A variety of financial incentives for renewable energy are available to help make an investment in solar energy more affordable for both homeowners and businesses, and to accelerate the adoption of clean energy technologies. These range from the federal tax credit to production incentives offered by utilities and are often the result of legislative policies, and therefore vary from state to state.

The Inflation Reduction Act of 2022 is the biggest investment in green energy that our country has ever seen. There are many aspects of the new law that will benefit people who wish to go solar or explore other renewable energy solutions such as high-efficiency heat pumps and other options. Sundance is thrilled about these incentives and will be updating this page as we learn more!

Click HERE for info on utilizing the Federal Tax Credit         Disclaimer: This article is for informational purposes only. It should not be relied on for and is not intended to provide accounting, legal or tax advice.

• NEW RATE as of 2022: 30% tax credit with no maximum
• Applies to solar electric systems, battery storage (UPDATE: batteries no longer require being part of a solar system, the tax credit applies to purchase of standalone batteries), solar thermal and wind energy systems
• System must serve a dwelling used as a residence by the taxpayer
• Excess credit can be carried to the next tax year
• 30% ITC extended through 2032!

INFLATION REDUCTION ACT OF 2022 CHANGES:

Extension of Renewable Electricity Production Tax Credit 

• Extends the existing production tax credit for applicable renewable energy sources. This tech-specific PTC ends in 2024 and is replaced by the new tech-neutral Clean Electricity PTC which begins in 2025.
• Revives the PTC for solar facilities which ended in 2006 and extends to 2024.
• Extends the date of construction for geothermal, wind, closed- and open-loop biomass, landfill gas, municipal solid waste, hydropower, and marine and hydrokinetic facilities to 2024.
• Maintains a credit amount of 1.5 cents per kWh.
  • Applies a 10% bonus for meeting domestic manufacturing requirements for steel, iron, or manufactured components.
  • Applies a 10% bonus for facilities located in energy communities (defined as brownfield sites or fossil fuel communities).
• Increases hydropower, municipal solid waste, and marine and hydrokinetic credit to full value (was previously halved).
• Strikes the offshore wind credit phaseout for facilities placed into service before 2022.
• Includes Direct Pay and Transferability.

New Clean Electricity Production Tax Credit 
This newly established, tech-neutral PTC replaces the above Renewable Electricity Production Tax Credit once it phases out at the end of 2024. This is an emissions-based incentive that is neutral and flexible between clean electricity technologies. Taxpayers choose between a PTC and an ITC.

• Creates a PTC credit of 1.5 cents per kWh of electricity produced and sold or stored at facilities placed into service after 2024 with zero or negative GHG emissions.
  • Applies a 10% bonus for projects located in energy communities (defined as brownfield sites or fossil fuel communities).
  • Applies a 10% bonus for meeting domestic manufacturing requirements for steel, iron, or manufactured components.
  • Applies a 10% bonus for projects located in low-income communities or on Tribal land; 20% bonus for projects located in low-income residential buildings or part of low-income economic benefit projects.
• Facilities may use carbon capture, utilization, and storage (CCUS) to reach qualifying emissions levels.
• Credits are set to phase out the later of 2032 or when emission targets are achieved (i.e., the electric power sector emits 75% less carbon than 2022 levels). Facilities will be able to claim a credit at 100% value in the first year, then 75%, then 50%, and then 0%.
• Includes Direct Pay and Transferability.

Investment Tax Credits

Extension of Energy Investment Tax Credit 
Extends the existing energy investment tax credit for applicable energy projects. This tech-specific ITC ends in 2024 for most technologies and is replaced by the new tech-neutral Clean Electricity ITC, which begins in 2025.

• Extends date of construction in most cases to 2024 and maintains a 10% or 30% credit.
  • Maintains 30% credit for solar energy property, geothermal property, fiber-optic solar property, fuel cell property, microturbine property, small wind property, offshore wind property, combined heat and power property, and waste energy recovery property constructed before January 1, 2025.
  • Creates 30% credit for energy storage technology biogas property, microgrid controllers, dynamic glass, and linear generators constructed before January 1, 2025.
  • Extends 10% credit for microturbine projects constructed before January 1, 2025.
  • 30% credit for geothermal heat pump projects constructed before January 1, 2033. Credit reduces to 26% in 2033 and 22% in 2034.
• Applies a 10% bonus for meeting domestic manufacturing requirements for steel, iron, or manufactured components.
• Applies a 10% bonus for projects located in energy communities (defined as brownfield sites or fossil fuel communities).
• Includes Direct Pay and Transferability.

New Clean Electricity Investment Tax Credit 
This newly established, tech-neutral ITC replaces the above Energy ITC once it phases out at the end of 2024. 48E is an emissions-based incentive that is neutral and flexible between clean electricity technologies. Taxpayers choose between a PTC  and an ITC.

