A commercial solar purchase, if done correctly, can help high-income earners (W-2, 1099, K-1, and business owners) considerably reduce their tax bill through both federal and state depreciation deductions and federal tax credits.
However, current legislation is bringing these benefits to an end in 2027.
Although time has become extremely limited, high-income earners can still take advantage of this strategy, benefiting both taxpayers and the environment.
Highlights of a commercial solar purchase include:
- Commercial solar tax benefits include federal and state depreciation deductions, federal Investment Tax Credits (ITC), and cash flow from the sale of electricity or lease of solar assets
- Benefits in the form of tax credits and deductions are not considered income. No capital gains or income taxes apply
- Projects must be placed in service before December 31st, 2027
- A safe harbor provision extended the above deadline and allowed high-income earners to put 5% down on projects to be placed into service in the years 2026-2030 (where construction began before July 4, 2026). This safe harbor option expired on the 4th of July, 2026, but projects can still be purchased outside the safe harbor in 2026 and 2027
- Any excess ITC is carried back 3 years, and can retroactively lower tax liability
- ITC that cannot be carried back, can be carried forward up to 22 years
- The One Big Beautiful Bill Act (OBBBA) has had a large impact on the solar industry, including how taxpayers claim ITC on their individual income tax returns
What is Commercial Solar?
First, let’s quickly break down residential solar, because commercial solar works differently. With residential solar projects, homeowners could purchase solar panels for their home and qualify for a 30% Residential Clean Energy Credit. This credit applied to new, eligible systems installed between 2022 and December 31, 2025. The credit is no longer available for any property placed in service after December 31, 2025.
Here’s how the numbers worked in a typical residential solar project: A homeowner who spent $100,000 on a qualified clean energy property could expect a $30,000 tax credit on their individual income tax return for the year the property was placed into service, lowering the out-of-pocket costs to $70,000.
In the case of a commercial solar project, a high-income earner can purchase solar assets for use by a third party (a business or a non-profit). They would not receive a Residential Clean Energy Credit, but rather an Investment Tax Credit (ITC). They also receive federal 100% bonus depreciation deduction, and, if eligible, a state depreciation deduction. Taypayers also receive cash flow from their solar assets.
A third party uses the solar asset and pays less for electricity, while you receive tax benefits and cash flow.
Unlike residential solar, where homeowners often wait years to see a return, commercial solar can deliver returns much faster.
- Pre 2026, qualified taxpayers could expect tax benefits higher than their solar asset purchase in Year 1. In 2026, the OBBBA introduced Internal Revenue Code Section 48E, which limits the amount of ITC that can be claimed in any given tax year. The wait for an ROI is, thus, a bit longer, but benefits are still very attractive
- Qualified taxpayers receive 100% bonus depreciation deduction in Year 1, as well as a state deduction in Years 1-6 (if eligible)
- Cash flow from projects is possible for up to 40 years
Benefits of Commercial Solar
The benefits of commercial solar projects can be grouped into three categories:
- Tax credits
- Usually ranging from 30% to 50%
- Any excess ITC is carried back 3 years, if possible, and then can be carried forward for up to 22 years
- Tax deductions
- Federal 100% bonus depreciation deduction
- State deduction
- Cash flow
Tax credits are a dollar-for-dollar reduction of income tax liability. This means if you have $1.00 of tax liability and a $1.00 tax credit, your tax liability is reduced to zero.
The Investment Tax Credit ranges from 30% to 50% of the value of a solar property, depending on factors like location and whether U.S. materials and labor are used.
A federal depreciation deduction decreases a taxpayer’s taxable income. This means that if you have $1.00 of taxable income, and $1.00 of depreciation, and are in the 37% federal income tax bracket, your taxable income is reduced by roughly $0.37.
The One Big Beautiful Bill Act (OBBBA) increased the bonus depreciation deduction of solar property in Year 1 to 100%. This means you can depreciate the entire value of your solar property in Year 1. This will boost your Year 1 ROI.
State Depreciation Deduction: The same calculations apply to state-level depreciation deductions. That being said, you will not receive a state depreciation deduction if you live in a state with no state income taxes or if your state does not allow a deduction for solar property.
Additionally, many states do not follow the federal depreciation schedule, and your state depreciation deduction benefit may be spread over 6 years.
