The system owner of solar projects have some valuable tax benefits:
Here is an example of how valuable these tax benefits can be: Let’s say you own an 80,000 SF building that needs a 500 kW solar system. Assuming a system cost of $2.00 per watt or $1,000,000, below is a recap of the cash value of the year 1 tax benefits of owning your $1,000,000 solar project:
26% Income Tax Credit (“ITC”) $260,000 ($1M x 26%)
100% Bonus Depreciation $270,000
Total Cash Value $530,000
The amount eligible for bonus depreciation is reduced by 50% of the ITC. So, in this case, the tax basis eligible for depreciation is $1,000,000 less (50% x $260,000) = $870,000. This means you can potentially deduct and carry-back $870,000 to offset prior year income. Assuming your blended federal tax rate is 30%, the potential cash value of the bonus depreciation tax deduction is $870,000 x 30% = $270,000.
For credit-worthy borrowers, a solar project can be financed with approximately 30% cash down payment. The balance of the system can be financed with debt under a variety of structures. In this example, a property owner can make a $300,000 down payment in 2020 and recoup $530,000 of cash as soon as they file their 2020 tax return. This represents a 1.77x multiple on their original investment in this example.
commercial solar investment tax credit