Commercial solar incentives: How to get a bonus tax credit for your business

Business owners are always curious to know what kind of commercial solar incentives are available. Thanks to a recently passed federal law, they may qualify for bonus tax credits that can make their project even more affordable.  

The Inflation Reduction Act, passed in 2022, extended existing tax credits that homeowners and businesses have used for years to reduce the cost of investing in renewable energy.  

The law also allowed businesses to earn a bonus credit if the project met certain criteria.  

In this blog, we’ll discuss how these commercial solar incentives can help your business cut down the cost of installing solar.  

Energy communities 

The investment tax credit, or ITC, allows a business or homeowner to reduce their tax liability by 30% of the project cost. A solar installation that costs $30,000 would result in a $9,000 tax credit.  

Businesses can carry forward any unused tax credit for 22 years, and they can even carry it back for three years.  

Businesses can still earn a 30% tax credit as a base incentive, but the Inflation Reduction Act included some provisions that would allow businesses to take an even larger incentive.

For instance, if the business is in what the federal government deems an “energy community,” it can take an extra 10 percentage points for a tax credit that equals 40% of the project costs.  

An energy community is defined as:  

• A “brownfield site”  
• An area where the local community depends on the fossil fuel industry or has a higher-than-average unemployment rate.  
• An area where a coal mine or a coal-fired power plant has recently closed.  

Northern Minnesota has several energy communities, including:  

• Grand Rapids 
• Brainerd 
• Fergus Falls 
• Cook County 
• Most of Lake County 

Business owners curious about their eligibility for this bonus tax credit can check this interactive map.  

Domestic content 

Getting an extra tax credit through the energy communities bonus is pretty clear cut – just open a map and see where the energy communities are located. Not all commercial solar incentives are as straightforward.

The domestic content bonus also increases the tax credit by 10 percentage points for commercial projects. But knowing if your project qualifies can be tricky.

According to the Department of Energy, in order to qualify for this bonus, “all structural steel or iron products used must be produced in the United States and a ‘required percentage’ of the total costs of manufactured products (including components) of the facility need to be mined, produced, or manufactured in the United States.” 

Manufactured products, in this case, means solar panels an inverters. The percentage of these products that need to come from domestic sources increases to 45% from 40% in 2025, then to 50% in 2026 and 55% after 2026.  

The guidance on this particular tax credit bonus gets more complicated when you consider a solar panel may be made assembled in the U.S. but its individual components came from elsewhere.  

More from the Department of Energy:  

“According to the new guidance, the total cost of a manufactured product is only classified as domestic if it was manufactured in the United States and all its components are of U.S. origin. It does not, however, consider the origin of its subcomponents. For example, PV cell origin is considered because they are a component of a PV module, but the origin of the PV wafer used to produce the PV cell is not considered.” 

As you can tell, this bonus is a bit more complicated to figure out, so stay tuned for more information.

Low-income communities 

Lastly, businesses can take an extra 10 percentage points for a project located in a low-income community or on Indian land, or another 20 percentage points if it’s for a “qualified low-income residential project.” 

The federal government only allows a certain number of projects to take this bonus every year, so it requires an application.  

Wrapping up 

Hopefully by now you have an idea of what commercial solar incentives are available and how to take advantage of some bonus tax credits being offered by the federal government.  

If you want to invest in renewable energy system and reduce some overhead costs, reach out to us for a free quote.