• Creates an ITC credit of 30% of the investment in the year the facility is placed in service.
  • Applies a 10% bonus for projects located in energy communities (defined as brownfield sites or fossil fuel communities).
  • Applies a 10% bonus for meeting domestic manufacturing requirements for steel, iron, or manufactured components.
  • Applies a 10% bonus for projects located in low-income communities or on Tribal land; 20% bonus for projects located in low-income residential buildings or part of low-income economic benefit projects.
• Clean electricity projects smaller than 5 MW can include the costs of interconnection under the ITC.
• The Treasury Department is directed to publish emission rates for similar technologies each year for taxpayers to use for purposes of determining their eligibility.
• Credits are set to phase out the later of 2032 or when emission targets are achieved (i.e., the electric power sector emits 75% less carbon than 2022 levels). Facilities will be able to claim a credit at 100% value in the first year, then 75%, then 50%, and then 0%.
• Includes Direct Pay and Transferability.

Advanced Energy Project Credit 
Extends the 30% investment tax credit to clean energy projects to strengthen domestic energy manufacturing and support the production and recycling of clean energy products. It also expands credit to include projects at manufacturing facilities that want to reduce their GHG emissions by at least 20%.

• Tax credit is funded at $10 billion for eligible projects.
• Can be applied to low-carbon industrial heat, carbon capture, transport, utilization and storage systems, and equipment for recycling, waste reduction, and energy efficiency.
• Includes Direct Pay and Transferability.

• Businesses may recover investments through depreciation deductions
• Applies to solar thermal, solar electric, and wind energy systems
• Classified as a five-year property

Note: The Tax Cuts and Jobs Act of 2017 increased bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023.

Under the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. A number of renewable energy technologies are classified as five-year property (26 USC § 168(e)(3)(B)(vi)) under the MACRS, which refers to 26 USC § 48(a)(3)(A), often known as the energy investment tax credit or ITC to define eligible property. Such property currently includes*:

• a variety of solar-electric and solar-thermal technologies
• fuel cells and microturbines
• geothermal electric
• direct-use geothermal and geothermal heat pumps
• small wind (100 kW or less)
• combined heat and power (CHP)
• the provision which defines ITC technologies as eligible also adds the general term “wind” as an eligible technology, extending the five-year schedule to large wind facilities as well.

Bonus Depreciation
Bonus Depreciation has been sporadically available at different levels during different years. Most recently, The Tax Cuts and Jobs Act of 2017 increased bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023.

For more information on the federal MACRS, see IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562. The IRS web site provides a search mechanism for forms and publications. Enter the relevant form, publication name or number, and click “GO” to receive the requested form or publication. For guidance on bonus depreciation, including information relating to the election to claim either 50% or 100% bonus depreciation, retroactive elections to claim 50% bonus depreciation for property placed in service during 2010, and eligible property, please see IRS Rev. Proc. 2011-26.

*Note that the definitions of eligible technologies included in this entry are somewhat simplified versions of those contained in tax code, which often contain additional caveats, restrictions, and modifications. Those interested in this incentive should review the relevant sections of the code in detail prior to making business decisions.

REAP provides financial assistance for adoption of clean energy technologies in rural communities. The IRA of 2022 invests $2 billion for the USDA REAP program until 2031 to provide competitive grants and loan guarantees to farmers, ranchers, and rural small businesses for renewable energy systems or energy efficiency improvements. This program is perfect for members of the agricultural community in our region – ask us how to utilize these funds for your farm or agricultural business!

• Up to 50% (increase from previous 25% level) of total eligible project costs in grants, $500,000 maximum
• Up to 75% of total eligible project costs in loan guarantees
• Applies to energy efficiency improvements and renewable energy systems
• Available to agricultural producers and small businesses in eligible rural areas

Eligibility
Grants and Guaranteed Loans are generally available to small businesses and agricultural producers and other entities as determined by USDA. To be eligible for REAP grants and guaranteed loans, applicants must demonstrate sufficient revenue to cover any operations and maintenance expense as well as any applicable debt service of the project for the duration of the guaranteed loan or grant. Rural small businesses must be located in rural areas, but agricultural producers may be located in non-rural areas.

Eligible project costs include purchasing energy efficiency improvements or a renewable energy system, energy audits or assessments, permitting and licensing fees, and business plans and retrofitting. For new construction the replacement of older equipment with more efficient equipment may be eligible as a project cost only when a new facility is planned to be more efficient and similarly sized than the older facility. Working capital and land acquisition are only eligible for loan guarantees.

For more information regarding applicant and project eligibility for loans and grants, visit the USDA REAP eligibility webpage, read the eligibility requirements in the most recent Solicitation of Applications for REAP funding in the Federal Registry, and/or contact your state rural energy coordinator.

These pages will identify state level and utility incentives that may be available to you:

• Solar Incentives Available in North Carolina
• Solar Incentives Available in South Carolina

While we strive to inform our customers of financial incentives that make their investment in a clean energy system even more economically favorable, we also recommend that they consult a financial advisor. As the ability to claim tax credits is based on tax liability, this is especially advisable to ensure that the credits can be fully realized, and that an investment in solar energy is structured to the fullest economic advantage.