Updated October 13, 2022
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This federal tax credit (also known as "Rehabilitation, Energy & Reforestation Investment Credit," "Energy Credit" or "Energy Investment Tax Credit (ITC)") saves up to 30% of the total purchase and installation costs of certain renewable energy properties. This includes credits for rehabilitation, energy, qualifying advanced coal projects, qualifying gasification projects and qualifying advanced energy projects – geothermal systems, solar technologies, fuel cells, small wind turbines, microturbines, waste energy recovery, standalone energy storage, biogas projects and combined heat and power (CHP). An additional domestic content bonus credit of up to 10% is available for projects that use certified steel, iron and manufactured products that are domestically produced.
Procedures have been established for certain parties (i.e. nonprofits) to monetize certain tax credits for equipment placed in service on or after January 1, 2023 and through December 31, 2032, effectively making this tax credible refundable for these entities.
Type: Nonrefundable/refundable
Dates: Energy properties where construction began after Jan 1, 2020 and before January 1, 2025, and are placed in service after December 31, 2021. Projects that began construction after Dec 31, 2019 and placed in service before Jan 1, 2022 are only eligible for the previous 26% credit.
Claim Process: File Form 3468, Investment Credit with annual federal income tax returns in the year the energy property was placed in service.
Note: This credit can not be claimed alongside the Production Tax Credit.
This federal tax credit (also referred to as the "Solar Investment Tax Credit (ITC)") saves up to 26% of costs for new solar energy systems where a non-tax-exempt business or individual owns (not leases) and uses the system in the United States.
The ITC savings percentage scales down as follows:
The IRS qualifies construction as “started” when 5% of project costs have been incurred. Solar-powered units that illuminate, heat/cool water, or generate electricity along with their respective storage equipment, installation, and labor costs are eligible. (Solar systems for heating swimming pools or hot tubs are not eligible.) See the U.S. Department of Energy Residential and Commercial ITC Factsheets for eligibility and savings specifics and exceptions.
Several U.S. states and territories additionally offer solar tax incentives or rebates. California, Minnesota, Texas, New York, Colorado, and Oregon offer over 100 solar incentives. Visit the Database of State Incentives for Renewables & Efficiency (DSIRE) for program details. If you’re considering solar lighting or solar panels, be sure to leverage both federal and state tax incentives.
Type: Nonrefundable
Dates: Solar properties where construction began after Jan 1, 2020
Claim Process: File Form 3468, Investment Credit with annual federal income tax returns in the year the solar system was placed in service.
Note: The Solar Tax Credit (IRS Form 3468, ITC) applies for businesses while the Residential Solar Energy Credit (IRS Form 5695) applies for individual homeowners. The rules are similar, but differ slightly.
U.S. manufacturers of renewable energy technology can take advantage of this credit, which addresses the cost to manufacture clean energy components of property critical to solar and wind developments. The eligible components must be produced domestically and sold to an unrelated party after December 31, 2022. The amount of the credit varies depending on the eligible components.
Type: Refundable
Dates: Available through end of 2029, after which will decrease 25% per year to zero over the subsequent three years, fully phasing out with respect to components sold after December 31, 2032.
Claim Process: N/A
This credit saves up to 30%, capped at $30,000, of the total cost of renewable energy equipment (i.e., EV chargers or EV charging equipment) purchased and is available to those who install and store sources of renewable energy during the current tax year. It includes the costs of installation of charging stations for electric vehicles. If installed after 2022, the tax credit per property item is up to $100,000 per EV charger. Beginning in 2023, the tax credit for business and home installations will apply to other EV charging equipment like bidirectional (i.e., two-way) chargers.
Type: Refundable only after offset against Section 4041 quarterly fuel excise tax liability
Dates: Applicable for refueling property placed in service by December 31, 2032.
Claims Process: File Form 8911, Alternative Fuel Vehicle Refueling Property Credit with your federal income tax return.
This federal tax credit saves $1.00 per gallon and is available to businesses and individuals who use biodiesel, agri-biodiesel or renewable diesel in their vehicles or as the on-road fuel for their business or trade.
Type: Nonrefundable
Dates: Fuel sold or used between 2018 and 2022.
Claims Process: File Form 8864, Biodiesel and Renewable Diesel Fuels with annual federal income tax returns.
This federal production tax credit (PTC) saves five cents ($0.05) per gallon and is available to qualified small business refiners of low sulfur diesel fuels.
Type: Nonrefundable
Dates: No expiration currently defined.
Claims Process: File Form 8896, Low Sulfur Diesel Fuel Production Credit with annual federal income tax returns.
This $1.01 per gallon federal tax credit (also known as "Alcohol and Cellulosic Biofuel Fuels Credit") is available to biofuel producers.
Type: Nonrefundable
Dates: Second generation biofuel production before January 1, 2025.
