Federal Financial Incentives

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Corporate Deduction

Energy Efficient Commercial Buildings Tax Deduction
The Energy Policy Act of 2005 established a tax deduction for energy efficient commercial buildings applicable to qualifying systems and buildings placed in service from January 1, 2006 through December 31, 2007. A tax deduction of $1.80 per square foot is available to owners of new or existing buildings who install (1) interior lighting; (2) building envelope, or (3) heating, cooling, ventilation, or hot water systems that reduce the building’s total energy and power cost by 50% or more in comparison to a building meeting minimum requirements set by ASHRAE Standard 90.1-2001. Energy savings shall be calculated using qualified computer software approved by the IRS.

Corporate Depreciation

Modified Accelerated Cost-Recovery System (MACRS)

Corporate Exemption

Residential Energy Conservation Subsidy Exclusion (Corporate)
According to Section 136 of the IRS Code, energy conservation subsidies provided by public utilities, either directly or indirectly, are nontaxable: "Gross income shall not include the value of any subsidy provided (directly or indirectly) by a public utility to a customer for the purchase or installation of any energy conservation measure." Energy conservation measure includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand.

Dwelling unit includes a house, apartment, condominium, mobile home, boat, or similar property. If a building or structure contains both dwelling and other units, any subsidy must be properly allocated.

Given the definition of "energy conservation measure" there is strong evidence that utility rebates for residential solar thermal and solar electric projects may be nontaxable. However, the IRS has not ruled definitively on this issue. For taxpayers considering using this provision for renewable energy systems, consultation with a tax attorney is advised.

Corporate Tax Credit

Business Energy Tax Credit (PDF)
The Energy Policy Act of 2005 (H.R. 6) expanded the business energy tax credit for solar and geothermal energy property to include fuel cells and microturbines installed in 2006 and 2007 and to hybrid solar lighting systems installed on or after January 1, 2006. (A 10% federal energy tax credit is available to businesses that invested in or purchased solar or geothermal energy property in the United States prior to January 1, 2006.) For eligible equipment installed from January 1, 2006 through 2007, the credit is set at 30% of expenditures for solar technologies, fuel cells and solar hybrid lighting; microturbines are eligible for a 10% credit during this two-year period. For equipment installed on or after January 1, 2008, the tax credit for solar energy property and solar hybrid lighting reverts to 10% and expires for fuel cells and microturbines. The geothermal credit remains unchanged at 10%.

New Energy-Efficient Home Tax Credit for Builders
The Energy Policy Act of 2005 established tax credits of up to $2,000 for builders of all new energy-efficient homes, including manufactured homes constructed in accordance with the Federal Manufactured Homes Construction and Safety Standards.

Renewable Electricity Production Tax Credit (PDF)

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