Tax Credits and Deductions for Your
By: Jean Murray - February 19, 2018
Is your business considering going solar? Want to save money on your business power bills? You can be environmentally savvy and save on costs, and still get a tax credit off your business taxes for these projects. And you can have a more energy efficient business building and also get a tax deduction for your expenses.
First, a Reminder about Tax Credits and Deductions
Tax credits are under-appreciated because they are misunderstood.
A tax credit is a dollar-for-dollar reduction in your business tax bill because the credit is applied against your gross income. So if you spend $100 on an energy-efficiency project, your business tax is reduced by $100.
Tax deductions are almost as good, but they come into play after your gross income is determined. In either case, making the most of all the tax deductions and tax credits you are eligible for is a great way to reduce your business taxes.
What's the Business Energy Investment Tax Credit? What Are the Requirements?
Your business can get a tax credit for specific energy-saving investments, in a variety of forms. These investments must be in "investment credit property" that can be depreciated or amortized.
The amount of the tax credit is:
- 30% for solar, fuel cells, small wind (see the solar investment tax credit information below)
- 10% for geothermal, microturbines and combined heat and power (CHP)
Eligible technologies include:
- solar technologies
- fuel cells
- small wind turbines
- geothermal systems
- combined heat and power (CHP)
In order for your business to be eligible for this investment tax credit:
- Your business must own or have built the equipment
- The property must be placed into service (be operational) the year you take the credit
- The equipment must meet specific performance and quality standards
Legislation in December 2015 extended the credit for solar technologies and production tax credit-eligible technologies, with gradual step-down of the credits between 2019 and 2022.
What's the Solar Investment Tax Credit?
An important part of the tax credits available to businesses for energy-saving is the solar investment tax credit. It is part of the tax credit changes made in December 2015, and it provides a 30% tax credit for businesses that install, develop, and/or finance solar energy property.
The Solar Energy Industries Association has a fact sheet about this tax credit.
How Can I Get a Tax Deduction for a "Green" Building?
If you want to revive your business building and turn it into a "green" building, you can get a tax deduction for this purpose. This Section 179D deduction is for incorporating high energy systems into your building, such as high-efficiency interior lighting, HVAC or hot water systems, of efficient building envelopes. (The building envelope is the "wrap" on the building — walls, floors, windows, doors, and roofs.)
You can get a deduction of up to $1.80 per square foot for building floor areas that have these new systems if they achieve a 50% reduction in energy and power costs.
- You must be the owner or lessee of the commercial building.
- You must get a certification that the required energy savings of 50% will be achieved, in order to get the deduction. It's best to get this certification, from a qualified engineer, ahead of time. You can get a partial deduction of $.60 per square foot if you can certify a 16 2/3% reduction in energy and power costs.
This deduction has been made retroactive to all of 2015, but it is set to expire at the end of 2016.
How Does My Business Claim Energy Tax Credits and Deductions?
To receive the energy investment tax credit, you must file an application form on Form 3468, along with your business tax return. This is a complicated form, so save your receipts and give them to your tax preparer.
Deductions are a bit easier.
This deduction can be included in the "Other Deductions" section of your business tax return. Don't forget you will need a certification, either before or after you complete the upgrades.
For More Information on the Tax Credits and Deductions
Energy.gov has more details about the types of technologies that are eligible for the Business Energy ITC.
See the instructions for IRS Form 3468 for more details on the Business Energy ITC.
You may want to review this IRS article on Energy Incentives for Businesses in the American Recovery and Reinvestment Act to see if your business might qualify for any of these incentives.
Note: As with all things IRS, there are many restrictions, qualifications, and limitations to these tax credits and tax deductions. The information in this article is intended only as general information, and not tax advice. Check with your tax professional before attempting to take advantage of any of these tax savings.
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.