Credits Benefiting the Environment

Currently, the largest group of tax credits are those designed to encourage energy conservation or other actions to help the environment. However, most of these credits are very narrowly targeted, so the number of people eligible for them is actually quite small.

Energy Credit

An energy credit is allowed for 30 percent of the cost of the following types of property placed in service during the year: fuel cell property; equipment that uses solar energy to generate electricity, heat or cool a structure, provide hot water, or provide solar process heat; equipment that uses solar energy in fiber optics; and small wind energy property. Equipment used to produce, distribute, or use geothermal energy stored in rocks, water, or steam; micro-turbines; and other energy property are eligible for a 10 percent credit. The property must be depreciable (i.e., tangible personal property used in your business).

The energy credit is part of the investment tax credit, and can be recaptured (paid back to the IRS) if the qualifying property is sold or disposed of before the end of its recovery period. It is claimed on Form 3468, Investment Credit.

Biofuel Producers Credit

This credit applies to cellulosic biofuel, now called "second generation biofuel," produced after December 31, 2008, but before January 1, 2015. Generally, the credit amount for the production of cellulosic biofuel is $1.01 per gallon. However, if the cellulosic biofuel is alcohol, the credit amount is reduced by any applicable alcohol fuels credit.

Cellulosic biofuel (or "second generation biofuel") is any liquid fuel which is produced from qualified feedstock and that meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (codified as 42 U.S.C. 7545). Qualified feed stock is any lignocellulosic or hemicellulosic matter available on a renewable basis and, for fuels sold or used after January 2, 2013, any cultivated algae, cyanobacteria, or lemna. Renewable sources of lignocellulosic or hemicellulosic matter include dedicated energy crops and trees, wood and wood residues, plants, grasses, agricultural residues, fibers, animal wastes and other waste materials, including municipal solid waste. Cellulosic biofuel does not include any alcohol with a proof of less than 150, determined without regard to added denaturants.

It is claimed on Form 6478, Biofuel Producer Credit.

Renewable Source Credit

This credit is based on electricity that is produced at a qualified facility and sold to third parties, from facilities placed in service before January 1, 2015.

The base amount of the credit for wind energy facilities, solar energy facilities, closed-loop biomass facilities, and geothermal energy for electricity produced in 2014 the credit rate is 2.3 cents per kilowatt hour. However, in the case of open-loop biomass facilities (including agricultural livestock waste nutrient facilities), small irrigation power facilities, landfill gas facilities, trash facilities, hydropower facilities, and marine and hydrokinetic facilities the rate is 1.1 cent per kilowatt hour for 2014. The credit is claimed on Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit.

© 2024 Wolters Kluwer. All Rights Reserved.