All you wanted to know about Solar Investment Tax Credits (ITC) but were too busy to ask:
On October 3, 2008, Republican President George W. Bush signed the Emergency Economic Stabilization Act of 2008 into law (P.L. 110-343). This legislation contains a number of tax incentives designed to encourage both individuals and businesses to make investments in solar energy, including 8-year extensions of the section 48 business solar investment tax credit (ITC) and the section 25D residential solar ITC.
The following is a brief summary of the provisions directly and indirectly benefiting the solar industry, and answers to frequently asked questions about how the provisions operate.
Provisions Directly Benefiting the Solar Industry:
Business Solar Investment Tax Credit (IR Code §48). The bill extends the 30% ITC for solar energy property for eight years through December 31, 2016 and since extended through 2019. The bill allows the ITC to be used to offset both regular and alternative minimum tax (AMT) and waives the public utility exception of current law (i.e., permits utilities to directly invest in solar facilities and claim the ITC). The five-year accelerated depreciation allowance for solar property is permanent and unaffected by passage of the eight-year extension of the solar ITC.
Provisions Indirectly Benefiting the Solar Industry:
Qualified Energy Conservation Bonds. The bill creates a new category of tax credit bonds, "Qualified Energy Conservation Bonds" (QECBs) to finance State and local government initiatives designed to reduce greenhouse emissions.QECBs can be issued to finance capital expenditures incurred for: (1) reducing energy consumption by at least 20%; (2) implementing green community programs; and (3) rural development involving the production of electricity from renewable resources. The bonds can also be used to finance research facilities and provide research grants for, among other things, technologies to reduce peak use of electricity. There is a national limitation of $800 million, allocated to States, municipalities and tribal governments.
Frequently Asked Questions:
1. When is the extension of the ITC effective for commercial property?
Answer: The extension of the ITC for commercial solar property is effective on the date of enactment, October 3, 2008. Since the existing credit was not scheduled to expire until December 31, 2008, this means that the credit has been seamlessly extended through 12/31/2019.
2. What is the effective date for waiver of the public utility exception?
Answer: This provision is effective for periods after February 12, 2008, in taxable years ending after such date.
3. If I begin a residential installation now, can the lifted cap apply to this project?
.Answer: That depends on whether the installation is completed after December 31, 2008. Section 25D(e)(8)(A) provides in general that an expenditure with respect to an item shall be treated as made when the original installation of the item is completed. In other words, the taxpayer may claim the credit as of the date that the installation of the residential solar electric property is completed and the property is placed into service. If an installation is begun in 2008, but the property is not placed into service until after December 31, 2008, the taxpayer may claim the credit for 30% of the expenditures made with regard to the installation.
4. Were the bonus depreciation provisions enacted as part of the Economic Stimulus Package earlier this year that are currently set to expire on 12/31/08 extended as part of the Emergency Economic Stabilization Act?
Answer: No, the bonus depreciation rules were not extended. Bonus depreciation should not be confused with the five-year accelerated depreciation of solar property under Section 48.