Going “green” has become all the rage lately, with more people embracing energy-saving tactics at home and at work. But Mother Earth isn’t the only one who stands to benefit from the emphasis on eco-friendliness—did you know that you can earn significant tax credits for energy-efficient improvements?
Earlier this year, the American Recovery and Reinvestment Act (ARRA) outlined some new and expanded tax benefits for individuals and business owners who invest in energy-saving appliances, improvements, or alternate energy sources that result in reduced usage and conserved resources.
Homeowners can earn a tax credit of up to 10% of the cost of solar energy systems, energy-efficient construction, or other alternate energy sources. This isn’t just a deduction of your income—it’s a full credit that is deducted directly from the amount of taxes you’re required to pay.
Each individual improvement is subject to its own set of criteria. Below are some specific green tax incentives available to business owners:
- Commercial buildings: If you build or renovate a commercial building that uses 50% or more less energy than the national average, you may be entitled to a tax credit of up to $1.80 per square foot.
- Combined heat and power systems (CHPs): If you institute a CHP that meets the minimum efficiency specifications, you could be eligible for an investment tax credit of up to 10%.
- Commercial vehicles: If your business uses fuel-efficient hybrid vehicles, you can earn tax credits based on the weight, fuel economy, and purchase price of the vehicle.
- Fuel cells and microturbines: If you invested in these eco-friendly technologies this year to generate electricity and power for your business, you could be eligible for tax credits of 30% of the cost of fuel cells or 10% of the cost of microturbines.
- Solar energy systems: Businesses that use solar energy for lighting, water heating, or electricity can receive up to 30% of the cost of the system in the form of a tax credit.
It’s great that the IRS is taking steps to recognize and reward energy-saving measures, but the specific clauses are complex. Eligibility is dependent on where you live, whether your investment meets specific criteria, and when the energy-saving tactic was put into place. There are extensive provisions, changes, and limitations that can be confusing for the average taxpayer to decipher. To make sure you’re reaping the maximum benefit of the new “green” tax laws, it’s best to consult with your CPA.