Incentives, Tax Credits, and Rebates for Businesses
Businesses are always looking for ways to lower operation costs and increase net profits. There are a number of different methods on how a business can save money on renewable energy. The savings all depends on how much a business want to invest in clean energy. Simply enough, for a business to invest in renewable energy, this will reduce monthly energy costs, boost the businesses image in the surrounding community, and possibly increase sales by reputation. There are also a number of different programs that the government has provided incentives to invest in clean energy that may not last forever, including grants that are tex deductable, methods of depreciation, and tax exemptions. Contact us today to learn more on how your business can grow.
USDA Reap Program
The Inflation Reduction Act enacted in 2022 is a federal law intended to provide additional funding for eligible projects under the Rural Energy for America Program (REAP). Its purpose is to offer funding and incentives to accelerate the transition to a clean energy economy. Most provisions of the Inflation Reduction Act of 2022 became effective January 1, 2023. The program has thus far provided over $2 billion for renewable energy systems and energy efficiency improvement grants for agricultural producers and rural small business owners through 2031.
The maximum grant size is $500,000 for energy efficiency projects and $1 million for renewable energy systems. Applications submitted after April 1, 2023, that meet one of the following are eligible for a Federal grant share of up to 25 percent: Renewable energy systems or retrofits that produce zero greenhouse gas emissions at the project level; Projects located in an Energy Community defined in 26 U.S.C. 45 (b)(11)(B); Energy efficiency improvement projects; or Projects proposed by eligible Tribal entities. Most importantly, the REAP grant is considered a taxable income. Awardees of the grant program will receive a Form 1099-G from the USDA. If interested in learning more, please contact us to set up a free consultation. You can also download Questions and Answers provided by the USDA.
Investment Tax Credit
The Investment Tax Credit (ITC) was enacted by the federal government in 2006 to provide support for the growth in solar energy in the U.S. and is set to continue through the end of 2032. The ITC is a 30 percent tax credit for individuals (Section 25D) or businesses (Section 48) installing solar systems. Under Section 48, for businesses, other tax credits may apply. As example, an additional tax credit “adder” of 10 percent, totaling 40 percent, may apply by purchasing domestically produced hardware for the solar power project. The hardware must be 100 percent steel and iron and manufactured here in the U.S. For manufactured goods, such as solar panels, inverters, and electrical gear, it must be 40 percent manufactured in the U.S. (this percent may increase in the future). Another tax credit “adder” may apply for projects of more than 1MWac that meet certain employment wage and apprenticeship requirements. If eligible, a tax credit of 6 percent (by default) may apply. To be eligible for an additional 24 percent, wages for the laborers and mechanics installing the solar projects must be paid prevailing wages and must be part of an electrical apprenticeship program. Another tax credit “adder” is the Clean Electricity Production Credit. If the applicant’s solar power project meets the prevailing wage requirement, then a tax credit “adder” of 2.5 cents/KWh for the first 10 years of the project’s life may apply. For more information, feel free to reach out to our team or you can refer to the “Beginning of Construction for the Investment Tax Credit under Section 48” guidance provided by the IRS for requirements taxpayers must meet. Please note that the guidance was written in 2018 and was extended in 2022 with intent for businesses to continue the development of clean energy and lower energy costs for consumers.
MACRS Depreciation
The Modified Acceleration Cost Recovery System (MACRS) was established as a method of depreciation over a specific period of time through annual deductions. It determines the life or cost recovery period of the property. The depreciation timeframe vary in years and depends on the type of property. Solar energy equipment, as example, is eligible for a cost recovery period of five years. Other renewable technologies that have a five-year period include wind energy products, fuel cells, geothermal, and combined heat and power technology. Enabling a business to depreciate the solar investment over five years reduces the tax liability and accelerates the rate of return. The depreciation life for solar panels is 85%of the full solar system cost, , rather than 70%, to be deducted from taxable income over time through depreciation. Let us help you learn more on how your solar investment can help your business. You can also read A Brief Overview of Depreciation provided by the IRS for small businesses.
Sales and Property Tax Exemptions
In Louisiana, both residents and businesses will pay a sales tax of 4.5 percent for the purchase of a solar panel system. After the solar system has been installed, you can expect the value of the home or business building to increase. Like most property, when the value increases, so does the property tax. However, Louisiana has a solar property tax exemption that allows the property tax to remain the same, which can save the resident or business a large amount of money, possibly thousands. For further information, give us a call or send us an email.
Project Incentive Example
Below is an example of the amount your busines could save.
Federal Tax Credit
ITC for domestic solar panels.
USDA REAP Program
Receive a grant that is taxable income.
MACRS Depreciation
Save over the depreciation timeperiod.
Total Savings
Amount that can be save with our service.