Claims Process: File Form 6478, Biofuel Producer Credit with annual federal income tax returns.
This provision provides a federal production tax credit (PTC) for the sale of renewable electricity, refined coal or Indian coal that is produced by certain renewable energy production property in the United States. The amount of the credit varies based on the production method and amount of energy produced and the reference price of the relevant fuel type.
Type: Nonrefundable
Dates: No expiration currently defined.
Claims Process: File Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit with annual federal income tax returns.
This credit saves from $4,000 to $8,000 and is available to original owners of certain alternative fuel vehicles. The credit is treated as a personal credit unless it is attributable to depreciable property used for business purposes. In that case, it is treated as a general business credit.
Type: Nonrefundable
Dates: 2006 - 2021 (NOT extended for 2022).
Claims Process: File Form 8910, Alternative Motor Vehicle Credit with your federal income tax return.
This federal credit, also known as the Clean Vehicle Credit, saves between $2,500 and $7,500 for new vehicles, depending upon the vehicle's battery capacity (up to $4,000 for used vehicles). To see if your vehicle qualifies and calculate your credit amount, use the EPA's EV Tax Credit Calculator. Individuals or businesses who purchased and used a qualified all-electric (EV) or plug-in hybrid electric vehicle (PHEV) on or after 2010 qualify for this credit. See IRS Qualified Plug-In Electric Drive Motor Vehicles (IRC 30D) for the latest updates.
For EVs purchased after August 16, 2022, qualifying vehicles must meet a final assembly requirement. See a list of Model Year 2022 and early Model Year 2023 electric vehicles that may meet the final assembly requirement.
Type: Nonrefundable
Dates: This tax credit phases-out for vehicles from manufacturers that have sold more than 200,000 qualified vehicles for use in the United States determined on a cumulative sales basis after December 31, 2009.*
Claim Process: File Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit with annual federal income tax returns in the year you purchased and began using your electric vehicle. Starting in 2023, individuals must fall below certain income thresholds to qualify.
*NOTE: Tesla and General Motors electric or hybrid vehicles do not qualify for the 2022 EV tax credit -- both manufacturers hit the 200,000 qualified vehicles limit. (i.e., The credit is not available for Tesla vehicles acquired after Dec 31, 2019 or General Motors vehicles acquired after Mar 31, 2020.) On January 1, 2023, the ceiling is dissolved and Tesla and GM vehicles will qualify once more.
This is a Section 45Q federal tax credit available to businesses that purchase and use carbon capture and sequestration mechanisms. The credit amount is calculated per metric ton of carbon oxide or carbon dioxide captured – with savings up to $85/metric ton for sequestration and $60/metric ton if the carbon oxide is utilized. There’s currently no limit on maximum savings. To determine the credit rates, refer to IRS Form 8933, Carbon Oxide Sequestration Credit instructions.
Type: Nonrefundable
Dates: No expiration currently defined.
Claim Process: File Form 8933, Carbon Oxide Sequestration Credit with annual federal income tax returns.
This federal tax credit can save $1,000 or $2,000 and is available to qualified contractors who sell or lease a home to someone planning to use it as a residence during the tax year. The credit is determined by how many of the specified energy saving requirements are met. See Instructions for Form 8908 for requirements.
Type: Nonrefundable
Dates: Extended through 2032, with major changes to the qualifying standards set to begin in 2023.
Claims Process: File Form 8908, Energy Efficient Home Credit, with annual federal income tax returns.
This credit, technically a federal tax deduction, (also known as the "Commercial Building Energy-Efficient Tax Deduction") saves up to $1.88 per square foot (expected to increase up to $2.00 per square foot with current inflation adjustment provisions in place) and is available to building owners that purchase and install qualifying energy efficient equipment. Tenants can also claim the credit if they make qualified construction expenditures to the building.
The energy reduction standards against the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) are currently 50%, but new provisions from the Inflation Reduction Act are as follows:
Type: Nonrefundable
Dates: No expiration (Permanent part of tax code)
Claims Process: To claim the deduction, building owners must obtain a certification and/or allocation letter confirming the property meets all requirements and include this documentation with annual federal income tax returns. Owners must use a certified software to calculate energy and consumption amounts. See 179D Commercial Buildings Energy-Efficiency Tax Deduction for a list of certified software.
Note: Changes to Section 179D as a result of the Inflation Reduction Act include:
Many business owners aren't aware that they could qualify for several energy tax credits. Saving money via tax credits is an opportunity to reinvest those savings into your business. Working with an energy tax advisor can help you get a clear view of your energy bills, find hidden fees, and leverage all the energy tax credits your business is eligible for. To begin saving with energy tax credits, contact our tax credit services experts today.
Armanino has the industry expertise, tax credit experience and track record of customer satisfaction to best advise your tax credit incentive strategy and compliance needs.
Contact us today for a free assessment.