Ask SmallBiz: Solar Tax Benefits for Small Businesses
Q. As a small-business owner, what are the tax benefits of installing a photovoltaic system?
A. A photovoltaic system is an incredible investment for Hawaii business owners. By installing and owning a PV system, you are protecting all or part of your power use from future electric rate increases. In Hawaii, electric rates have increased by an average of 6 percent each year since 1991.
In addition to offsetting rising electricity costs, tax incentives, when coupled with depreciation, can offset up to 80 percent of the upfront cost of a commercial PV system. How quickly those credits apply depends on your tax situation, so it is always best to consult a tax professional in addition to your solar provider.
Here is a closer look at commercial incentives available this year:
Hawaii’s Renewable Energy Technology Income Tax Credit
This allows businesses to claim a state income tax credit of 35 percent for the cost of the PV system. In 2009, Gov. Linda Lingle signed into law Act 154 (Senate Bill 464, Session Laws of Hawaii 2009), allowing customers the option of converting their income tax credit into a refundable tax credit at a rate of 24.5 percent.
U.S. Treasury Tax Credit
The American Recovery and Reinvestment Act of 2009 allows taxpayers eligible for the federal business energy investment tax credit to take this credit equivalent to 30 percent of the installed cost of a PV system. This credit is available through 2016.
Modified Accelerated Cost Recovery System (MACRS) Depreciation Deduction and Special Depreciation
PV systems placed into service in 2012 are eligible for a bonus depreciation of 50 percent, which means up to 50 percent of the cost basis of the project can be depreciated in the same year it is placed into service. In addition, the remaining 50 percent of the cost basis is also eligible for MACRS accelerated depreciation and, when combined with the special depreciation, allows up to 60 percent depreciation in the first year alone.