01/21/2021 Recently, Irontrax was engaged to appraise a solar array being installed at a Hawaii-based nutrition company. Part of the scope of the project was determining eligibility for Solar Investment Tax Credit (ITC), HI Renewable Energy Technologies Income Tax Credit (RETITC,) and IRS Depreciation tax incentives. The eligibility for these tax benefits can mean a difference of hundreds of thousands of dollars. Our client’s plan includes building a sizable solar energy system, including a PV solar system, Three Phase Inverter with Synergy Technology for the Grid, Solar Edge Power Optimizer, and Energyport Indoor C&I Energy Storage Systems.
After thorough analysis, the Irontrax team was able to determine that the solar project would be eligible for all three benefits, based on the type of solar system installed. Once eligibility was determined, financial expectations through all three tax benefits were calculated. An estimated total of over $400k in reduced tax liability was determined, including deductions for the next five years.
The three tax benefits mentioned earlier each have different requirements and ways in which the benefits are calculated. We review these aspects for each below.
Solar Investment Tax Credit (ITC)
The ITC is a tax credit, meaning a dollar-for-dollar reduction in taxes owed. The tax credit was originally set to decrease from 26% to 22% in 2021 but recently, the stimulus relief bill passed in December 2020 changed that. The most recent relief bill extends the 26% tax credit through 2022.
The updated tax credit is at 26% for systems commencing construction in 2020, 2021 or 2022, 22% for systems commencing construction in 2023, and 10% for systems commencing construction in 2024 or thereafter. Any PV system placed in service after 2024, regardless of when it commenced construction, can receive a maximum tax credit of 10%.
Renewable Energy Technologies Income Tax Credit Hawaii (RETITC)
The tax credit may be claimed for every eligible renewable energy technology system that is installed and placed in service in the State by a taxpayer during the taxable year. Up to 35% of the actual total cost may be claimed.
IRS & State Depreciation
A taxpayer who claims the commercial ITC for a solar PV system placed in service can typically also take advantage of accelerated depreciation (Modified Accelerated Cost-Recovery System, or MACRS) to reduce the overall cost of a PV installation. Depreciation is a deduction, meaning it only reduces a business’s taxes by the depreciation amount multiplied by the business’s tax rate.
Don’t leave money on the table. Let Irontrax be your advisement partner on your next solar array project!