Alternative Energy and Your Business

Alternative energy has enabled many businesses to better manage the cost of their energy while taking advantage of the federal tax credit known as the Business Energy Investment Tax Credit (ITC).

The most frequently asked questions from corporate taxpayers regarding alternative energy: What qualifies us for the ITC? What are the deadlines? What about non-recourse debt?

The Consolidated Appropriations Act of 2015 amended the ITC to extend the expiration date with a gradual step down of the credits between 2019 and 2022 for solar and production tax credit eligible technologies. Solar and wind technologies are based on when construction begins. For all other technologies, it is based on when the technology is placed in service.

Businesses with alternative energy property eligible for a 30 percent credit include those utilizing the following technologies in their structure: Photovoltaic, known as PV (converts light into electricity), solar water heating, solar space heating/cooling, and solar process heat. For construction beginning in 2020, the 26 percent ITC "step down" rate commences, further reducing to 22 percent in 2021, and 10 percent in 2022 and beyond.

The following equipment placed in service prior to calendar year 2017 is also eligible for the 30 percent credit: hybrid solar lighting systems (which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight); as well as certain fuel cells (capped at $1,500 per 0.5 kW of capacity); and small wind turbines (up to 100 kW in capacity).

There is a 10 percent credit for geothermal electric, and for the following technologies placed in service prior to 2017: geothermal heat pumps; microturbines; and combined heat and power (CHP) systems.

It is important to note that ITC is not available for property acquired with certain types of non-recourse financing. Additionally, the credit is not available to businesses that do not own the alternative energy property. In some instances, it may be more feasible for a business to pay for energy use (of alternative energy property owned by a contractor) as opposed to owning it outright, which would involve managing the costs and maintenance of said property.

Are you considering the pros and cons of alternative energy for your business? Or, do you need additional guidance on ITC? Rodman CPAs can provide expert counsel on tax equity structure, tax credits, criteria for begun constructions, and other tax incentives.

Please contact your Rodman team member if you have any questions and/or thoughts regarding this article.