Solar tax equity is less of an enigma now than it was a few years ago. More companies and individuals are realizing the benefits of investing in solar projects to grow America's renewable energy market and benefitting from the tax implications of doing so.
Read on to find out what solar tax equity is AND how it's used!
Tax equity is a way for an investor to invest capital into a project and also claim the tax credits from that project. It's a way to both grow investment income and pay lower taxes through one investment.
Solar tax equity is created by investing in a solar project specifically, which also, on top of the investment income growth and lower taxes, provides support for renewable energy and decarbonization.
Previously, companies and individuals that invested in solar projects and gained solar tax equity through their investment could either keep that tax equity to use towards their own taxes, or they could sell it to another company or individual through a complicated structure that involved investing in the solar project through multiple companies created for the investment and sales transactions. That structuring could take months to set up and cost hundreds of thousands of dollars in legal work, making the entire endeavor less profitable and palatable.
However, a few short months ago the Inflation Reduction Act of 2022 was signed into law, and through it, the laws governing solar tax equity changed to make the transactions less complicated.
Less complicated transactions mean less time and money spent on setting up the transaction, more money in the investor's pocket, and a more profitable and palatable endeavor.
Part of the $369 billion dollars allocated to energy security and climate change policies through the Inflation Reduction Act affect solar directly. Solar tax equity can now be sold to companies that have not invested directly into the solar project itself, allowing interested parties to purchase tax credits created from solar projects solely for the tax benefits.
Rather than pay taxes to the government, both companies and individuals with tax appetite can instead invest the money they would have paid in taxes towards purchasing solar tax equity for a return on their investment at tax time.
More information on how solar tax equity can be used can be found in our blog on Solar Tax Equity 101 (our most-read blog EVER) and it's follow up blog, Solar Tax Equity 102: The Good, The Bad, The Ugly for a deeper dive. NOTE that these blogs were previously published and the information on the tax equity and credits being non-transferrable has been recently overturned with the Inflation Reduction Act of 2022's new laws and policies.
Photo credited to DepositPhotos.com
