Solar Tax Incentives Explained: ITC, MACRS, and Local Rebates

Introduction

Navigating solar tax incentives can be daunting—but for businesses and organizations, understanding these programs can unlock major savings and accelerate ROI. Let’s break down the key financial tools that make solar more affordable.

Federal Tax Incentives: ITC and MACRS

• Investment Tax Credit (ITC):

• Modified Accelerated Cost Recovery System (MACRS):

State and Local Solar Incentives

• State-level tax credits (e.g., California, New York)

• Utility rebates for performance or capacity (e.g., Xcel Energy in Colorado)

• Property tax exemptions on solar equipment value

• Sales tax exemptions on solar purchases in certain states

How These Incentives Work Together

• A solar project might qualify for ITC, MACRS, and a state rebate simultaneously

• Savings can be layered to reduce capital cost and improve IRR

• Some programs can also be stacked with power purchase agreements (PPAs) or green financing

Common Misunderstandings

• Timing matters: When a system is placed in service affects depreciation schedules and credit eligibility

• Bonus credits require documentation: Proving domestic content or location in energy communities

• Nonprofits and public agencies: May benefit from transferability or direct pay provisions under the Inflation Reduction Act

Impact on Project ROI

• Incentives can reduce total system cost by 40–60%

• Shortens payback period significantly—often from 8–10 years to 4–6 years for commercial projects

• Makes solar competitive even in states without high retail electricity prices

How Surge Supports Clients

• Keeps clients updated on evolving federal and state programs

• Assists with tax incentive modeling during proposals

• Collaborates with accountants and financiers to optimize outcomes

TL;DR

• The federal ITC offers 30% off system costs; MACRS allows rapid tax depreciation

• State/local rebates, property tax breaks, and sales tax exemptions add more value

• Incentives can be stacked and customized per project

• Surge guides clients through every step—from modeling to documentation