You can enter a customer’s marginal national (federal) and local (state) tax rates, which will be used in estimating changes to the customer’s tax liabilities. There are several implications to tax requirements from a solar project:
Utility Bill Savings:
- Residential customers will usually not check this box, except for cases where a customer on a Feed-In Tariff may have to report the revenue from the program as income. In those cases, you should enable Savings are Taxable, otherwise do not enable this option.
- Commercial customers can save on their utility bills, resulting in lower operating costs and therefore higher profit. When enabling the Savings are Taxable checkbox, Aurora will count savings towards increases in the customer’s taxable income.
- Incentives can be marked as being locally-taxable, nationally-taxable, both, or neither. If they are taxable at either the national or local level, the payout from these incentives will be added to the taxable income for the year they are granted.
- Incentives that occur in Year 0 will be added to the taxable income in Year 1
- CBIs are calculated based on the Net System Cost
- [Net System Cost] = [System Price] - [Non-Taxable Grants]
- Any System-Size or Fixed-Amount grant that is non-taxable will reduce the system cost basis for CBIs such as the Investment Tax Credit (ITC). If the incentive is marked as Taxable, then the incentive will not reduce the Net System Cost.
- PBIs are calculated based on the system’s annual production and provided rate. SRECs are one type of PBI and are commonly counted as taxable revenue.
Certain types of loans allow the debtor to deduct the interest paid on the loan from their income tax. Common residential cases include PACE loans when property tax is deductible, and mortgage-backed loans. You can select an option for loans to have deductible interest in the Loan editor.
Operation and Maintenance Costs [Commercial only]:
Similar to the operational savings from going solar, commercial projects may have an increased operation and maintenance cost as a result of having a solar PV system. Increased operational expenses reduce profit, which could lead to reduced taxable income. If the O&M is Tax Deductible button is toggled, Aurora will deduct O&M expenses from the taxable income calculation.
Depreciation [Commercial only]:
Commercial owners can elect to depreciate the value of the PV system following a specified schedule. Depreciation will reduce a customer’s taxable income over the duration of the schedule. The depreciable basis of a system is given by the following formula:
[Depreciable Basis] = [Gross System Cost] - [Non-Taxable Grants]
In the United States,
[Depreciable Basis] = [Gross System Cost] - [Taxable Grants] - 0.5 * [Federal ITC]