With alternative energy options booming, many businesses are considering utilizing solar energy to mitigate costs. It’s a viable option made even more attractive by a federal income tax benefit known as the business energy credit. Here’s how you can benefit.
The Business Energy Credit
The business energy credit is substantial and applies to the acquisition of a wide variety of alternative energy properties (such as solar panels, for example).
The business energy credit equals 30% of the cost of the following types of property placed in service before calendar year 2017:
- 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.
- Equipment using solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight.
- Certain fuel-cell property.
- Certain small wind energy property.
For property put in service after the calendar year 2016, the credit is available for only 10% of the cost for item 1 (generating electricity, heating and cooling).
The Credit Extends to Other Forms of Energy
Though not as common, the credit extends to other forms of alternative energy – including geo-thermal and groundwater. The credit equals 10% of the cost of the following types of property:
- Certain equipment used to produce, distribute, or use energy derived from a geothermal deposit.
- Certain cogeneration property.
- Certain microturbine property.
- Certain equipment that uses the ground or ground water to heat or cool a structure.
Again, for property put in service after the calendar year 2016, the credit is diminished and isn’t available for property listed in items 2, 3 or 4 above.
Restrictions
However, there are several restrictions on the credit. For example, the credit isn’t available for property acquired with certain types of non-recourse financing. Additionally, for property for which the credit is allowable, the “basis” (that is, the “tax cost” for computing depreciation deductions and gain or loss on disposition) is reduced by 50% of the allowable credit.
Other Alternatives Outside the Business Energy Credit
If you choose to use alternative energy, you might do so without owning the equipment, but that means forgoing the business energy credit. For example, some contractors provide installation of solar equipment for free, keep ownership of the equipment and charge you for energy use. This might work better for you than an acquisition subsidized by the tax credit.
Consider All Your Alternative Energy Options
There are many variables in deciding whether to utilize alternative energy in your business and the best methods in which to do it. PDM’s tax experts can help advise you on the best course of action. Contact us; with our years of technical experience, advanced training, and cutting edge technology, we are your financial partner.