We work with banks and other financing institutions to finance your system. Two common forms of leases are:
- Operating Leases (True Tax Lease)
- Capital Leases
- Operating Leases
An operating lease is also known as a True Tax Lease where the Lessor effectively owns the system and the lessee simple makes a monthly payment. The lessee gets all SRECs and electricity savings for the term of the lease and the lessor gets all the tax benefits including depreciation. This method of leasing is popular for those that can’t use accelerated depreciation benefits, as one of the key benefits occurs at the end of the term where the lessee can return the system to the bank or choose to purchase the system or even renew the lease.
For a lease to be qualified as a true lease by the Internal Revenue Service, all of the following FASB conditions must be met:
Transfer of ownership prior to the maturity of the lease is not allowed;
There can be no bargain purchase option;
The remaining economic life for the asset at the end of the lease must be at least one year or 20% of the originally estimated life; and
The lessor has to maintain at least 20% of the asset’s value throughout the term of the lease.
A capital lease is a loan offered by a bank where the lessee buys the system at the end of the lease term for $1. All tax benefits, SRECs and electricity savings accrue to the lessee. Because the lessor does not get the tax benefits, capital leases usually have a higher monthly payment than operating leases.
Commercial Solar Incentives Summary
With forces like global warming, rising energy costs, and the need for energy independence, federal and state incentives are rapidly being put in place that make solar financially attractive.
Available commercial incentives available are:
- 30% Federal Tax Credit
- MACRS (5-yr Accelerated depreciation)
- State and Local Incentives
The federal incentives cover over 55% of the cost of the system. Coupling the federal incentives with available local incentives can make installing a solar power system an excellent option toward addressing your uncontrollable operating costs.
State Incentive examples include:
New Jersey’s Solar Renewable Energy Credit program
Long Island’s Non-Residential PV Rebate Program
Commercial Solar Incentives:
The best time to take advantage of federal solar incentives is ASAP.
The 30% Federal Tax Credit is a federal solar tax rebate that allows businesses to offset their income taxes when they purchase a solar power system. The IRS tax code also allows for the tax credit to provide Alternative Minimum Tax relief.
The federal incentive for business energy investment available under 26 USC § 48 was expanded significantly by the Energy Improvement and Extension Act of 2008 (H.R. 1424), enacted in October 2008.
In 2015, the passing of the Omnibus Appropriations Act extended the residential and commercial ITC and revised the previous “placed-in-service” standard for qualification for the credit to a “commence construction” standard for projects completed by the end of 2023.
Carryback / Carryforward Provisions
A commercial solar tax credit that a taxpayer cannot use can be carried back one year. If there is still an unused credit, then the credit can be carried forward 20 years.
Background / Authority
The federal Energy Policy Act of 2005 (H.R. 6) expanded the federal business energy tax credit for solar installed in 2006 and 2007. These provisions of the tax credit were later extended through December 31, 2008, by Section 207 of the Tax Relief and Health Care Act of 2006 (H.R. 6111).
The Energy Improvement and Extension Act of 2008 (HR 1424) greatly extended the duration and terms of the tax credit available to business owners.
Business energy credits are claimed by attaching Form 3468 to one’s tax return.
General Business credits are claimed by attached Form 3800.
Authority: Section 48(a)(3) (Investment Credit: Energy Credit) of the IRS tax code.
For solar property placed in service after 1986, the current Modified Accelerated Cost-Recovery System (MACRS) property class is five years.
For more information, see IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562. The IRS web site provides a search mechanism for forms and publications. Enter the relevant form, publication name or number, and click “GO” to receive the requested form or publication.
For a non-profit organization, the economics of solar are a little different since they are not entitled to the same Federal Benefits as a for-profit commercial. However, there are often other programs to help make solar not only possible, but affordable and cost-effective for non-profits as well.
States often incentivize non-profit solar applicants differently than commercial, recognizing that the Federal Benefits aren’t the same. Solar Energy of New Jersey, LLC has unique financing options designed specifically for non-profit entities.
Not only is it important for the non-profit facility to go solar, but Solar Energy of New Jersey, LLC likes to bring solar to members of that group as well.
- Religious groups/parishes/congregations