Are you eligible for these green tax benefits?

by Ana Lopez

It’s tax time and businesses across the country are looking for sustainable depreciation to soften the blow and reduce their carbon footprint.

Like it or not, the Inflation Reduction Act of 2022 (IRA) has legislated many tax credits for green business practices.

“It contains a virtual garden of green incentives for small businesses, entrepreneurs and others who want to do good for the planet and their wallets,” says Steve Millera former acting commissioner of the IRS and current state tax director alliance group.

We’ve asked Miller to review all the major tax credits available to your business so you don’t have to.

Large list of tax credits

Before we dive into a few bigger items, here’s a general list of tax credits available through the IRA in 2022.

  • sec. 45: Energy production credit: 3 cents per kilowatt-hour of clean energy sold to the grid.
  • sec. 48: Energy Property Credit: Credit up to 30% of the purchase cost of clean energy properties.
  • sec. 45Q: Carbon Sequestration Credit: Credit per ton of carbon oxide captured and then captured or used in your business.
  • sec. 45U: Credit for the production of zero-emission nuclear energy: 1.5 cents per kilowatt of zero-emission nuclear energy produced and sold.
  • sec. 40B: Sustainable Jet Fuel Credit: $1.25 per gallon of sustainable jet fuel produced and sold.
  • sec. 45: Energy production credit: 3 cents per kilowatt-hour of clean energy sold to the grid.
  • sec. 48: Energy Property Credit: Credit up to 30% of the purchase cost of clean energy properties.
  • sec. 45Q: Carbon Sequestration Credit: Credit per ton of carbon oxide captured and then captured or used in your business.
  • sec. 45U: Credit for the production of zero-emission nuclear energy: 1.5 cents per kilowatt of zero-emission nuclear energy produced and sold.
  • sec. 40B: Sustainable Jet Fuel Credit: $1.25 per gallon of sustainable jet fuel produced and sold.
  • Sec.45V: Clean Hydrogen Production Credit: Credit for up to $3 per kilo of clean hydrogen produced.
  • sec. 45W: Clean company car credit: Up to 30% of the cost price of a clean company car.
  • sec. 48C: Advanced Energy Project Credit: Demand based credit for 30% of the cost of a facility to manufacture advanced energy property (i.e. making solar panels). $10 billion allocated.
  • sec. 45X: Production Credit for Advanced Production: varying credits for the production and sale of eligible properties; credit amounts based on the energy production capacity of that property.
  • sec. 45Y: Clean electricity production credit: Credit of 0.3 cents per kilowatt hour sold.
  • sec. 48E: Investment credit for clean electricity: credit for up to 30% of the cost of the power generating plant and storage equipment for a zero-emission plant.
  • sec. 45Z: Clean Fuel Production Credit: Up to $1 per gallon of clean fuel sold by taxpayers.

Some of the incentives of this new law can be paid directly to governments and nonprofits, almost like a grant. A few of the incentives can even be paid to for-profit companies.

In addition, it is the first time in a long time that Congress has transferred certain benefits to third parties, meaning they can be sold to investors. Many tax breaks can be rolled back for three years instead of one year, allowing you to reclaim taxes already paid from previous years.

Credits for energy efficiency

Under the new plan, there are incentives for improvements to the energy efficiency of existing buildings. The government can grant a deduction to the designers of the energy-efficient changes. While the previous deduction was $1.80 per square foot, the new provision allows up to $2.50 – $5.00 per foot. Other changes expand the ability to allocate government deductions to nonprofits (think hospitals and colleges) and Native American tribes, Miller said.

Credits for research and development

Miller points out that the Inflation Reduction Act calls for changes to research and development tax credits. How come? Previously, startups and small businesses could take a $250,000 refundable credit for their payroll tax obligations. This limit on starting credit choice has doubled to $500,000, and the taxes that can be offset have expanded.

“Every small business, whether they qualify for the start-up scheme or not, should at least consider the R&D credit, as it is a valuable incentive,” says Miller. “Too many small business owners think the credit requires banking research and white coats. That is not the case. Over the years, the IRS and Congress have expanded the credit to cover many types of innovation and research on U.S. soil reward.”

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