Federal Incentives and Grants
Federal Investment Tax Credit (ITC)
The Solar Energy Investment Tax Credit is one of the most important federal policy mechanisms to support the growth of solar energy in the United States. A tax credit is a dollar-for-dollar offset of tax liability that a person or business would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. For more information about the history and impact of the ITC, please visit the Solar Energy Industry Association's website.
Table 1: ITC Schedule for Solar Investment Tax Credit.
|Credit Prior to IRA||26%||22%||0%||0%||0%||0%||0%||0%||0%||0%||0%||0%||0%||0%|
|Credit Under IRA||30%||30%||30%||30%||30%||30%||30%||30%||30%||30%||30%||26%||22%||0%|
USDA Rural Energy for America Program (REAP)
The Rural Energy for America Program (REAP) provides grants and loans to farmers and rural businesses interested in making energy efficiency improvements. The program also supports the purchase of wind, solar, or other renewable energy systems.
Farmers, ranchers, and rural small businesses can apply to REAP for either grants or loan guarantees to improve the efficiency of existing operations or to install new renewable energy systems. Wind, solar, renewable biomass, anaerobic digesters, small-hydroelectric, and geothermal are among the energy systems that can be funded by REAP.
REAP grants now provide up to 40 percent of the total cost of the activity carried out using the funds from the grant. This lifts the grant ceiling from 25% to 40% of eligible project costs. Many solar companies can help with the REAP application process.
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Much like investments in other types of equipment, investments in a PV solar system can be depreciated to reduce taxable income. A qualifying solar PV system installed on a farm is eligible to depreciate the value of the project assets using the Modified Accelerated Cost Recovery System (MACRS) deduction method over a five-year recovery period. The MACRS deduction method includes special renewable energy system bonus depreciation. For more information about MACRS method and bonus depreciation, read an article by the Solar Energy Industry Association. Make sure to discuss your project with a qualified tax professional to identify potential alternative depreciation options.