These new and expanded credits create opportunities for businesses that cater to these areas or are looking to upgrade facilities to do it more cost-effectively. Take the Section 48 Investment Tax Credit. This credit is for investment in “energy property,” including solar panels, geothermal systems and other green energy systems (IRC Section 48). This credit is being used to offset the cost for companies to add solar panels to their facilities. Under the new law, this credit grows to 30%. However, to get the full credit, a project needs to either be under one megawatt of electrical output or be constructed meeting prevailing wage guidance. In addition, there are bonus credits of up to 10% for utilizing domestic content and being in specific “energy communities.” A project that meets both the domestic content and is in an energy community could receive a tax credit equal to 50% of the installed cost. Additionally, the remaining basis of the property is eligible for a five-year life and bonus depreciation. This means that a company with a 30% tax rate getting the 50% credit (30% base credit and both 10% bonus credits) and the depreciation benefits would get almost 70 cents for every dollar spent from the federal government in the first year of installing solar panels.
Under Section 6417, certain entities that do not pay tax can monetize their tax credits by treating them as direct payments. This will allow tax-exempt organizations, government organizations, schools and other eligible entities to monetize these valuable credits. For example, a private university can now install a solar field and monetize the tax credits just as a for-profit business would. The expansion of these credits gets even better for many businesses.
businesses lacking the taxable income to absorb these lucrative tax incentives can now sell the credits to a third party. This will also allow businesses with limited taxable income to monetize these incentives.