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Tax Credits

 

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Tax Credits

Expert Green Energy Tax Advisory Services for Solar, Wind, Biomass, and Cleantech Companies

Despite this growing demand and support for renewable energy, a fragile economy, volatile commodity pricing, and the lack of national energy policy have combined to pave a challenging road for renewable energy advocates and stakeholders.  Economies of scale and new manufacturing processes are making alternative energy production more competitive, but until it achieves parity through innovation or regulatory policy, the success of green energy companies may largely depend on their ability to optimize Green Energy and Cleantech tax incentives to attract investors and maintain sustainable balance sheets.

Our Green Team CPAs closely monitor proposed and executed changes in the federal and state tax codes affecting our clients in solar energy, wind energy, biomass energy, and cleantech. We advise these green clients on how to set up partnerships and structure their companies to best take advantage of tax benefits. We propose new ideas, and adjust strategies to take advantage of changes in tax laws. In addition to regular news updates, we can provide research and planning to prepare for project or company changes throughout the year.

Proposed legislation is constantly arising to update or extend the Investment Tax Credit. This section will be updated to reflect any major proposed legislation and any newly enacted legislation.

Production Tax Credit

Brief Summary of Current Law

The Production Tax Credit (PTC) was enacted as part of the Energy Policy Act of 1992.  Since then it has been extended and modified several times.  Most recently, the PTC was included in the American Reinvestment and Recovery Act of 2009, and again extended in the January, 2013 American Taxpayer Relief Act of 2012.  Under the current provisions, wind facilities, biomass, geothermal, hydropower, hydrokinetic, landfill gas, and municipal solid waste facilities which have begun construction by December 31, 2013 may qualify for this credit.  To qualify as having begun construction, a project must show that either 5% of the total project costs have been incurred by the deadline, or that “physical work of a significant nature” has commenced at the site or by a third party which is making equipment for the project.  A binding written contract with the manufacturer is required for work done by a third party to qualify.

The credit is available to all taxpayers, including flow through entities such as S corporations and partnerships, and has proven to be a prime incentive for investors in such projects.  This credit may be carried back one year and forward 20 years to offset income taxes.

The amount of the credit is adjusted for inflation each year.  For 2013, the credit is 2.3 cents for each kWh of electricity produced for wind, geothermal, and closed loop biomass, and 1.1 cents per kWh for all other qualifying technologies.

Because there are additional project specific provisions in the tax credit, taxpayers should review all aspects of the credit with their advisors before investing in a renewable energy project.

Example:

Let’s assume a yearly production of 200,000,000 kWh of electricity from our biomass plant.  Please reference the Biomass section for how this value was calculated.  Using the 2010 PTC rate of $0.022 per kWh would result in a tax credit of $4,400,000.

Plant Production in kWh (assumed):    200,000,000
X   PTC rate for 2010:                  0.022
Potential tax credit available:        4,400,000

 

Legislation Updates

Proposed legislation is constantly arising to update or extend the Production Tax Credit.  This section will be updated to reflect any major proposed legislation and any newly enacted legislation.

Business Energy Investment Tax Credit

Brief Summary of Current Law

The Investment Tax Credit (ITC) was originally part of the Revenue Act of 1962.  In subsequent legislation the ITC was modified to include incentives for renewable energy property.  Currently, taxpayers can choose to use the ITC in lieu of the PTC for eligible property.  To be considered eligible, most renewable source property must be placed in service by December 31, 2013.  However, solar and geothermal property can be eligible if placed in service by December 31, 2016.

The credit will allow for 30% of the cost of the eligible property to be taken as a credit against income tax.  Eligible property is tangible property that is an integral part of the facility and that “originates with the taxpayer”; or, in other words is new property.   Also, the basis of the property is reduced by 50% of the amount of the credit that is taken.

Like the PTC, this credit will also flow through a pass-through entity, and can be carried back one year and forward 20 years.

Example:

To continue using the biomass plant example, let’s assume the cost to construct the boiler is $200,000 and the remaining installation costs are $50,000 for a total installation cost of $250,000.  Thirty percent of these costs, or $75,000, can be taken as a credit against taxable income.

Boiler Construction Cost            200,000
Other installation costs              50,000
Total Installation Costs            250,000
X  ITC rate for 2010                     30%
Potential ITC credit available              75,000

Please email kathy@rodmancpa.com or give me a call at 617-965-5959 to discuss further..

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