Amid the 1,000’s of pages of official documents relating to the landmark legislation that was signed into law last August are a few very important provisions for folks interested in solar. LSC will continue to provide updates as they become available, but here is a quick guide for the solar provisions and a resource for a whole lot more. Tax-Exempt Organizations wanting to do solar can get our help immediately for your solar project in 2023 or 2024 or anytime in the next 9 years.
1. Residential Solar Customers will see the 30% investment tax credit extended for 10 years starting this year and being phased out after 2032. There really isn’t a lot more to say about that except we really wished we could have gotten a guaranteed payment provision so that you’d get a tax credit even if you didn’t owe taxes. That did not happen. But, 30% off of your solar is still a great deal and it helps that we don’t all have to rush to get solar built now that we have 9 more years after this year to get the full 30%.
2. Commercial Solar Customers (up to 1,000kW or 1MW) will also enjoy the 30% tax credit for another 10 years with a similar step-down for 2033 and 2034 as was the case from 2022 and 2023 (before the IRS became law of the land). In addition, there are provisions for enhancing the tax credit by 10% each for specific types or locations of projects, including:
a. Energy Communities (10% adder) include census data tracts that have been developed to identify communities that have experienced a closure of a coal or other electric power plant. The adjacent communities also (should) receive the 10% added tax credit.
b. Domestic Content (10% adder) include solar projects where at least 40% of the materials (evidenced by the cost of materials) including steel (solar modules, inverters, racking, other balance of system) is sourced from manufacturers in the U.S. There are differences between “Made in America” and Domestic Content, so look at the Treasury Department’s rules on this.
c. Disadvantaged Communities. If your solar project is located in a low income community, you may be able to apply to be included in a limited allocation each year for another 10% (up to 20% if your project serves eligible LMI households directly) added on to the base credit of 30%. For all of these provisions, the Treasury Department continues to release updates and clarification on the proposed rules and eligibility criteria. See this publication for more updates and links.
d. How to File for Your Tax Credit. File your tax return (or 990 form) as you would ordinarily, and the IRS will flag your IRS form as being a recipient for the tax credit, and you should receive your tax credit just as you would any other tax return refund, regardless of whether you owe any taxes or not (if you are eligible).
3. Direct Pay (now called Elective Payment Election) for Tax Exempt Organizations (TEOs).
Legacy Solar Co-op works with A LOT of tax-exempt organizations to help them afford solar through using specialized tax financing arrangements to get access to lower cost (or no net-cost up-front) solar development for Cities, Churches, Libraries, Schools, and other tax-exempt organizations. Well, the IRA will now start processing (this fall) requests from TEOs so that they will also receive the 30% (or greater) investment tax credit regardless of their tax liability.
How does this work? First, the TEO should check with Legacy Solar Co-op and/or the Treasury Department publications (a partial list here) on this subject. Then, if it looks like your organization is eligible, follow these steps:
1. One, go ahead and plan your solar project (LSC can help you finance part of all of the project), then
2. Two, once you know when the project will be built (month and year), just notify the IRS (LSC can help you) that you wish to make an “elective payment election” for your organization to receive a solar tax credit;
3. Three, once the project is placed-in-service, notify the IRS that you have finished your project. They may want more details about your organization and your solar project at this time; and
4. Four, file your tax return (or 990 form) as you would ordinarily, and the IRS will flag your IRS form as being a recipient for the tax credit, and you should receive your tax credit just as you would any other tax return refund, regardless of whether you owe any taxes or not (if you are eligible).
There are anti-fraud and “double-dipping” protections to minimize misuse and abuse of this provision, but most TEOs should be able to access this credit just like a tax-paying entity would. In fact, tax-paying entities cannot get a payment from the IRS if they don’t owe taxes; so in some respects, the TEO is in a better position to benefit, except for the fact that tax-paying entities do have the ability to depreciate the solar property at 80% in year 1 (2023) or 60% in 2024, with the rest of the basis being handled along more traditional 5-year recovery schedules. TEO’s don’t really use this benefit for the most part.
Legacy Solar Co-op would love to help you shepherd your solar project through to and beyond completion. We can help you “right-size” your project, design and implement a Request-for-Proposal process (or simply get a 2 nd bid for comparison), finance and even help fund your project through our Slice-of-Sun Bond Subscription program. We even help write grants for 10’s of thousands and hundreds of thousands of dollars. And, now we can help you keep track of your solar project and the Inflation Reduction Act incentives and help you process your tax credit with documentation or even legal referrals for more certainty. Let us know how we can help you today by emailing us at email@example.com.