Cash Flow: Your solar assets generate income, as would any other business. This income can stem from the sale of electricity, or from leasing the assets to a 3rd party. Income is possible for up to 40 years. Please note you would not be an investor receiving passive income, but rather actively managing cash-flowing solar assets.
Changes Made by the One Big Beautiful Bill Act
The One Big Beautiful Bill Act was signed on July 4, 2025.
It terminated residential solar/efficiency credits after 2025, and will phase out EV credits by mid-2026.
It also put restrictions on commercial solar ITC.
OBBBA also introduced a 5% safe harbor provision, which has now expired.
Most importantly, the Investment Tax Credit (base of 30% and all adders) will now be phased out after December 31, 2027, excluding safe harbor projects, explained below.
OBBBA also limits the amount of ITC that can be claimed in any given tax year (for IRC Section 48E projects). Tax credits are not lost, there are just limitations on the amount of ITC that can be applied in one year. Internal Revenue Code Section 48E applies to projects where construction started after January 1st, 2025. Projects that started before January 1st, 2025 may still use Internal Revenue Code Section 48 rules, that do not limit ITC to the same extent.
Safe Harbor Extended Solar Benefits Through 2030
Those who did not want to lose their ability to claim ITC after 2027 were actually able to do so. OBBBA contains a “Five Percent Safe Harbor” provision which allowed taxpayers to purchase and fully benefit from ITC benefits in 2026 and 2027, but also in 2028, 2029, and 2030, with all of today’s ITC benefits, including 30% to 50% ITC.
The Safe Harbor provision allowed taxpayers to pay or incur 5% or more of the total cost of an energy property, constituted the beginning of construction (for the safe harbor, construction had to begin by July 4, 2026).
Safe harbor projects must be completed within 4 years of the start of construction (unless exceptions apply). Final deadline for placement in service in the case of safe harbor projects is not December 31st, 2027, but December 31, 2030.
This means a taxpayer could have put 5% down before July 4th, 2026, and have the ability to place their projects into service anytime before December 31, 2030, thus extending benefits by 3 years.
The 5% safe harbor expired on the 4th of July, 2026.
Note: Not all projects qualified for Five Percent Safe Harbor. The IRS reserves this for “low-output solar facilities”.
Although the safe harbor deadline has passed, taxpayers can still purchase solar projects in 2026 and 2027, although they must be placed in service before December 31st, 2027.
Complexity of Commercial Solar
There’s more to this strategy than we can cover here, but this should give you a solid starting point for evaluating whether commercial solar could make sense for your situation.
As with any purchase, there are risks. We highly recommend working with an experienced CPA or tax strategist to navigate both the pros and cons of such a purchase (as well as an accurate projection of possible tax savings). Working with a solar company alone may not be enough for intricate projections of ITC limitations.
Purchasing the solar assets is not enough. You must also fulfill all IRS requirements. For this, we recommend you work with a tax preparer who has experience with commercial solar, in order to claim the tax benefits correctly.
That’s exactly where Ratio CPA comes in.
We don’t just explain strategies like commercial solar, we help you evaluate if they actually make sense for your situation, model the potential tax impact, and guide you through implementation from start to finish.
- Run projections to estimate your real tax savings before you commit
- Structure the investment correctly to maximize credits and deductions
- Coordinate with solar providers to ensure everything aligns from a tax standpoint
- Prepare and file your return so the benefits are captured accurately
Because with strategies like this, the difference isn’t just what you do, but how you do it. To recap, here’s what this could mean for you:
- Commercial solar can significantly reduce tax liability for high-income earners (W-2, 1099, K-1, and business owners) through tax credits and depreciation deductions
- Tax benefits are not subject to capital gains or income taxes
- Some benefits ended on the 4th of July, 2026, but taxpayers can still purchase projects in 2026 and 2027
- Excess ITC is carried back 3 years, allowing you to recoup past tax liability
If you’re considering a commercial solar purchase, the next step is simple: see what it could look like for you. Schedule a Consultation.
Disclaimer: Please note that this article is for informational purposes only, and not meant to serve as tax advice. Not everyone will qualify to participate in the strategy, and results are not guaranteed. You must consult a tax reduction or ITC specialist before participating in a project.
