Disclaimer: This article is for educational purposes only and does not constitute professional tax or financial advice, as we are not financial advisors. We recommend consulting with a qualified financial professional to see how this article applies to your tax situation.
With the residential solar tax credit ending in 2025, a lot of people are asking us: Is there still a federal incentive for solar?
The short answer is yes, but only for businesses and the clock is ticking.
We thought it would be a good idea to give a refresher on the 30% Commercial Solar Tax Credit. If you own a business or commercial property, this is the largest clean energy incentive in American history. Here is a simple breakdown of how it works, how it impacts your bottom line, and exactly how long you have left to claim it.
The Basics of Business Taxes
To understand how the solar tax credit benefits your bottom line, it helps to quickly review how the IRS taxes businesses in the first place:
- Revenue vs. Profit: Throughout the year, your business brings in money from sales (Revenue). However, you also spend money to keep the doors open: payroll, rent, materials, marketing (Expenses). The money left over is your Profit.
- What Actually Gets Taxed: The government does not tax a business on all the money it brings in. The IRS only taxes the profit, which is referred to as your Taxable Income.
- The Final Tax Bill: At the end of the year, you calculate a percentage of your Taxable Income based on your corporate tax rate. That final calculated number is your Tax Liability, the actual dollar amount owed to the federal government.
While standard business expenses shrink your profit before taxes are calculated, a tax credit acts at the very end of the process.
Tax Deduction vs. Tax Credit
It’s easy to confuse a tax deduction with a tax credit, but a tax credit is more advantageous. Think of a tax credit like a government-issued gift card that can only be used to pay your IRS tax bill.
- Tax Deductions: A deduction lowers your taxable income. If a business makes $100,000 and has a $30,000 deduction, the IRS only taxes them on $70,000. It saves you some money, but it is not a 1-to-1 savings.
- Tax Credits: A credit is a dollar-for-dollar reduction of your actual tax liability. If you calculate your taxes and the final check you are supposed to write to the IRS is $30,000, a $30,000 tax credit wipes that bill out completely. You write a check for $0. It is stays as cash you get to keep in your bank account.
What is the Commercial Solar Tax Credit?
Often just called the Commercial Tax Credit, its official name is the Clean Electricity Investment Credit (found in Title 26 of the U.S. Code, Section 48E).
For most commercial solar projects under 1 megawatt (which is a massive system), this incentive acts as a 30% tax credit against your company’s final tax liability.
Example: If your solar system’s final price is $950,000, you earn a tax credit for $285,000 (30% of $950,000), which is applied directly to your tax liability for the year the system is turned on.
A Quick Note: Normally, the IRS has a rule that prevents businesses from using standard tax credits to offset more than 75% of their tax bill, once their liability goes over $25,000. However, the commercial solar tax credit is officially classified as a “Specified Credit.” This means it is entirely exempt from that cap. You can use your solar tax credit to wipe out 100% of your federal tax liability (26 U.S. Code § 38, (c)(4))
What If I Can’t Use the Whole Credit?
This is actually very common. Let’s say your business owes $100,000 in taxes this year, but your solar tax credit is $285,000. After dropping your current tax bill to zero, you still have $185,000 left on your “gift card.” You have a few options to realize the full value:
- Carry It Back
- If you have leftover credit from the current year, the remainder is used to offset taxes you paid in the previous three years, starting with the oldest year first. This is called a Carryback and is actually a massive benefit, as it means you can recoup your investment as fast as possible. The IRS will mail you a direct cash refund check for the taxes you already overpaid in the past! (26 U.S. Code 26 § 39, (a)(4))
- Carry It Forward
- If your tax bill from the current year and the past three years still isn’t enough to absorb the full $285,000 credit, you can roll the remaining balance forward. Also known as a Carryforward, you have up to 22 years to apply that leftover credit to future tax bills. (26 U.S. Code 26 § 39, (a)(4))
- Sell it for Cash
- If you don’t have the tax appetite to use the credit over time, or just don’t want to deal with it, the law allows you to legally sell your tax credit to an unrelated third-party. This is called Transferability. You can sell your credit to another company for cash (typically yielding 70 to 90 cents on the dollar). Better yet, the cash you receive from this sale is completely tax-exempt.
When Can I Actually Claim It?
The eligibility to claim the tax credit is tied to the year the solar system is officially placed in service, which is typically the date it receives Permission to Operate from the utility grid and is turned on.
The formal claim happens when you file your federal income tax return for that year. Your CPA will file IRS Form 3468 to calculate the exact credit amount, and carry it over to IRS Form 3800 to officially wipe out your tax liability.
Is the Tax Credit Going Away?
Yes! With the passing of the One Big Beautiful Bill Act (OBBBA), the commercial tax credit is on a strict expiration timeline. The new changes are covered in this article here.
To secure the tax credit, your project must hit one of two major deadlines:
- Begin construction by July 4, 2026 OR be completely turned on by December 31, 2027
The largest commercial clean energy incentive in American history is expiring, and the runway to secure it is down to a matter of months. Commercial solar systems require engineering, permitting, and utility approvals, which can take several months to over a year to complete, so do not let hundreds of thousands of dollars slip away because the clock ran out on the preliminary paperwork.
Reach out to our team at Energy Select today. We will build a custom financial model for your property and launch a strict project timeline to lock in your tax credit before it is gone for good.