Authors: Austin Alderman, Dana M. Apfelbaum, H. French Brown, Michael D. Minton
For several years certain Federal, state and local tax incentives have been available to promote, among other things, the importance of renewable energy like solar power. These incentives benefit Florida’s business owners and residents who choose to implement solar energy systems on their property. How these incentives are applied and how long they are available has been changed by the recent adoption of the Inflation Reduction Act of 2022.
Although this post spotlights Federal and State tax incentives for solar power, similar or comparable incentives are available for other forms of renewable energy, such as wind and biofuels. For the complete article, which includes details on federal tax incentives, visit: https://www.deanmead.com/sunlight-in-your-pocket-solar-energy-tax-incentives/.
Federal Tax Incentives
Code § 48(a) provides for an energy credit, commonly known as the “investment tax credit”, up to thirty percent (30%) of the cost basis of qualifying energy property placed in service during a taxable year, the construction of which begins before January 1, 2025. For these purposes, “energy property” means equipment using solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure or to provide solar process heat, but not with regard to heating a swimming pool. Additionally, such property must be depreciable, with an estimated useful life of at least three (3) years. The IRS issued guidance providing that investing at least five percent (5%) of the total expected installation cost will constitute “beginning construction.” Prior to the adoption of the Inflation Reduction Act, the investment tax credit was subject to a phase-out period to incentivize not waiting to convert, however how the credit is earned was changed by the Act. Projects now have the opportunity once again to receive the full 30% tax credit. The base rate for projects beginning construction prior to January 1, 2025 is now set at 6%, but the full 30% rate is available to projects that are under 1MW of generation output or which meet new requirements for prevailing wages and apprenticeships. Notice 2022-61 was issued on November 30, 2022, providing the first guidance on the new requirements, which includes prevailing wages and apprenticeships.
State Tax Incentives
The Florida property tax exemption available for solar energy systems (and other renewable energy source devices – including wind energy and geothermal energy) was expanded effective January 1, 2018. The exclusion is extended to 80% of the assessed value of such systems installed on or after January 1, 2018, for nonresidential properties. Eligible solar energy source devices include portions of the system up to the point of interconnection to an electric utility’s distribution grid or transmission lines. These changes to the law are scheduled to expire at the end of 2037. New regulations governing the terms of contracts for the sale or lease of solar energy systems, including numerous required disclosures, became effective July 1, 2017.
Additionally, the purchase of qualifying solar energy systems are exempt from Florida’s sales and use tax. A list of the qualifying materials and suggested exemption certificate are provided in the Department of Revenue’s Taxpayer Information Publication 19A01-09.
It is important to be mindful of the fact that many of the incentives contained in this article have time limitations making early participation potentially more advantageous due to phase outs or limited availability. Contact your tax advisor to take advantage of these opportunities.