Businesses That Go Green in 2010 Eligible for Tax Credits and Grants
Recent legislation has made it clear: “going green” is a top priority of the current administration. The opportunity for businesses to receive tax credits and grant dollars has been expanded and liberalized.
“Rising energy costs are and will continue to be a significant issue. Business leaders should consider alternative energy sources, such as solar, wind, and geothermal,” advises Cory Wiese, a principal with LarsonAllen and leader of the firm’s energy incentives group. “It’s critical to understand the current incentives to determine if these types of investments are worthwhile.”
Tax credits or grants are now available for qualified energy property placed in service in 2010. Businesses can apply for the renewable electricity production credit (also referred to as the production tax credit or PTC) or the energy investment credit (also referred to as the investment tax credit or ITC). In lieu of claiming either credit, businesses may be eligible to receive a nontaxable grant from the U.S. Department of the Treasury.
These perks for going green apply to businesses in all industries, except nonprofit and governmental.
“Businesses need to analyze the benefits and act soon, because many of these incentives phase out in future years,” Wiese urges.
The renewable electricity production credit (PTC)
Under Internal Revenue Code (IRC) Section 45, taxpayers producing electricity at a qualified facility from eligible energy resources may be able to claim a credit up to 1.5 cents per kilowatt hour of electricity produced and sold to an unrelated party. Qualified energy resources include:
- Wind
- Closed-loop biomass
- Open-loop biomass
- Geothermal
- Solar
- Small irrigation power
- Municipal solid waste
- Qualified hydropower production
- Marine and hydrokinetic renewable energy
This credit is available for facilities placed in service by December 31, 2013 (or December 31, 2012, for wind facilities). Generally, it may be claimed for 10 years beginning on the date the facility was placed in service.
Conditions of the PTC
The PTC is part of the general business credit under IRC Section 38 that offsets regular tax and is claimed on Form 8835. In addition, the credit can be used to offset alternative minimum tax (AMT) without limitation. Any unused credit must be carried back one year and then can be carried forward for 20 years. It is not transferable, but through renewable energy finance transactions such as sale-leasebacks or flip partnerships, the credits may be shared. See
IRS Rev. Proc. 2007-65 for a special safe harbor rule applicable to PTC property.
A taxpayer may make an irrevocable election to claim the 30 percent ITC, rather than the PTC, for certain eligible property that is part of a qualified investment credit facility.
The energy investment credit (ITC)
Under IRC Section 48, businesses acquiring or constructing depreciable energy property may claim the following credits:
| 30 Percent of the Basis of the Property |
10 Percent of the Basis of the Property |
| Solar |
Geothermal |
| Fuel cell |
Combined heat and power system |
| Small wind energy |
Thermal energy property involving groundwater |
“Basis of the property” is the total cost, including materials, labor, and installation. In general, the property has to be placed in service by December 31, 2016, and must be original use property. For property placed in service after December 31, 2016, the credit is 10 percent.
Conditions of the ITC credit
The depreciable basis of the energy property must be reduced by 50 percent of the cost of the credit claimed. In addition, if the energy property is disposed of within five years after the property was placed in service, the credit is subject to the prorated recapture rules. Note: any ITC credits claimed for progress expenditures on energy property and made before the receipt of a Treasury grant must be recaptured pro rata upon the receipt of a grant.
This credit is part of the general business credit under IRC Section 38 that offsets regular tax and is claimed on Form 3468. In addition, the credit can be used to offset alternative minimum tax without limitation. Any unused credit must be carried back one year and then can be carried forward for 20 years. The credit is not transferable, but through renewable energy finance transactions, such as sale-leasebacks or flip partnerships, it may be shared.
As noted above, an irrevocable election is available for a taxpayer that qualifies for the PTC, but prefers to claim the ITC.
Grants from the U.S. Treasury
Under Section 1603 of the
American Recovery and Reinvestment Tax Act of 2009 (also known as the ARRA or stimulus act), taxpayers owning a qualified facility (for purposes of the PTC) or qualified energy property (under the ITC) may choose to receive a grant from the Treasury instead of claiming either of those credits.
To be eligible for a grant, the depreciable business property must be:
- Placed in service during 2009 or 2010
- Used predominantly in the United States
- Original use property
If construction begins in 2009 or 2010, the property must be placed in service by:
- December 31, 2012: large wind
- December 31, 2016: solar and certain ITC property
- December 31, 2013: all others including certain PTC property
Businesses ineligible for the grants include governments, tax-exempt organizations, certain cooperatives, and pass-through entities that own interests in such companies.
Application process
The Treasury is accepting grant applications submitted before October 1, 2011. The amount of the grant is generally equal to 10 percent or 30 percent of the basis of the property depending on the type.
The grant payments will be made during the 60-day period beginning on the later of the date of the application for the grant or the date the property is placed in service. The application may not be submitted until the property is placed in service or is under construction. Applications may be completed online.
In addition, applicants must submit payment records to support the cost basis of the property. For properties exceeding $500,000, an independent accountant must also attest to its accuracy.
Conditions of the grant
- The grant cannot be included in gross income.
- The property’s depreciable basis must be reduced by 50 percent of the grant received.
- Recapture, requiring repayment of the grant to the Treasury on a prorated basis, will apply if the property is disposed of within five years from the date placed in service or otherwise ceases to be specified energy property (except in the case of certain sale-leaseback transactions).
How we can help
Performing a cost-benefit analysis can help you determine if alternative energy sources will benefit your business and which improvements are the best investment. We can help you interpret the expanding federal and state tax regulations and assist your company in making educated decisions on the best credit or grant to pursue for your situation.
For more information, contact a LarsonAllen tax principal or an energy incentives specialist: