A large part of the debate in Congress over the potential $3.5 trillion infrastructure, climate change, and green energy bill concerns how much to spend on climate change and green energy. Despite this debate, our tax code currently contains a number of green energy provisions for businesses property.
Summary of Federal Business Energy Credits
Are you considering adding an alternative energy property to help your business save money? If so, the Business Energy Credit offers a certain percentage of your cost back in the form of a credit which can be used to offset income taxes your business may owe.
The following energy saving equipment is eligible for the credit with the qualifying property:
- Equipment that uses solar energy to generate electricity, heat or cool (or provide hot water for use in) a structure or provides solar process heat (exceptions apply to swimming pool related equipment).
- Equipment that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight.
- Equipment used to produce, distribute, or use energy derived from a geothermal deposit.
- Qualified fuel cell or microturbine property.
- Combined heat and power system property.
- Qualified small wind energy property.
- Equipment that uses the ground or ground water as a thermal energy source to heat or cool a structure, or as a thermal energy sink to cool a structure (geothermal heat pump systems).
- Waste energy recovery property.
Business Energy Credit Timing
For many of these properties, a credit equal to 26% of your cost is available for property constructed from 2020 to 2022. If you wait until 2023, the allowable credit goes down to 22% of your cost. For construction that begins in 2024, you may still be able to get a 10% credit, assuming the property is in service by the end of 2025.
In addition to the federal credit, many state and local government offer incentives that can be tacked on as well and must be considered when deciding to pursue an alternative energy property acquisition.
About the Author
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.