In June of 2018, the IRS, via Notice 2018-59, significantly modified the Investment Tax Credit to allow solar projects that begin construction by the end of 2019, and still, get the 30% – versus being in service by that date.
If you are planning to make an investment in solar and want to lock in the 30% tax credit, you have two options:
Move forward with your solar project before the end of the summer and receive the tax benefits for the 2019 tax year (the 30% tax credit and section 179 depreciation). This option means you’re going to get the quickest possible return on your investment. Solar panel supply is dwindling quickly as many of the large players in our space are buying up inventory faster than it’s being produced and delivered so that they can also safe harbor the tax incentive. We expect that at some point our ability to install projects in 2019 will be limited simply because there will be no panel supply left. We will be able to acquire more supply sometime in Q1/Q2 2020, which leads to…
If you’re like a lot of our clients you have to plan for an expense like solar. The IRS has outlined some guidelines for people like yourself so that you can lock up the 30% tax credit but would prefer to cash flow the project in 2020.
Per the ‘Bipartisan Budget Act of 2018, Pub. L. 115-123, Div. D, Title I, § 40411, 132 Stat. 150 (BBA 2018)‘, and published in Notice 2018-59, the Internal Revenue Service has officially noted that it is “replacing the requirement to place energy property in service by a certain date with a requirement to begin construction by a certain later date.”
What does that mean to you?
It means that instead of your solar project having to be completed by December 31st, 2019, it must now begin (defined below in two specific ways) on or by that date to qualify for 30%. This same logic applies to the following two years and their 26% and 22% tax credits.
What does “establishing construction” mean?
The IRS notes that there are two methods for ‘establishing the beginning of construction’ – the Physical Work Test or the Five Percent Safe Harbor.
Physical Work Test
Onsite physical work can take many forms, however, it does include any of the following “preliminary activities”:
- planning or designing
- securing financing
- conducting mapping and modeling to assess a resource
- obtaining permits and licenses
- conducting geophysical, gravity, magnetic, seismic and resistivity surveys
- conducting environmental and engineering studies
Five Percent Safe Harbor
The Five Percent Safe Harbor provision states that construction will be considered as having begun if the taxpayer has paid or incurred – per Treas. Reg. § 1.461-1(a) – 5% of more of the total cost of the project. This does not include land costs.
Keith Martin of Norton Rose Fulbright notes that an equipment or service purchase – a ‘bare payment’ alone – can account for the 5% rule if it is delivered within 31/2 months.
Once work begins, it must keep going – meeting a continuity requirement.
Interested in solar? Brightergy is your first step.
Did you wake up thinking about solar the morning you decided to sit down with us? Probably not, because we proactively reach out to businesses in hopes that we can sit down and educate them on what a solar project can do for their business and their bottom line. It is not uncommon for a business to review a solar project and see the economic value. I often say “if money was no object, everyone would have solar on their building.” Fundamentally, solar makes sense for every business. No one likes paying taxes, no one believes that their energy company is looking out for their best interests, and everyone likes saving money. Those are universal reasons that most business owners decide to go solar. The largest hurdle is the upfront investment in an unplanned capital expenditure.
Questions? Please contact us:
Mat.Kiefer@brightergy.com – Ph: 816.897.1024 – Cell: 816.838.6005