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 July 2026.
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 sometimes cash flow
- Positive Year 1 ROI is possible in most cases for qualified taxpayers
- Benefits in the form of tax credits and deductions are not considered income. No capital gains or income taxes apply.
- Projects must be purchased before July 3, 2026
- A safe harbor provision allows high-income earners to put 5% down on projects placed into service in the years 2026-2030 (where construction began before July 4, 2026)
- ITC can be carried back 3 years, and can retroactively lower tax liability
- The One Big Beautiful Bill Act (OBBBA) has had a large impact on the solar industry, including on the ITC after July 3, 2026
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 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).
A third party uses the solar asset and pays less for electricity, while you receive tax benefits and potential cash flow.
Unlike residential solar, where homeowners often wait years to see a return, commercial solar can deliver returns faster.
- In the first year, a return on investment is possible
- In years 2-6, a taxpayer may have access to additional depreciation benefits
- 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%
- 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. Instead of waiting for years to get the cash you invested back, you should see it on your very next income tax return.
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.
One Big Beautiful Bill Act
The One Big Beautiful Bill Act was signed on July 4, 2025. It terminates residential solar/efficiency credits after 2025, phases out EV credits by mid-2026, and restricts commercial solar ITC after 2027.
The Investment Tax Credit (base of 30% and all adders) ends after December 31, 2027, unless construction of the aforementioned solar property begins by July 4, 2026.
Safe Harbor Extends Solar Benefits Through 2030
Those who do not want to part with commercial solar projects just yet, and want to implement a project in 2026, but also in 2027, 2028, 2029, and 2030, are actually able to do so (with all of today’s ITC benefits / 30% to 50% ITC).
OBBBA contains a “Five Percent Safe Harbor” provision.
When a taxpayer pays or incurs 5% or more of the total cost of an energy property, this constitutes the beginning of construction (as stated above, construction must begin by July 4, 2026).
Projects must be completed within 4 years of the start of construction (unless exceptions apply). Final deadline for construction is December 31, 2030.
This means a taxpayer may put 5% down before July 3, 2026, for projects that began construction before July 4, 2026, and place the projects into service anytime before December 31, 2030.
Note: Not all projects qualify for Five Percent Safe Harbor. The IRS reserves this for “low-output solar facilities”.
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 or safe harbor calculations.
Purchasing the solar assets is not enough – you must also work with an experienced tax preparer 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
- Year 1 returns are possible through these tax benefits, which are not subject to capital gains or income taxes
- Key benefits end July 3, 2026—projects must be purchased before this deadline to qualify
- A “5% Safe Harbor” allows you to lock in benefits by putting 5% down before July 3, 2026, as long as construction begins before July 4, 2026
- Projects can be completed and placed in service through December 31, 2030, allowing tax benefits to be claimed in 2027–2030
If you’re considering commercial solar, the next step is simple: see what it could look like for you.
