Claiming the Business Energy Credit for Using Alternative Energy
- Learn all about the business energy credit.
- Find out which property is eligible for the business energy credit.
- Learn about the pros and cons of this new credit.
Are you wondering whether alternative energy technologies can help you manage energy costs in your business? If so, there may be a valuable federal income tax benefit (the business energy credit). This credit applies to the acquisition of many types of alternative energy property.
Lawmakers intended the credit primarily for business users of alternative energy (other energy tax breaks apply if you use alternative energy in your home or produce energy for sale). Fiducial has all the news on this credit below!
Property eligible for the business energy credit
The business energy credit equals 30% of the basis of the following:
- Equipment, the construction of which begins before 2024, that uses solar energy to generate electricity for heating and cooling structures, for hot water, or heat used in industrial or commercial processes (except for swimming pools). If construction began in 2020, the credit rate equals 26%, reduced to 22% for construction beginning in calendar year 2023. And, unless businesses place property in service before 2026, the credit rate equals 10%.
- Equipment, the construction of which begins before 2024, using solar energy to illuminate a structure’s inside using fiber-optic distributed sunlight. If construction began in 2020, the credit rate equals 26%, reduced to 22% for construction beginning in 2023. And, unless businesses place the property in service before 2026, the credit rate equals 0%.
- Certain fuel-cell property the construction of which begins before 2024. If construction began in 2020, the credit rate equals 26%, reduced to 22% for construction beginning in 2023. And, unless businesses place the property in service before 2026, the credit rate equals 0%.
- Certain small wind energy property the construction of which begins before 2024. If construction began in 2020, the credit rate equals 26%, reduced to 22% for construction beginning in 2023.A And, unless businesses place the property in service before 2026, the credit rate equals 0%.
- Certain waste energy property, the construction of which begins before January 1, 2024. If construction began in 2020, the credit rate equals 26%, reduced to 22% for construction beginning in 2023. And, unless businesses place the property in service before 2026, the credit rate equals 0%.
- Certain offshore wind facilities with construction beginning before 2026. There’s no phase-out of this property.
The business energy credit equals 10% of the basis of the following:
- Certain equipment used to produce, distribute, or use energy derived from a geothermal deposit.
- Specific cogeneration property with construction beginning before 2024.
- Certain microturbine property with construction beginning before 2024.
- Certain equipment, with construction beginning before 2024, that uses the ground or ground water to heat or cool a structure.
Pluses and minuses
However, there are several restrictions. For example, the credit isn’t available for property acquired with certain non-recourse financing. Additionally, if the credit is allowable for property, the “basis” is reduced by 50% of the allowable credit.
On the other hand, a favorable aspect is that, for the same property, the credit can sometimes be used in combination with other benefits — for example, federal income tax expensing, state tax credits or utility rebates.
There are business considerations unrelated to the tax and non-tax benefits that may influence your decision to use alternative energy. And even if you choose to use it, you might do so without owning the equipment, which would mean forgoing the business energy credit.
As you can see, there are many issues to consider. Need help addressing these alternative energy considerations? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.
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