What is an Energy-Efficient Credit, and Why Should You Care?

We’ve been fielding a lot of questions about energy-efficient tax credits lately, and thought it might be wise to take a high-level look at the incentives currently available.

Here’s what you need to know about getting paid to go green:

1. Credit v. Deduction

• • There are both energy-efficient tax credits and energy-efficient tax deductions in play.
  • An energy-efficient tax credit will directly reduce the amount of tax you owe. An energy-efficient tax deduction will lower your taxable income. 
  • People often refer to the 179D Tax Deduction as the “179D Tax Credit,” but this is incorrect. 179D is a Tax Deduction. 
  • There are multiple tax credits for energy-efficiency available. These include:
    • 45L Tax Credit
    • Investment Tax Credit/Clean Energy Investment Credit
    • EV Charging Station Credit/Alternative Fuel Vehicle Refueling Property Credit

2. The 179D Tax Deduction

• • This energy-efficient deduction rewards energy-efficient construction and design
  • It may be claimed by commercial building owners/tenants or owners of residential rental properties 4 stories or higher
  • The larger the property, the larger the benefit – determined by square footage
  • May be claimed by designers of tax-exempt properties or government buildings via allocation

3. The 45L Tax Credit

• • This energy-efficient credit rewards the construction of energy-efficient residential dwellings
  • It may be claimed by builders, developers, and others who build homes for lease or sale
  • Benefit is determined per “dwelling unit”
  • To claim the Credit, builders must apply for Energy Star Certification before construction commences

4. The Investment Tax Credit/Clean Energy Investment Credit  

• • This energy-efficient credit rewards the installation of renewable energy systems like solar panels
  • It may be claimed by taxpayers that construct, develop, or finance the system
  • Two versions of the credit in play, depending on date construction commenced
  • The most defensible way to claim this energy-efficiency credit is via a cost segregation study 

5. The EV Charging Station Credit/Alternative Fuel Vehicle Refueling Property Credit

• • This energy-efficient credit rewards the installation of property used to recharge electrical vehicles
  • It may be claimed by taxpayers that place the chargers into service, commonly multifamily property owners or owners of EV charging stations
  • Recent shift from “per location” to “per charger” permits taxpayers to claim multiple iterations of the credit at one location
  • The most defensible way to claim this energy-efficient credit is via a cost segregation study

6. So Why Should You Care About Energy-Efficient Tax Credits and Deductions?

Two simple words: planet and profit. 

By choosing an energy efficient tax credit or deduction, taxpayers can contribute to a societal shift towards sustainable energy while saving money. 

The recent Inflation Reduction Act (IRA) has expanded the benefit of all these incentives, making them potentially more lucrative than ever before.  (There is one major caveat – in order to fully maximize benefit, taxpayers must satisfy Prevailing Wage and Apprenticeship Requirements.)  

Interested in learning more about tax credits and deductions for energy-efficiency?  Capstan Tax Strategies is happy to help.  Our team of experts can help you zero in on the right incentives and claim them successfully.