Is your business taking advantage of clean energy tax benefits? I bet you just read that question and thought: “Wait, those exist?!”
Yep. In fact, the Inflation Reduction Act (IRA) passed in 2022 was heralded by the Environmental Protection Agency (EPA) as "the most significant climate legislation in U.S. history." This landmark act introduced 13 new tax incentives, alongside expanded versions of 12 tax credits and one tax deduction aimed at encouraging businesses to adopt clean energy practices. For U.S.-based businesses, these incentives are a big opportunity to reduce tax burdens while contributing to a sustainable future. Finally, capitalism and mother nature working together in harmony.
So how can you take advantage of clean-energy tax benefits for your business? Read on, but keep in mind that this information is for US-based businesses only, and this is our disclaimer that we’re not authorized to give you tax advice, so everything we mention here is a jumping-off point for you to check out yourself.
How do clean energy tax benefits work?
Clean energy tax benefits are designed to reduce the financial burden of investing in renewable energy and energy-efficient technologies. By providing tax credits and deductions, the IRA makes it more economically viable for businesses to upgrade to cleaner energy solutions. These incentives work by allowing businesses to deduct a portion of their clean energy investments from their taxable income, thereby lowering their overall tax liability.
6 most common IRA tax credits for businesses
- Energy Investment Tax Credit (ITC)
Businesses that invest in renewable energy projects such as solar, wind, geothermal, and fuel cells qualify for the Energy Investment Tax Credit (ITC). This credit allows businesses to deduct a significant percentage of their investment in renewable energy projects from their federal taxes. For example, companies that invest in solar energy installations can receive a tax credit of up to 30% of the total installation costs, substantially lowering the overall expense and making the transition to renewable energy more affordable.
- Advanced Energy Tax Credit
The Advanced Energy Tax Credit is available to businesses that invest in advanced energy projects, including carbon capture, utilization and storage (CCUS), and other cutting-edge technologies. This credit provides up to a 30% tax credit for qualified investments, significantly reducing the financial burden of adopting these innovative energy solutions. By leveraging this credit, businesses can more feasibly incorporate advanced energy technologies into their operations, contributing to a more sustainable energy landscape.
- Clean Electricity Investment Tax Credit
Businesses that produce electricity from renewable sources such as solar, wind, and hydroelectric power can benefit from the Clean Electricity Investment Tax Credit. This credit is designed to support investments in clean electricity production by offering a tax credit of up to 30% of the investment cost. Similar to the ITC, this incentive promotes the shift towards sustainable electricity generation by making it more financially viable for businesses to adopt renewable energy sources.
- Advanced Manufacturing Production Credit
Manufacturers that produce components for renewable energy systems, including solar panels, wind turbines, and energy storage systems, are eligible for the Advanced Manufacturing Production Credit. This credit provides financial incentives for the domestic production of renewable energy components, offering a credit based on the amount of production. By fostering local industry growth, this credit helps reduce the costs associated with manufacturing renewable energy technologies and supports the expansion of the clean energy sector.
- Energy-Efficient Commercial Buildings Deduction (Section 179D)
Businesses that implement energy-efficient improvements to commercial buildings can take advantage of the Energy-Efficient Commercial Buildings Deduction, also known as Section 179D. This deduction allows businesses to deduct up to $1.80 per square foot for energy-efficient upgrades that meet specified energy savings criteria. Eligible improvements include enhancements to lighting, HVAC systems, and building envelope components, all of which contribute to reducing energy consumption and operational costs.
- Qualified Commercial Clean Vehicle Credit
The Qualified Commercial Clean Vehicle Credit is available to businesses that purchase clean vehicles, such as electric, plug-in hybrid, and hydrogen fuel cell vehicles. This credit provides up to $7,500 for light-duty vehicles and up to $40,000 for heavy-duty vehicles, making the transition to clean transportation more cost-effective for commercial fleets. By reducing the upfront costs of purchasing clean vehicles, this credit encourages businesses to adopt environmentally friendly transportation options, contributing to reduced greenhouse gas emissions and a greener economy.
Don’t take clean energy tax benefits for granted! They provide U.S. businesses with numerous opportunities to reduce their tax liabilities while investing in a sustainable future. From significant tax credits for renewable energy investments to deductions for energy-efficient building upgrades, these incentives make clean energy adoption financially attractive.
Need help qualifying for clean energy tax benefits and reducing your carbon footprint? Electripure is ready to help! Our experts are ready to come inspect your facility for free to see where you could be losing out on savings. Our CleanPQ solution helps businesses easily clean up their energy supply, making it easier to qualify for these tax benefits.
Contact us today and we can help you save the planet and your profits!