Unlock the Benefits of Solar Investment Tax Credits for Your Commercial Real Estate Properties
October 19, 2023
5 min read
The world of commercial real estate is evolving, with a growing emphasis on sustainability and renewable energy.
As a property owner or manager, you can leverage this trend to your advantage through the Investment Tax Credit (ITC), a federal incentive that encourages the adoption of solar energy.
What is the Investment Tax Credit (ITC)?
The Investment Tax Credit (ITC), also known as the federal solar tax credit, is a U.S. federal policy that provides a tax credit for solar systems installed on commercial properties. The ITC was established by the Energy Policy Act of 2005 and has been extended several times since its inception.
How can the ITC benefit your commercial real estate properties?
The ITC can significantly reduce the cost of installing solar panels on your commercial properties. By deducting a percentage of the installation costs from your taxes, the ITC makes solar energy more affordable and accessible. This can lead to substantial long-term savings on energy costs, making your properties more attractive to potential tenants who value sustainability and lower utility bills.
What ITCs are available?
The ITC has been structured into a two-tier regime consisting of a base credit and an additional bonus credit. The bonus credit is available for eligible projects that meet certain prevailing wage and apprenticeship requirements. These requirements include ensuring that laborers, mechanics, contractors, or subcontractors are paid prevailing wages in the geographic area where the project is located and that a certain percentage of total labor hours are performed by qualified apprentices.The Act also introduces the “energy community” and “domestic content” bonus credits. Each of these can provide a 10% bonus that can be stacked with the base ITC credit earned by the taxpayer. Furthermore, the IRA establishes an additional 10% or 20% bonus credit if a project is a qualified solar and wind facility located in a low-income community.It's important to note that while these bonus credits can be stacked on the base ITC, they cannot be combined with each other. For instance, if your project is located in an energy community and you also use American-made products, you would receive the base ITC, plus either the bonus for being in an energy community or the bonus for using domestic content, but not both.
Investment Tax Credit (ITC) for construction commencing 2023-2033
Recent developments: Expanding the reach of the ITC
Recent guidance from the U.S. Department of Treasury and Internal Revenue Service (IRS) has proposed expanding the reach of the ITC, allowing more entities to benefit from this tax credit. As part of the Inflation Reduction Act (IRA), the IRS has introduced provisions for 'elective pay' and 'transferability', both of which are designed to broaden the scope of eligible recipients.Under the elective pay proposal, tax-exempt and government entities can receive up to 12 payments directly from the IRS for clean energy tax credits, including the ITC. This provision aims to give state, local, and tribal governments, U.S. territories, and large nonprofits greater access to renewable energy deployment.The transferability provision allows smaller entities, or those without sufficient tax liability to benefit from the IRA credits, to transfer all or part of their tax credits to a third party in exchange for immediate, tax-free funds. This means that even if your business doesn't have a large tax liability, you can still benefit from the ITC by transferring your credits to another entity creating an additional revenue stream for your company.Final comments on the Treasury’s elective pay and transferability proposals are due by August 14, 2023 and public hearings will be scheduled in the following days.