January 5, 2024

Making Renewable Energy Tax Credits Work For You

Are you considering going green and investing in renewable energy projects like solar panels and battery storage? If so, there are a number of ways to make the switch to clean energy economically attractive. One major opportunity that is widely available and applicable is the Renewable Energy Investment Tax Credit (ITC). This federal tax credit encourages individuals and businesses to embrace renewable energy solutions and is designed to make clean energy more accessible and affordable. In this blog post, we’ll discuss the ITC and explore how it can benefit you, including the specifics of how it works, what you can claim, and whether you can trade tax credits.

Understanding the Investment Tax Credit (ITC)

The Renewable Energy Investment Tax Credit, or ITC, is a vital financial benefit offered by the U.S. government. Its primary purpose is to incentivize investments in renewable energy projects. Solar PV, wind, geothermal energy, and fuel cell technologies are among the eligible technologies for the ITC. Other technologies may qualify if they meet certain criteria. Additional tax credits may also be available in local or federal markets that could be applied. By taking advantage of the ITC, you can subtract a portion of the project’s cost from your federal income taxes. The exact amount depends on the specific project and the rules in place at the time. It’s important to note that ITC programs may have specific expiration dates or conditions, so staying up to date with the latest information is crucial.

To qualify for the credit, projects must either begin construction or be operational by specific deadlines. As of January 2024, the credit is 30% for installations completed through 2033. Additionally, three bonus categories are available. The first is a domestic content bonus for projects where all structural steel or iron products and a required percentage of manufactured products are produced in the United States. The next is an energy community bonus made available to brownfield sites, areas meeting required unemployment or related to the extraction, processing, transport, or storage of coal, oil, or natural gas, and areas adjacent to closed coal mines or or decommissioned coal-fired electric generating assets. The final bonus category is a low-income bonus that meets established requirements. Bonus thresholds are outlined in the below chart and a detailed description of requirements can be found here.

Per the federal government’s website, eligible projects that can claim the ITC must meet the following criteria:

  1. Located in the United States or U.S. territories
  2. Use new and limited previously used equipment
  3. Not leased to a tax-exempt entity (e.g., a school), though tax exempt entities are eligible to receive the ITC themselves in the form of a direct payment
  4. Projects must be built using prevailing wage labor

The federal government also offers a production tax credit (PTC) which is a per kilowatt-hour (kWh) tax credit for electricity generated by solar and other qualifying technologies for the first 10 years of a system’s operation. This typically cannot be claimed alongside the ITC, and customers can determine which value add is more beneficial based on their unique project circumstances. 

Figure from energy.gov

Monetizing Excess Credits

If your credits exceed your tax burden and you have credits left over, you may be able to carry them over to future years. There are also opportunities to sell or trade your tax credits depending on how much energy you produce, what your current tax liability is and other factors. Below we outline the process and discuss how you can capitalize on any excess credits to secure maximum value.

  • Generate Renewable Energy: To become eligible for renewable energy tax credits, such as the ITC, you need to invest in and install a renewable energy system, like solar panels or wind turbines.
  • Claim the Tax Credit: When you file your taxes, you can claim the tax credit, which effectively reduces the amount of income tax you owe. For instance, if you have a $10,000 tax credit, it can significantly lower your tax bill.
  • Excess Tax Credits: If the tax credit exceeds your tax liability (the amount of tax you owe), you might have excess credits left over.
  • Sell or Trade: You can then sell these excess tax credits, where applicable, to other individuals or businesses who have tax liability and can use the credits to lower their own tax bills.
  • Transaction: The process of selling or trading tax credits typically involves legal and financial steps. You need to find a buyer willing to purchase your credits, negotiate a price, and transfer the credits to them through the appropriate channels.

It’s important to remember that the specifics of selling or trading tax credits may vary by location and depend on the current tax laws. Therefore, consulting with a tax professional or financial advisor is crucial to ensure compliance with all applicable regulations.

Can You Claim the ITC for a New Roof in a Solar Project? 

In certain situations, you can indeed include some elements of your roofing costs when coupled with a solar project. Under the Energy Policy Act, if your existing roof lacks the structural strength to support solar panels, you may need to reinforce it with new joists or sheeting. The costs associated with these upgrades may be included for ITC calculation purposes.

Additional Local and State Tax Credits and Incentives

In addition to the federal ITC, there are various local and state incentives that can further enhance the financial benefits of your renewable energy project. Many can be stacked with the ITC, increasing the value of renewable energy projects and decreasing the investment necessary to install a number of eligible technologies.

Conclusion

The Renewable Energy Investment Tax Credit (ITC) is a valuable financial benefit that can significantly reduce the cost of your renewable energy project. Additionally, the options to hold onto excess credits or to sell or trade further enhances its appeal. Coupled with local and state incentives, investing in renewable energy has never been more attractive. In order to sufficiently navigate the complex landscape of tax credits and incentives effectively, we recommend seeking legal and tax advice to ensure compliance with all relevant laws and regulations.

If you’re interested in exploring other incentives beyond the ITC, check out our list of incentives for additional ways to make your journey to renewable energy more cost-effective and environmentally friendly. And if you’re ready to put a number to your property or portfolio’s potential energy savings opportunities, let the experts at GridMarket run a risk-free assessment and recommend the best technologies! 

Get Your Free Tax Credit Guide

If you’re interested in learning about other types of incentives that your property qualifies for, check out our free incentives guide here!

The information provided in this post is intended solely for general informational purposes and is not to be construed as legal, accounting, or financial advice. While we strive to ensure the accuracy and reliability of the information presented, we are not legal, tax, or regulatory advisors and the above summary does not cover all individual circumstances or legal and financial intricacies. Customers should consult with qualified professional advisors before taking any actions or making decisions that may have legal, accounting, or financial implications.

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