Claiming the Business Energy Credit for Using Alternative Energy

Are you wondering whether alternative energy technologies can help you manage energy costs in your business? If so, there’s a valuable federal income tax benefit (the Business Energy Credit) that applies to the acquisition of many types of alternative energy property.

The credit is intended 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).

Eligible Property

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 is 26%, reduced to 22% for construction beginning in the calendar year 2023, and unless the property is placed in service before 2026, the credit rate is 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 is 26%, reduced to 22% for construction beginning in 2023, and unless the property is placed in service before 2026, the credit rate is 0%.
  • Certain fuel-cell property, the construction of which begins before 2024. If construction began in 2020, the credit rate is 26%, reduced to 22% for construction beginning in 2023, and unless the property is placed in service before 2026, the credit rate is 0%.
  • Certain small wind energy property, the construction of which begins before 2024. If construction began in 2020, the credit rate is 26%, reduced to 22% for construction beginning in 2023, and unless the property is placed in service before 2026, the credit rate is 0%.
  • Certain waste energy property, the construction of which begins before January 1, 2024. If construction began in 2020, the credit rate is 26%, reduced to 22% for construction beginning in 2023, and unless the property is placed in service before 2026, the credit rate is 0%.
  • Certain offshore wind facilities with construction beginning before 2026. There’s no phase-out of this property.

The credit equals 10% of the basis of the following:

  • Certain equipment used to produce, distribute, or use energy derived from a geothermal deposit.
  • Certain 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.

RELATED eGUIDE: The Business Owner's Guide to R&D Tax Credits

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. We can help you address these alternative energy considerations. If you have additional questions about the Business Energy Credit, please click on the button below to send us your question or give us a call at 888-574-4782.

Request More Information

© 2021


Biz Tip Topic Expert: SVA Certified Public Accountants

Specializing in serving closely-held companies, the expertise of our team members spans the areas of business consulting, tax, accounting and audit in a diverse set of industries. We work towards meeting the strategic vision of each business, as well as the owner’s personal financial goals. We’re proud to say that this expertise has made SVA a perennial award winner as one of the nation’s Top 100 Accounting Firms.

Locations

Madison, WI
1221 John Q Hammons Dr, Suite 100
Madison, WI 53717
(608) 831-8181

Milwaukee, WI
18650 W. Corporate Drive, Suite 200
Brookfield, WI 53045
(262) 641-6888

Colorado Springs, CO
PO BOX 62786
Colorado Springs, CO 80962
(719) 413-5551

Contact

(888) 574-4782
info@SVAaccountants.com
BizTips

Are you in the know on the latest business trends, tips, strategies, and tax implications? SVA’s Biz Tips are quick reads on timely information sent to you as soon as they are published.

Connect With Us

Copyright © 2021 SVA Certified Public Accountants