ADP: 5 Energy Tax Credits and Incentives You May Not Have Considered

Originally Published by ADP’s Newsletter.

Want to lower your electricity bills and taxes Energy tax credits could be the answer.

Creating a more energy efficient organization isn’t just helpful for the environment — it can also make a big difference for your bottom line. Federal, state and local governments offer energy tax credits and incentives for businesses making these upgrades.

Here are five tax credits and incentives for you to consider:

Building Improvements

If you make qualifying upgrades or renovations to a building to reduce energy usage, you could be eligible for the Internal Revenue Code (IRC) Section 179D deduction. The size of your deduction is based on your building’s square footage and amount of energy reduction.

  • A 50 percent reduction in pure energy usage = $1.80 per square ft. deduction
  • A 15 percent reduction in HVAC energy usage = $0.60 per square ft. deduction
  • A 25 percent reduction in energy use from lighting = $0.60 per square ft. deduction
  • A building envelope that lowers energy use by 10 percent = $0.60 per square ft. deduction

You will need an independent third-party review of the project to confirm that you’ll meet the energy reductions to qualify for the deduction.

Solar Investment

Your business could also receive a tax break for helping others create green energy through the Solar Investment Tax Credit. This credit is available if you finance or invest in a qualified project setting up solar panels.

In 2018, you are eligible for a credit worth 30 percent of the cost of installing your qualified solar system, according to the Solar Energy Industries Association. The tax credit will offset some of the federal taxes owed for the year. There’s also a chance you could receive a positive return through your investment.

To be eligible for this program, you must be a C-corporation with a tax liability, meaning you owe taxes. You can’t be a government or nonprofit organization.

Energy-Efficient Appliances

Your state and local government may offer rebates when you replace current appliances with more energy efficient models. This could apply to upgrading refrigeration, HVAC systems, boilers and other appliances. To qualify, the new appliance must meet Energy Star specifications.

The rebate will help offset part of the cost of buying the new energy-efficient appliance. You may then also enjoy a lower electricity bill.

Energy Efficient Vehicles

There are also tax credits to help offset the cost of buying energy-efficient vehicles. For electronic vehicles and hybrids, you could be eligible for a tax credit worth between $2,500 to $7,500 off the initial purchase price, according to the Department of Energy (DoE). The size of the credit depends on the size of the vehicle and its battery capacity.

There is a different tax credit available for the purchase of alternative fuel vehicles that use hydrogen fuel-cell technology. On top of these federal tax credits, your state and local governments may also offer additional tax savings when you buy energy efficient vehicles. To qualify for these credits, you must be the first buyer or lessor of the vehicle. They don’t apply for buying used vehicles.

These credits are available at the federal level and, per the DoE, “you may also be eligible for EV incentives from your state, city, or utility” depending on where you live. Visit the DoE’s Alternative Fuels Data Center to learn more about what is accessible in your area.

Alternative Fuels

The alternative fuel tax credit is available for businesses that both sell and use alternative fuels. These include compressed natural gas, liquefied natural gas, propane and fuels produced by biomass. It doesn’t apply to ethanol, methanol or biodiesel.

You may be eligible for a credit of $0.50 per gallon of these fuels sold or used by your business. If you’re considering refitting your vehicles, forklifts and other vehicles to use alternative fuels, make sure to include this fuel credit in your calculation.

As you figure out which energy tax credits to use, it can be helpful to work with a consultant who specializes in this field. For some, like the 179D deduction, it’s a requirement. This specialist can help you identify the best investments to help lower your energy usage, find the available credits for your projects and make sure you qualify for each one.

These credits are available at the federal level; each state offers at least one incentive, too, as do a wide range of cities and utilities. Visit the DoE’s State Laws and Incentives page to see what incentives may be available in your area.

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