Domestic Content Bonus

Projects that meet domestic content minimums[17] are eligible for a 10 percentage point increase in value of the ITC (e.g., an additional 10% for a 30% ITC = 40%) or 10 percent increase in value of the PTC (e.g., an additional 0.3 ¢/kWh for a 2.75 ¢/kWh).

The required percentage of manufactured products starts at 40% for all projects beginning construction before 2025, increases to 45% for projects beginning construction in 2025, 50% for projects beginning construction in 2026, and 55% for projects beginning construction after 2026.[18]

On May 12, 2023, IRS issued guidance on the domestic content bonus. Within the guidance, the IRS provides a non-exhaustive list of solar PV steel products, manufactured products, and components of manufactured products, which taxpayers may rely on for classification purposes. These include:

• Steel/Iron products: steel photovoltaic module racking; pile or ground screw; steel or iron rebar in foundation (e.g., concrete pad)
• Manufactured products: PV module; PV tracker; inverter
• Components of a PV module (if applicable): photovoltaic cells, mounting frame or back-rail, glass, encapsulate, back-sheet, junction box (including pigtails and connectors), edge seals, pottants, adhesives, bus ribbons, and bypass diodes.

Domestic Content Bonus

The following example, adapted from the 2024 IRS guidance, illustrates how to calculate the domestic content percentage for a project using the elective safe harbor method:

• A ground-mounted PV system has three manufactured products — PV modules, inverters, and PV trackers – and two steel/iron structural components — steel piles, and steel rebar in foundation.
• Both the steel piles and steel rebar are manufactured in the United States. The PV system meets the steel and iron requirements of the domestic content bonus.
• The PV modules have 11 manufactured product components: the cells, frame/backrail, front glass, encapsulate, backsheet/backglass, junction box, edge seals, pottants, adhesives, bus ribbons, and bypass diodes. In this PV system, the modules are manufactured in the United States and all of the components except for the cells are also manufactured in the United States

What expenses are eligible for the ITC?

While the PTC is calculated based on the electricity produced by a system, the ITC is calculated based on the cost of building the system, so understanding what expenses are eligible to include is important in determining how much of a tax credit the system is eligible for.

To calculate the ITC, you multiply the applicable tax credit percentage by the “tax basis,” or the amount spent on eligible property. Eligible property includes the following:

• Solar PV panels, inverters, racking, balance-of-system equipment, and sales and use taxes on the equipment;
• CSP equipment necessary to generate electricity, heat or cool a structure, or to provide solar process heat;
• Installation costs and certain prorated indirect costs;
• Step-up transformers, circuit breakers, and surge arrestors;
• Energy storage devices that have a capacity rating of 5 kilowatt hours or greater (even if not charged with solar
• For projects 5 MW or less, the tax basis can include the interconnection property costs spent by the project owner to enable distribution and transmission of the electricity produced or stored by the system—this can include costs that are incurred beyond the point at which the energy property interconnects to the distribution or transmission systems

The cost of a roof installation is generally not eligible, except for incremental costs, or the amount over what you would have spent if the roof was not used for solar.[11]

These costs could include solar shingle, solar tiles, or the incremental cost of installing a reflective roof membrane that increases electricity generation.

STRUCTURES AND BUILDING-INTEGRATED PV

Structures holding the solar PV system may be eligible for the ITC if the solar PV system is designed with the primary goal of electricity generation and other uses of the structure are merely incidental.[12]

Though structural components typically do not qualify for the ITC, the IRS noted an exception for components “so specifically engineered that it is in essence part of the machinery or equipment with which it functions.”[13] ^‑Therefore, building-integrated PV, like solar windows, shingles, or facades, which provide a dual function are eligible for the ITC.

Unused tax credits related to the project may be carried back three years and forward 22 years for projects placed in service in 2023 or later (projects placed in service before 2023 can carry the tax credits back one year and forward 20 years). After 20 or 22 years, one-half of any unused credit can be deducted, with the remaining amount expiring. Tax credits carried backward or forward are not eligible for “transferability” (i.e., cannot be sold).

RECAPTURE RULES

Though the ITC can be claimed in full for the year in which the solar system is placed in service, the business claiming the ITC must retain ownership of the system until the sixth year of the system’s operation, or the business will be required to repay a portion of the tax credit.

Because the ITC “vests” at a rate of 20% per year over five years, any “unvested” portion is recaptured (i.e., repaid to the IRS if something happens during the five years that would have made the project ineligible for the ITC in the first place. For example, if the business claims the ITC and then sells the system a year later, after it has only vested 20%, it will have to repay 80% of the amount it claimed from the ITC to the IRS. PTCs are not subject to recapture. If the tax credit has been transferred, the buyer bears the responsibility for recapture.[49]