Is Subsidized Energy Financing Taxable?
In an attempt to encourage growth of renewable energy, the federal government has created many incentives and tax deductions for companies and individuals who invest in renewable energy. Specific deductions depend on the taxable status of the investment and whether a corporation or individual is involved. Subsidized energy financing may or may not be taxable, depending on the source and circumstances.
Other People Are Reading
-
Subsidized Energy Financing Explained
-
In the federal tax code, subsidized energy financing is defined as financing: "made directly or indirectly under a federal, state, or local government program whose principal purpose is to provide subsidized financing for products designed to conserve or produce energy." This does not include energy grants, which do not require repayment. Subsidized energy financing is government financing whose purpose is investing in renewable energy or energy conservation. It typically comes at a lower rate and cost than bank financing or personal loans.
Non-Taxable Incentives
-
Most forms of subsidized energy financing are taxable, although the government does offer a number of tax credits to reduce tax liability. Only a small segment of renewable power incentives are nontaxable. These include nontaxable refunds from utility companies and nontaxable grants. If a corporation or individual receives nontaxable incentives, this amount must be subtracted from the total cost of the system before calculating the 30 percent Federal Investment Tax Credit (ITC) basis for the system.
-
Corporate Tax Credit for Renewable Power
-
The federal government wants to reward corporations that invest in renewable power, so it offers a 30 percent Federal Investment Tax Credit, or ITC. The 30 percent credit has no cap, so whether you invest in a $100,000 system or a $1 million system, you can claim a 30 percent credit on the total dollar amount. This tax credit is valid through 2016, although Congress has previously extended it.
Types of Eligible Technologies
-
The 30 percent tax credit only applies to eligible technologies, including solar space heat, solar water heat, solar thermal electric, solar thermal process heat and photovoltaics, or PV. If your renewable energy technology does not fall under one of these categories, you are not eligible for the 30 percent tax credit for your system. Consider this when planning your renewable energy investment.
Residential Energy Credit
-
Individual taxpayers may be able to claim a Residential Energy Credit for eligible expenditures. Up to 15 percent of a homeowner's energy conservation expenditures may be covered, up to a dollar amount limit. This limit has changed from time to time, but is currently listed at $2,000. The credit may not exceed the individual's tax liability for the year, but can be carried over to subsequent years. Improvements under this credit include things like adding insulation, energy-efficient heating and air conditioning units, and energy-efficient windows.
-
References
- GetSolar.com; Federal Incentives for Commercial Solar Energy Grants
- Cornell University Law School; United States Code: Title 26 (Section 48(a)(3)); February 2010
- Justia US Law; 26 C.F.R. § 1.23-1 Residential energy credit.
- SolarTopps; Arizona Utility Solar Incentives and Rebate Programs
- Find Solar Company; Commercial Solar Incentives
- IRS; Energy Incentives for Individuals in the American Recovery and Reinvestment Act; June 2011
Resources
- Photo Credit Digital Vision./Digital Vision/Getty Images
