Topic 05 · 6 min read
Solar and Clean Energy Credits
A percentage of the equipment cost, straight off the tax bill.
Install solar, geothermal, storage, or similar equipment on an income-producing property and a percentage of the installed cost becomes an investment credit in the year the system is placed in service. Bonuses stack on top for domestic materials and for projects in certain communities. Unlike most real estate benefits, this one arrives all at once rather than over decades.
What to know
- Placed in service, not paid for
- The credit belongs to the year the system is operational, which makes late-December commissioning a real deadline.
- Adders stack
- Domestic content, energy communities, and low-income siting each add to the base percentage, and they combine.
- Half the credit reduces basis
- For the investment credit, basis typically drops by half the credit claimed rather than all of it.
- Five-year recapture
- Sell or remove the system too soon and part of the credit is recaptured on a sliding scale.
The tax benefit
A large, immediate credit that pairs with accelerated depreciation on the same equipment — one of the fastest paybacks available to a property owner.
Worked example
Rooftop solar on a strip center
A $300,000 system at a 30 percent rate produces a $90,000 credit in year one. Basis drops by $45,000, and the remaining $255,000 is depreciated on a short schedule.
Watch out for
- Passive activity rules can park the credit until you have passive income.
- Leased systems belong to the lessor, not you; ownership determines who claims it.
- Interconnection delays are the most common reason a system misses its placed-in-service year.
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