As part of the American Recovery and Reinvestment Act of2009 (ARRA), in order to stimulate the economy, and in particular, the solar industry, commercial solar systems (Sec. 48 ITC only) are able to convert the ITC that would normally be received at the end of the tax year, and only if there was tax appetite, into a U.S. Treasury Grant that can be received as early as 60 days after project completion or application(whichever is later).
Only projects placed in service in 2009 or 2010, or projects started in 2009 or 2010 and placed in service before the end of 2016 are eligible for Grant treatment. This solves the lost “time value of money” due to lengthy carry forwards for taxpayers with limited ability to use the ITC. Most of the rules and eligibility for the Grant are the same as for the ITC, except as noted above. More information is available at: http://www.treasury.gov/recovery and http://www.treasury.gov/recovery/1603.shtml.
Depreciation and Accelerated Depreciation may be a possibility for business owned systems. Depreciation is a method of ‘writing-off’ expenses for long lasting (durable) goods such as cars, computers, etc. The ‘write-off’ is generally required to be spread over several years, depending on the type of property. Since depreciation is a write-off, it reduces taxable income, and thus reduces tax liability. The net federal benefit of depreciation is the federal tax rate times the federal depreciation basis. The federal depreciation basis amount is the federal ITC basis, minus one-half the federal ITC amount (85% of the ITC basis in the case of the current 30% ITC). For example, a system costing $100K (ignoring any rebate for this example) would have a tax credit basis of $100K, and thus receive a$30K federal ITC (30%). Its federal depreciation basis would be $85K ($100K minus one half of the $30K ITC). If the customer’s federal tax rate were 28%, the federal depreciation benefit would be approximately $24K ($85K times 28%).The state depreciation benefit is the state tax rate times the state depreciation basis, which may be different from the federal depreciation basis, and may be affected by any state rebates received. Unfortunately, for the same reasons that state income tax credits aren’t really worth their face value, similarly, the state depreciation net benefit must factor in the effective federal taxation effect of reducing state taxes.
