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Using business energy credits to reduce Federal taxes

Energy Tax Credit
Energy Tax Credit
CPA Firm South Florida

Are you exploring whether alternative energy technologies can reduce the cost of the energy used in your business? There is a federal tax credit (business energy credit), that is substantial and applies to different kinds of alternative energy.

The tax credit is intended primarily for business users of energy. There are other tax credits individuals taxpayers can claim that use alternative energy. Individuals curious about tax credits should be concerned with using alternative energy in their homes and producing energy for sale.

The business energy credit equals 30% of the cost of the following types of property placed in service before calendar year 2017:

(1) equipment that uses solar energy to generate electricity for heating and cooling structures, for hot water, or for heat used in industrial or commercial processes.

(2) equipment using solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight.

(3) certain fuel-cell property.

(4) certain small wind energy property.

For property placed in service after calendar year 2016, the tax credit is available for only 10% of the cost for property listed at (1) above, and isn't available at all for property listed at (2), (3) or (4) above.

The tax credit equals 10% of the cost of the following types of property:

(1) certain equipment used to produce, distribute, or use energy derived from a geothermal deposit.

(2) certain cogeneration property.

(3) certain micro turbine property.

(4) certain equipment that uses the ground or ground water to heat or cool a structure.

The tax credit isn't available for property listed at (2), (3) or (4) above that is placed in service after calendar year 2016.

In addition to the tax credit opportunities discussed above, the tax credit is available, on an elective basis, for certain other property placed in service before calendar year 2014.

There are limitations on the tax credit. For example, the tax credit isn't available for property acquired with certain types of financing. Additionally, for property for which the tax credit is allowable, the cost for computing depreciation is reduced by 50% of the allowable tax credit.

In a favorable presentation of alternative energy, the Federal tax credit can sometimes be used in combination with other subsidies. For example, state tax credits or utility rebates, may used in combination with the energy credit.

There are issues unrelated to energy credits that may influence a decision whether to use alternative energy. For example, the costs of operations, time involved and being satisfied at the end.

Also, be aware that even though you may decide to use an alternative energy source, without owning the equipment. This means not receiving the business energy credit.

For example, some contractors offer free set-up of equipment for free. The contractor remains owner of the equipment and charges for energy use in an arrangement that might be better or easier than a purchase.

There are many issues, both tax and non-tax, to consider in choosing alternative energy.

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