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For a number of years, certain Federal, state and local tax incentives have been available to promote, among other things, the importance of renewable energy like solar power. These incentives benefit Florida’s business owners and residents who choose to implement solar energy systems on their property. Although this article will focus on opportunities for solar power, similar or comparable incentives are available for other forms of renewable energy, such as wind and biofuels.
Code § 48(a) provides for an energy credit, commonly known as the “investment tax credit”, equal to thirty percent (30%) of the cost basis of qualifying energy property placed in service during a taxable year, the construction of which begins before January 1, 2022. For these purposes, “energy property” means equipment using solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, but not with regard to heating a swimming pool. Additionally, such property must be depreciable, with an estimated useful life of at least three (3) years. Beginning with any property on which construction of which begins after December 31, 2019, there is a phase-out of this credit, creating an incentive not to wait to convert. Lastly, if the energy property is not placed in service before January 1, 2024, the credit is limited to ten percent (10%).
Beyond the credit, qualifying depreciable renewable energy property receives an additional benefit from accelerated and bonus depreciation. Code § 168(e)(3)(B)(vi) provides that most solar energy property is five-year property, which qualifies under Code § 168(k) for bonus depreciation. The practical effect of this is that taxpayers may deduct fifty percent (50%) of the cost of qualified energy property in the year it is first placed in service, with the remainder depreciated over the course of the property’s useful life. This percentage is reduced to forty percent (40%) for property placed in service in 2018 and thirty percent (30%) for property placed in service in 2019, after which bonus depreciation is scheduled to expire.
Together, the investment tax credit and the depreciation benefits allow a significant portion of the cost of investing in solar energy to be essentially paid for by federal tax incentives.
In the alternate, but not in addition to the investment tax credit to the extent elected for the same property, a “production tax credit” is available under Code § 45. For 2017, the production tax credit is currently 2.4 cents (a number adjusted annually for inflation) per kilowatt hour of electricity produced from eligible solar systems. In order to qualify, the energy must be sold to an unrelated person during the ten-year period beginning on the date the facility is placed in service.
Florida also offers incentives for solar energy at the state level. The Florida property tax exemption available for solar energy systems (and other renewable energy source devices – including wind energy and geothermal energy) has been expanded effective January 1, 2018. While solar energy systems installed on or after January 1, 2013 continue to be excluded from the assessed value of residential property, the exclusion is extended to 80% of the assessed value of such systems installed on or after January 1, 2018 for nonresidential properties. Eligible solar energy source devices include portions of the system up to the point of interconnection to an electric utility’s distribution grid or transmission lines. These changes to the law are scheduled to expire at the end of 2037. New regulations governing the terms of contracts for the sale or lease of solar energy systems, including numerous required disclosures, became effective July 1, 2017.
Businesses and individuals alike may wish to take advantage of these incentives, many of which have time limitations making early participation potentially more advantageous due to phase-outs or limited availability. Regardless, the current climate is ripe to explore these opportunities.
About the Authors:
Michael Minton is the Managing Shareholder of Dean Mead’s Fort Pierce office, Chair of the firm’s Agribusiness Industry Team and Chair of the firm’s new Solar Energy Team. He represents family businesses with an emphasis on generationally-owned agricultural businesses. Mr. Minton assists with their organizational structure, federal income, estate and gift tax planning and business succession planning. He offers his clients extensive experience focusing on tax issues related to agri-business, as well as water resource issues and new innovative uses of land for value added propositions. He may be reached at firstname.lastname@example.org.
Dana Apfelbaum practices in the areas of federal income, estate, and gift tax law and family business succession planning. She counsels individuals in estate planning, with an emphasis on implementing the client’s objectives, asset protection and minimizing wealth transfer taxes. Ms. Apfelbaum also represents fiduciaries through all stages of probate, estate and trust administration. In addition, she represents businesses and business owners in all types of business and tax matters, including choice of entity, mergers and acquisitions, reorganizations, other general business matters, and succession planning. She may be reached at email@example.com.
Mark Holcomb has more than 32 years of experience practicing in state and local taxation. He represents clients before the Florida Department of Revenue and local taxing authorities, and in litigation at the trial and appellate levels. Mr. Holcomb advises clients on a broad range of state and local taxes, including corporate income and franchise tax, sales and use tax, documentary stamp tax, communication services tax, insurance premium tax, ad valorem tax and motor fuels tax, in tax controversy work and in planning opportunities. He may be reached at firstname.lastname@example.org.