Solar Tax Credits and Grants

(This article originally appeared in the New York Law Journal)

NEW YORK CITY-Energy independence is a major American policy goal, and the Internal Revenue Code has not been neglected in that push. There are tax credits for the manufacturing of “greentech” equipment and for purchases of energy-efficient appliances. Tax credits are available for business and homeowner purchases of properties that generate renewable energy. A tax credit can be claimed for each kilowatt-hour of electricity from various renewable energy sources. This article will focus on the business tax credit for purchases of solar panels and other solar energy property, an area of growing interest to commercial rental property owners. In lieu of the tax credit, property owners for a limited time can claim a grant equal to the amount of the credit, with fewer restrictions.

Credits The energy tax credit in Code section 48 is equal to 30% of the basis of purchased solar energy property used in the United States in a trade or business or income-producing activity. Solar energy property includes assets that use solar energy to generate electricity, or to heat or cool a structure, as well as solar water heaters and “equipment which uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight.” The credit rate drops to 10% for solar energy property placed in service after Jan. 1, 2017. The basis of the energy property is reduced by half of the amount of any credit claimed on the property.