Article: Going Green Saving Green - Energy Credits and Deductions for Businesses

By Jacob Pratt and Thomas Booker

Energy Credit (IRC Sec. 48)

This nonrefundable energy credit is either 30 percent or 10 percent for alternative energy property designed to generate power for the taxpayer’s own use. There are a limited number of business energy properties that qualify for the 30 percent credit; some of these 30 percent business qualifying properties include:

• Qualified fuel cell property,
• Solar property used to generate electricity, for heating or cooling (or provide hot water for use in) a structure, or to provide solar process heat, excepting property used to generate energy for the purpose of heating a swimming pool,
• Solar property used to illuminate a building using fiber optic distributed sunlight, and
• Qualified small wind turbines.

The code provides that business energy property not included in the above list may qualify for a 10 percent credit. Examples of energy properties that qualify for the 10 percent credit are:

• Equipment for producing or distributing geothermal energy,
• Qualified micro turbine property,
• Combined heat and power systems, and
• Equipment that uses the ground or ground water to heat or cool a structure.

To qualify for the credit, the property must be constructed, erected, or reconstructed by the taxpayer, or acquired by the taxpayer if the original use of the property commences with the taxpayer. Moreover, the property must qualify for either depreciation or amortization. Finally, the property must meet performance and quality standards prescribed by the IRS.

This credit is claimed on Form 3468. This credit flows to Form 3800 which provides any unused credit to be carried forward to the next taxable year.

Energy-Efficient Commercial Buildings Deduction (IRC Sec. 179D)

A deduction is allowed in an amount equal to the cost of energy efficient commercial building property placed in service during the tax year. The maximum deduction for any building for any tax year is the excess (if any) of the product of product of $1.80, and the square footage of the space, over the aggregate amount of the deduction for the building for all earlier tax years. Energy efficient commercial building property is property:

• for which depreciation or amortization is allowable,
• which is installed on or in a building located in the U.S., and within the scope of Standard 90-1-2001,
• which in installed as part of:
• the interior lighting systems,
• the heating, cooling, ventilation, and hot water systems, or
• the building envelope,
• which is certified as being installed as part of a plan designed to reduce the total annual energy and power costs of the interior lighting, heating, cooling, ventilation, and hot water systems of the building by 50% or more in comparison to a “reference building” that meets the minimum requirements of Standard 90-1-2001.

This deduction is taken on Form 4562 and is available on property placed in service on or after January 1, 2006 and before January 1, 2014.

Copies of Standard 90.1-2001 can be purchased from the American Society of Heating, Refrigerating, and Air Conditioning Engineers. The URL for the Society's website is http://www.ashrae.org.

For other energy tax incentives for businesses, visit the IRS website here.