Favorable IRS ruling is surprise gift for solar developers
The Internal Revenue Service will extend incentives for solar power and other clean energy sources by as long as four years, according to a notice issued today.
Developers can claim a 30% tax credit for solar projects as long as they prove they started construction by the end of 2019, and they have until the end of 2023 to complete the projects, the IRS says.
“The news is positive for utility scale solar developers who can now avoid solar tariffs imposed on imports through 2021, procure majority of their solar panels in later years, and still qualify for the higher tax credits," Credit Suisse says.
The Internal Revenue Service released a new guidance Friday that establishes when the construction of a solar facility starts to qualify for the solar Investment Tax Credit (ITC). The guidance, Notice 2018-59, provides two methods for determining the “commence construction” date: 1) starting physical work of a significant nature or 2) meeting the “five percent safe harbor test” by incurring 5 percent or more of the total cost of the facility in the year that construction begins.
Both residential and commercial solar projects may qualify for the full 30 percent ITC through 2019, as long as the project is placed into service before 2024. The ITC steps down to 26 percent in 2020, then 22 percent in 2021. In 2022, the residential credit (Section 25D) will drop to zero, while the commercial and utility credit will drop to a permanent 10 percent.
The new IRS guidance on the ITC closely follows to separate guidance published for the wind industry’s production tax credit (PTC). According to the research firm Washington Analysis, the IRS guidance includes “few surprises or anything that would suggest an effort to limit the credit’s benefit for the industry.”