If you are analyzing the use of energy efficient products within your business or home, there are potential tax savings that may be available. Although these provisions have been around for quite some time, recent extenders legislation has provided new life to these areas of the Tax Code.
Biodiesel and renewable diesel
A $1.00-per-gallon tax credit for biodiesel and biodiesel mixtures and a small agri-biodiesel producer credit of 10 cents per gallon exists now through 2020. Guidance was released providing for a one-time submission of claims for the period lapsed waiting for the extenders legislation.
Second-generation biofuel producer credit
A producer of qualified biofuel produced after Dec. 31, 2008 and before Jan. 1, 2021 can claim a credit, as part of the alcohol fuel credit, for each gallon of “qualified second generation biofuel production.” The credit is equal to the “applicable amount” ($1.01) for each gallon of qualified second-generation biofuel production.
Nonbusiness energy property
A 10% credit for the amounts paid or incurred by the taxpayer for qualified energy improvements to the building envelope (windows, doors, skylights, and roofs) of principal residences now exists through 2020. The Code allows credits of fixed dollar amounts ranging from $50 to $300 for energy-efficient property including furnaces, boilers, biomass stoves, heat pumps, water heaters, central air conditioners, and circulating fans, and is subject to a lifetime cap of $500.
Qualified fuel cell motor vehicles
A credit of between $4,000 and $40,000 is available for purchases of new qualified fuel cell motor vehicles through 2020. The credit amount depends on the weight of the vehicle. Other vehicles, depending on their fuel efficiency, may qualify for an additional $1,000 to $4,000 credit.
Alternative fuel refueling property credit
For property placed in service before January 1, 2021; a taxpayer can claim a 30% credit for the cost of installing non-hydrogen alternative vehicle refueling property for use in their trade or business (up to $30,000 maximum per year per location) or installed at their principal residence (up to $1,000 per year per location).
2-wheeled plug-in electric vehicle credit
A 10% credit for highway-capable, two-wheeled plug-in electric vehicles (capped at $2,500) is available for vehicles acquired before January 1, 2021. Battery capacity within the vehicles must be greater than or equal to 2.5 kilowatt-hours.
Credit for electricity produced from certain renewable resources
An income tax credit is allowed for the production of electricity from qualified energy resources at qualified facilities (the “renewable electricity production credit”). Qualified energy resources means wind, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable energy. Qualified facilities are, generally, facilities that generate electricity using qualified energy resources.
Construction of these facilities must begin before January 1, 2021 to be eligible.
Note that the construction of wind facilities beginning in 2020, the credit is reduced by 40%.
Production credit for Indian coal facilities
For producers of Indian coal at Indian coal facilities, a credit based on production is available and has been extended for three years.
Energy efficient homes credit
An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria. The homes must be acquired before January 1, 2021. (insert link to 45L article)
Special allowance for second-generation biofuel plant property
The Code provides an additional first-year 50% bonus depreciation for cellulosic biofuel facilities for property placed in service before January 1, 2021.
Energy efficient commercial buildings deduction
The Code provides a deduction for energy efficient improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings. This includes a $1.80 deduction per square foot for construction on qualified property. A partial $0.60 deduction per square foot is allowed if certain subsystems meet energy standards but the entire building does not, including the interior lighting systems, the heating, cooling, ventilation, and hot water systems, and the building envelope for property placed into service before January 1, 2021 (insert link to 179D article).
Special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities
Under Code Sec. 451(k) , a vertically integrated electric utility could elect to defer over eight years gain on sales of: (i) property used in the trade or business of providing electric transmission services; or (ii) any stock or partnership interest in an entity whose principal trade or business consists of providing electric transmission services to Federal Energy Regulatory Commission (FERC)-approved independent transmission companies. This deferral provision is now available for dispositions made before January 1, 2021.
Extension and clarification of excise tax credits relating to alternative fuels
Now through 2020, a 50¢-per-gallon (or gasoline gallon equivalent for non-liquid fuel) excise tax credit is allowed against the retail fuel excise tax liability for alternative fuel sold for use or used by a taxpayer. A credit is also allowed against the removal at terminal excise tax liability for alternative fuel used to produce an alternative fuel mixture for sale or use in the taxpayer’s trade or business. A taxpayer can claim an excise tax refund (or, in some cases, a credit against income tax) to the extent the taxpayer’s alternative fuel or mixture excise tax credit exceeded the taxpayer’s Code Sec. 4041 or Code Sec. 4081 liability.
The Extenders legislation modified the mixture component of the credit by specifying that liquefied petroleum gas, compressed or liquefied natural gas, and compressed or liquefied gas derived from biomass, are not eligible to be included in an alternative fuel mixture for fuel sold or used on or after December 20, 2019, and fuel used or sold before December 20, 2019 (only to the extent that claims for the credit have not been paid or allowed as of Dec. 20, 2019, and (ii) were made on or after Jan. 8, 2018.)