Savings

The Investment Tax Credit (ITC) has long been a cornerstone of incentivizing solar adoption in the United States. However, the Inflation Reduction Act (IRA) of 2022 has sweetened the deal even further. Now, commercial businesses can enjoy a 30% ITC, which applies to the total cost of solar photovoltaic (PV) systems. What sets the ITC apart from tax deductions is that it directly offsets your tax liability dollar for dollar.

Moreover, the IRA extended the carry-back period to 3 years and the carry-forward period to 22 years, ensuring that even if your tax credit exceeds your tax liability in the year your system is placed in service, you can carry those credits forward or backward, optimizing your financial advantage.

For larger PV projects exceeding 1 MW AC in size, the IRA introduced prevailing wage and apprenticeship requirements to qualify for the full 30% “increased rate.” This provides an added incentive for businesses to invest in training and promote workforce development.

Commercial Solar Tax Credits Federal MACRS – 80% Deductions

Under the federal Modified Accelerated Cost Recovery System (MACRS), businesses can recover their investments in solar PV property through depreciation deductions over a 5-year established lifespan. The taxable basis of the equipment must be reduced by 50% of any federal tax credits associated with the system.

The Tax Cuts and Jobs Act of 2017 introduced bonus depreciation, allowing companies to deduct the entire allowable tax basis of the system in the first year of operation for PV projects placed in service before January 1, 2023. For projects placed in service in 2023, businesses can still deduct 80% of the basis in the first year, while the remaining 20% follows the normal MACRS schedule.

These tax incentives provide commercial businesses with a powerful tool to recover their solar investments rapidly, reducing the payback period and making solar energy a more attractive choice.

Commercial Solar Houston – 10% Energy Community

Houston, a bustling hub of commerce, also offers a unique incentive. Solar generation projects placed in service after December 31, 2022, and located within an “energy community” in Houston qualify for an additional 10% ITC. But what exactly defines an “energy community”?

An energy community encompasses various locations, such as brownfield sites, census tracts with closed coal mines or retired coal-fired power plants after specific dates, and areas with significant employment or local tax revenue related to the extraction, processing, transport, or storage of coal, oil, or natural gas. This Houston-specific provision encourages businesses to revitalize and repurpose sites while harnessing solar energy.

Commercial Solar Tax Credits – Supporting Domestic Manufacturing

Supporting domestic manufacturing is a crucial aspect of sustainability and economic growth. Solar generation projects placed in service after December 31, 2022, can benefit from an additional 10% ITC by satisfying a new domestic content requirement. To qualify, businesses must certify that certain components of the solar system, including steel, iron, and manufactured products, were produced in the United States.

While construction materials primarily made of steel or iron must be 100% produced in the United States, this requirement does not apply to steel or iron used as components or subcomponents of other manufactured products. The aim here is to promote the use of American-made materials and products, thus boosting local industries.

Commercial Solar Companies in Houston

Embracing solar energy not only aligns your commercial business with sustainable practices but also unlocks significant savings through rebates and tax incentives. The Investment Tax Credit, Federal MACRS and Bonus Depreciation, Houston’s 10% Energy Community, and 10% American-made provisions provide substantial financial benefits.

As businesses increasingly recognize the importance of sustainability, these incentives make the transition to solar energy not just a green choice, but a financially prudent one. It’s a win-win scenario, where you contribute to a greener planet while strengthening your bottom line. 

We are a commercial solar company operating in Houston, TX. We have a proven track record of successful projects and happy clients. Reach out to us today.