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Claim Your Business Investment Energy Credit Before It’s Too Late

business-energy-tax-creditHave you been considering an investment in alternative energy for your small business? If so, act quickly. The generous 30 percent business Investment Tax Credit is scheduled to reduce to 10 percent after 2016 barring any extensions.

The 30 percent Investment Tax Credit was extended as part of the Emergency Economic Stabilization Act of 2008 and again in 2009. But, with the economy improving and fiscal conservatives in Washington, there’s not much political will to extend the credit again. Alternative-energy activists, concerned about the effect the expiration will have on the solar industry, are concerned about the lack of credit extension. But comparatively, there hasn’t been much noise yet about the credit reduction. It’s quite possible that the 30 percent credit will rather quietly disappear and convert back to 10 percent on December 31, 2016.

Tax years 2015 and 2016 are the perfect opportunity to purchase or break ground on an alternative energy system. According to this information furnished by the Solar Energy Industries Association in 2014, the average price of a commercial solar project has decreased 45 percent since 2012 and prices continue to drop.

Here’s a breakdown of the Investment Tax Credit rates, cutoffs and requirements:

What Systems Are Eligible for the 30% Investment Tax Credit:

  • Solar: Systems that heat, cool, or generate electricity, including hybrid solar lighting systems.
  • Wind Turbines: Turbines with a capacity of up to 100kW.
  • Fuel Cells: Fuel cells with a minimum capacity of 0.5kW. Must have at least a 30 percent electricity-only generation efficiency.
  • What Systems Are Not Eligible for the 30% Tax Credit:
  • Geothermal systems, Microturbines, and Combined Heat and Power Systems: these systems are not eligible for the 30% tax credit. However, they are eligible for a 10% tax credit.
  • Solar: Passive solar and pool-heating systems are ineligible for the tax credit.

What Counts Towards the Investment Tax Credit:

  • The cost of new systems put into place before December 31, 2016 or progress expenditures on self-constructed systems incurred before December 31, 2016.
  • Previously-owned property is not eligible for the credit.
  • Leased property may be eligible, but only if the lessor has not (and will not in the future) claim the tax credit for the same property.

Other Credit Restrictions:

  • The property must be used for commercial purposes (as opposed to lodging).
  • The property must be used primarily in the United States.
  • Companies that dispose of property within five years of putting it into service may have to repay some or all of the credit.

How to Calculate the Tax Savings:

30 percent multiplied by all eligible costs incurred during the tax year. For example, a business that expends $10,000 on eligible solar systems has a $3,000. This $3,000 directly reduces tax liability. If the business owed $5,000 in taxes before the credit, now it only owes $2,000.

Dollar-Value Credit Limitations:

There is an unlimited credit with no maximum dollar amount. There’s no cap on credit for the fuel cells, but the taxpayer can only claim $1,500 of expense per 0.5 kW of capacity. No caps exist on solar or small wind turbines. The credit is not a refundable credit. In other words, you can only use it to offset your tax liability. However, any unused credit balance can be carried forward for future tax years.

Patricia Poladian is an accountant and freelance writer specializing in financial topics. Her areas of expertise include personal finances, taxes, and accounting for small businesses.