Significant attention is being directed to how DC policy will impact solar investments, which have benefited from the Inflation Reduction Act Tax Credits as well as the Bonus Depreciation from the 2017 Tax Cut & Jobs Act.
Investment Tax Credits: The Inflation Reduction Act significantly expanded and extended tax credits for solar energy, making it a more attractive investment.
Bonus Depreciation: The bonus depreciation from the Tax Cut & Jobs Act allowed businesses to deduct a larger portion of the cost of solar installations upfront, further boosting investment.
Source: DOE
The tax credits and bonus depreciation have resulted in improved cash flow for solar investments, ranging from smaller commercial installations to large-scale projects, such as those powering data centers.
Bonus Deprecation Entering 2025
Entering 2025, the bonus depreciation from The Tax Cut & Jobs Act, which started at 100%, is three years into its scheduled phase-down. In 2023, the bonus depreciation was reduced to 80%, in 2024 it was reduced to 60%, will be further reduced to 40% in 2025, and is scheduled to be 20% in 2026, and fully phased out in 2027.
Investment Tax Credits in 2025
The increased investments in renewable energy have been led by some of the largest asset managers in the world. These large investors have become attracted infrastructure, climate-transition and energy investments supporting datacenters. The investment tax credits have become an important component of their project financing, and expect that the largest asset managers, private equity firms and datacenter owners will favor the continuance of the investment tax credits.
Easy To See How Year Starts, Harder To Predict Long-Term
While significant discussion has been given to how Washington D.C. policy preferences will influence parts of the Inflation Reduction Act, it's important to recognize that nobody has a crystal ball to accurately predict policy changes. Additionally, with some components of the Tax Cut & Jobs Tax Act set to expire in 2025, it's possible the future of bonus depreciation, can change as well.
This information is for general knowledge only and doesn't constitute tax advice. Consult a tax professional for specific guidance.