IRA Tax Credits, Depreciation, Utility Incentives, Safe Harbor, and FEOC Compliance

Updated for 2026

Commercial solar incentives in Texas are powerful, confusing, and often explained as if Texas follows the same rules as every other state. It does not.

By the time most businesses start researching solar, they have already heard a mashup of half-true ideas. Thirty percent tax credits. Bonus incentives. Easy financing. Power purchase agreements. All of those exist somewhere, just not always here, and not always the way they are described.

In 2026, incentives remain strong, but the details matter more than ever. Federal tax credits under the Inflation Reduction Act, accelerated depreciation, utility incentives, safe harbor timing, and emerging Foreign Entity of Concern compliance rules all affect whether a project qualifies and how it should be structured.

This guide explains how commercial solar incentives actually work in Texas in 2026, with a focus on practical planning for businesses, nonprofits, and public sector organizations.

What commercial solar incentives are available in Texas?

Commercial solar projects in Texas generally rely on a combination of federal and utility driven incentives rather than statewide programs.

The primary incentive categories include:

1. Federal Investment Tax Credit under the Inflation Reduction Act
2. IRA bonus tax credits
3. Accelerated depreciation using MACRS
4. Utility specific incentives and rebates
5. Property tax exemptions

Texas does not offer a statewide commercial solar rebate or renewable energy credit program. Incentives are driven by federal law and local utility rules, and ownership structure plays a central role in eligibility.

How the federal Investment Tax Credit works in 2026

The federal Investment Tax Credit allows eligible owners of commercial solar systems to claim a percentage of project costs as a credit against federal income taxes.

Base ITC framework in 2026

• The ITC framework remains centered around a 30 percent credit for qualifying projects
• Recent legislation accelerated eligibility deadlines for wind and solar projects
• Timing of construction and placement in service now matters more than long-term phaseout schedules

Eligible project costs generally include:

• Solar modules and inverters
• Racking and mounting systems
• Electrical infrastructure
• Engineering and design
• Installation labor
• Interconnection costs

The credit is claimed by the entity that owns the solar asset.

Bonus tax credits under the Inflation Reduction Act

The Inflation Reduction Act allows bonus credits that can increase the total ITC above the base level.

Common bonus categories

• Domestic content bonus
• Energy community bonus

Each bonus can add up to 10 percent, and in some cases projects may qualify for multiple bonuses.

Bonus credits are not automatic. Eligibility depends on project location, equipment sourcing, documentation, and compliance with current guidance. Projects pursuing bonus credits must plan for them early, often before final equipment procurement.

Safe harbor rules and why timing matters in 2026

Safe harbor rules allow projects to preserve eligibility for certain incentive structures even if installation or placement in service occurs later.

Common safe harbor approaches

• Five percent cost safe harbor
• Physical work test

Safe harbor is often used to manage:

• Changes in incentive eligibility timelines
• Equipment lead times
• Supply chain constraints
• Bonus credit qualification

Recent legislation and executive actions have increased scrutiny around safe harbor strategies. Updated guidance on what qualifies as “beginning of construction” is expected to tighten documentation and execution requirements.

Projects considering safe harbor should treat timing, contracts, and documentation as core project milestones, not administrative afterthoughts.

FEOC compliance and why it now matters for solar

Foreign Entity of Concern compliance is an increasingly important consideration for commercial solar projects.

What FEOC generally refers to

FEOC rules are intended to limit incentive eligibility for projects that involve certain foreign ownership interests or supply chain participation tied to designated foreign entities.

Why this affects solar projects

• Equipment sourcing can impact eligibility for credits
• Supply chain documentation is becoming more important
• Certain incentives may be disallowed if prohibited material assistance is involved

For projects beginning construction after 2025, FEOC related restrictions may apply based on both ownership structure and equipment sourcing.

Guidance timing

The executive order issued alongside the July 2025 legislation directed Treasury to issue additional FEOC related guidance within approximately 45 days of enactment. That window pointed to mid-August 2025, though implementation continues through notices, FAQs, and future releases. FEOC requirements should be treated as evolving, not static.

Projects planned for 2026 and beyond should monitor sourcing assumptions and work with teams familiar with current guidance.

Can nonprofits and municipalities still use solar incentives?

Yes. Tax exempt entities can continue to benefit from solar incentives through the direct pay mechanism.

Eligible entities include:

• Nonprofits
• Municipalities
• School districts
• Universities and higher education institutions

Rather than offsetting tax liability, qualifying entities may receive the value of the tax credit as a payment from the IRS, subject to filing and compliance requirements.

This has made direct ownership an increasingly attractive option for public sector and nonprofit solar projects in Texas.

Accelerated depreciation for taxable entities

Taxable entities that own commercial solar systems may also benefit from accelerated depreciation under the Modified Accelerated Cost Recovery System.

Key points

• Solar assets are typically depreciated over five years
• Bonus depreciation rules may apply depending on current tax law
• Depreciation is generally available in addition to the ITC

Depreciation calculations must account for ITC basis reduction and should be modeled carefully to avoid overstating project benefits.

Utility incentives and ownership rules in Texas

Utility incentives vary by service territory and are not guaranteed statewide.

CPS Energy

In CPS Energy territory:

• Customers are generally required to directly own the solar system
• Third party owned power purchase agreements are not permitted
• Utility incentives and interconnection rules are tied to ownership

These requirements significantly affect financing structures compared to other states.

Austin Energy

In Austin Energy territory, commercial and nonprofit customers may have access to utility incentives structured differently than many Texas utilities.

Austin Energy offers:

• A Performance Based Incentive that pays based on actual energy production
• A Capacity Based Incentive that provides upfront assistance based on installed capacity

Austin Energy also operates a Solar Standard Offer Program designed to support customer sited solar through standardized payment structures. Program availability, funding levels, and enrollment windows can change, so current requirements should always be confirmed during project planning.

Solar ownership models and Texas limitations

Texas does not universally allow third party ownership models.

In many utility territories:

• Power purchase agreements are not allowed
• Solar leases may be restricted or unavailable
• Direct ownership is required for interconnection and incentives

These limitations make Texas fundamentally different from markets where third party ownership dominates.

Common incentive planning mistakes in 2026

Some of the most frequent issues include:

• Assuming national incentive rules apply uniformly in Texas
• Waiting too long to evaluate safe harbor options
• Overestimating bonus credit or domestic content eligibility
• Ignoring FEOC related sourcing considerations
• Relying on generic online incentive calculators

Accurate planning requires Texas specific utility knowledge and up to date incentive guidance.

Why early planning matters more than ever

Incentives now influence:

• Equipment selection
• Supply chain strategy
• Ownership structure
• Project timelines
• Financing approach

Projects that integrate incentive planning early are better positioned to maximize value and avoid delays or redesigns.

Summary

Commercial solar incentives in Texas remain strong in 2026, but they are increasingly tied to timing, sourcing, and ownership decisions. Federal tax credits, bonus incentives, depreciation, safe harbor rules, FEOC compliance, and local utility requirements all interact to shape project outcomes.

Businesses, nonprofits, and municipalities benefit most when incentive strategy is addressed at the very beginning of project planning, not after design decisions have already been made.

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