Federal Solar / Investment Tax Credit Sunset

Background/Problem:

Acquisition of Solar Electric (Photovoltaic) or Solar Thermal (Hot Water) systems was greatly facilitated by Federal Tax Credit (30%), Hawaii Tax Credit (35%) and Bonus/MACRS Depreciation (up to 100%).

The federal solar tax credit began with the Energy Policy Act of 2005.  This established a 30% tax credit for solar electric systems, called an Investment Tax Credit (ITC).  The current schedule for the solar tax credit allows for a full 30% tax credit on solar electric or solar water heating installations that are in service by December 31, 2019.  Unless Congress extends the credit again, the amount of the credit will drop to 26% for systems placed in service in 2020, and 22% for systems placed in service in 2021.  After December 31, 2021, the solar tax credit is scheduled to expire for private installations, with only a 10% tax credit for commercial installations remaining.

The Tax Cuts and Jobs Act of 2017 (TCJA) increased the bonus depreciation percentage from 50% to 100% for qualified property acquired and placed in service after Sept. 27, 2017, to Dec 31, 2022.  Thereafter, the bonus depreciation reduces to 80% (2023), 60% (2024), 40%, (2025), 20% (2026), and 0% (2027).

To date, there is no sunset for the Hawaii Tax Credit of 35%, subject to certain caps.

Solution:

A customer who wishes to own a solar property with maximum tax benefit should enter into a construction contract with a contractor in 2019 and establish the beginning of construction by meeting a safe harbor, based on having paid or incurred five percent or more of the total cost of the energy property as set forth in section 5 of Notice 2018-59 - Beginning of Construction for the Investment Tax Credit under Section 48 (Five Percent Safe Harbor).  Thereafter, the taxpayer makes continuous efforts to advance towards completion of the energy property.  If a taxpayer places an energy property in service by the end of a calendar year that is no more than four calendar years after the calendar year during which construction of the energy property began (the Continuity Safe Harbor Deadline), the energy property will be considered to satisfy the Continuity Safe Harbor.  Therefore, a construction contract for a solar energy system executed in 2019 with a 5% deposit payment made on this contract is eligible for 30% ITC, if the solar energy system is placed in service within the next four calendar years.

Please contact Greenpath Technologies Inc (GPT) for additional information.

Greenpath Technologies Inc
94-260 Pupuole Street
Waipahu, HI 96797

Charles Chacko
charles@greenpath-tech.com
808-748-8406