Tax Benefits

TAX BENEFITS can include, but in properly-structured projects often may not be limited to:

FEDERAL INVESTMENT TAX CREDITS for entities that invest in and own qualified energy property at the appropriate time.  The ITC currently is 30 percent of the fully-installed eligible cost basis of a solar energy system that generates electricity and is placed in service before 2017.

FEDERAL NON-TAXABLE CASH GRANTS in lieu of the ITC, currently available through 2010 but expected to be extended   
ACCELERATED DEPRECIATION of solar PV system basis over six rather than 12 years for federal income tax purposes, often allowing almost half of total system costs to be recovered within two operating years in conjunction with the ITC or cash grant.

FEDERAL BONUS DEPRECIATION allows for half of solar system basis to be deducted in the first year of operation, after adjustment for part of the ITC but before accelerated depreciation deductions. Bonus depreciation currently is available through 2010 after a recent retroactive one-year extension, but may be extended for one or more years.  It can add from one to two percentage points to a project’s after-tax unleveraged returns, in certain circumstances.

ADDITIONAL STATE-LEVEL TAX BENEFITS may include investment tax credits and accelerated depreciation deductions claimable against state income taxes, as well as sales or property tax exemptions or rebates, in addition to other measures. 

Many tax benefits often may be “monetized” (turned into cash) where a developer or investor does not have sufficient unsheltered income to use all of them efficiently by itself.  This may be true even where the initial developer or source of project funding is a municipal entity or other “non-taxpayer.”  A range of accepted mechanisms generally is available to secure such results.   Depending on the particular circumstances, it can include lease-financing as well as sale-leasebacks or other 3rd-party approaches.  However, all such options must be carefully assessed and structured to minimize various risks while providing desired returns.