Harnessing the Sun: Understanding the Solar Tax Credit for Nonprofits

By Myriam Scally, Everybody Solar

Nonprofits have always been the backbone of positive change, and at Everybody Solar, we believe in empowering these changemakers through sustainable solutions. As our society moves towards renewable energy sources, understanding the Federal Solar Tax Credit is crucial for nonprofits seeking to make a difference while being mindful of their resources.

The Basics of the Federal Solar Tax Credit

The Solar Investment Tax Credit (ITC) is a federal incentive that allows a significant deduction on the installation costs of solar energy systems. In 2024, this credit stands at 30% of the total cost of solar installation, covering a range of expenses from equipment to labor. Notably, some nonprofits may also qualify for bonus adders, enhancing the financial viability of solar projects.

Who Qualifies?

While historically nonprofits were not eligible, today 501c-3 nonprofits are eligible. The recent changes under the Inflation Reduction Act have expanded the scope, allowing tax-exempt entities like nonprofits to receive payments equivalent to the full value of tax credits for clean energy projects. For detailed information on eligibility, visit this page.

Key Points to Remember

  • ITC Availability: The ITC is available for renewable energy systems installed between 2023 and 2032.
  • Coverage: It covers costs like solar panels, inverters, and installation labor.
  • Direct Pay for Nonprofits: The ITC now includes a direct pay option, offering more flexibility and access to solar energy benefits for nonprofits. Learn more about direct pay here.
  • Bonus Adders: Nonprofits may be eligible for additional financial incentives known as bonus adders. These adders provide extra financial benefits on top of the standard tax credit, making solar projects even more cost-effective. One type of bonus adder is the “low-income communities bonus adder”. Through Department of Energy Census tract data projects can determine their eligibility, check out this interactive map.

Steps to Follow for Nonprofits

  1. Assess Eligibility: Ensure your solar project meets the criteria set by the Federal Solar Tax Credit.
  2. Documentation: Keep a record of all installation-related expenses. These will be crucial when claiming the credit.
  3. Consult Experts: While Everybody Solar can provide guidance, it’s essential to consult with tax professionals to understand how these incentives apply to your specific situation.
  4. File Appropriately: Nonprofits must file IRS Form 5695 as part of their tax return to claim the credit.

At Everybody Solar, we are more than just advocates for solar energy; we are a community committed to creating a sustainable future. By understanding and utilizing the Federal Solar Tax Credit, nonprofits can significantly reduce the cost of going solar, channeling more resources into their invaluable work.

Disclaimer: This blog post is for informational purposes only and does not constitute legal or tax advice. Please consult your legal counsel and tax advisor.