The most well-known tax credits regarding renewable energy is the Federal Energy Investment Tax Credit (ITC). A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. If you were to install a photovoltaic system, solar water heating or other solar electric technologies into your home or business, you would be eligible to take advantage of this 30 percent credit when filing your income tax return. On the federal level they let individuals or businesses deduct a certain percentage of investment costs from their taxes. These credits are in addition to normal allowances for depreciation. The federal tax credit is the same across every state, it’s federal! Each state has their own scaleable system on calculating your state tax credit amount which is based on your gross system costs. The values vary by state but since we are based in Arizona we’ll use our state’s incentive system to explain how it these incentives work. If you are in need of determining your own state tax credits we can provide you with those numbers based on your solar solution.
The ITC amount is equal to 30 percent of the gross system cost for projects that commence construction through 2019. The ITC then steps down to 26 percent for projects that begin construction in 2020 and 22 percent for projects that begin in 2021. After 2021, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10 percent.
Solar Sales Tax Exemptions
For certain types of solar equipment, Arizona offers a tax exemption for 100 percent of the sales tax. Technologies that are eligible include photovoltaic panels, solar water heating, solar space heating, solar thermal electric systems and other solar energy technologies. These exemptions, which have no maximum amount, are available for eligible equipment utilized in residential, commercial and public installations.
Energy Equipment Property Tax Exemptions
Arizona property owners are eligible for a tax exemption of 100 percent of the increased value of a property that has an eligible energy system installed. By installing solar energy systems into your Arizona business, you are eligible for a property tax break. This applies to commercial and industrial properties and also extends to other energy-efficient building components.
Corporate Solar Tax Credits
Tax credits are available to Arizona industrial, commercial, state, educational, nonprofit and agricultural institutions that utilize solar technologies including photovoltaic panels, solar thermal electric systems and other solar technologies. While there is a maximum credit of $25,000 for a single building and a total of $50,000 per business each year, there is no restriction on the size of the system installed. The program budgets $1 million annually and is scheduled to expire on December 31, 2018.
Corporate Renewable Energy Tax Credits
For Arizona corporate taxpayers that utilize eligible renewable energy systems to produce electricity each year over the period of a decade, an incentive of up to $2 million is available. Photovoltaic systems or solar thermal electric systems installed after December 31, 2010 are eligible for this tax credit, but they must maintain a minimum of 5 MWh. The annual program budget is $20 million, and the credits may be applied to corporate or personal income tax returns.