Federal Solar Tax Credits for Businesses

There are two tax credits available for businesses and other entities like nonprofits and local and tribal governments that purchase solar energy systems:
1) The investment tax credit (ITC) reduces the federal income tax liability for a percentage of the cost of a solar system that is installed during the tax year.
2) The production tax credit (PTC) 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. It reduces the federal income tax liability and is adjusted annually for inflation.

Generally, project owners cannot claim both the ITC and the PTC for the same property, although they could claim different credits for co-located systems, like solar and storage, depending on what further guidance is issued by the IRS.

Eligibility

Eligible projects include solar systems that are:
Located in the United States or U.S. territories;
Use new and limited previously used equipment; and are
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.

To claim the ITC, a taxpayer must complete and attach IRS Form 3468 to their tax return. Instructions for completing the form are available at http://www.irs.gov/pub/irs-pdf/i3468.pdf (“Instructions for Form 3468,” IRS).

To claim the PTC, a taxpayer must complete and attach IRS Form 8962 to their tax return. Instructions for completing the form are available at http://www.irs.gov/pub/irs-pdf/i8962.pdf (“Instructions for Form 8962,” IRS).

Related Resources