Maximize Your Savings: Utilize Renewable Energy Tax Incentives

The climate crisis is a pressing issue, and individuals and organizations are exploring ways to prevent it from escalating. Governments and other stakeholders have implemented measures to reduce carbon footprints, such as the use of renewable energy sources like solar, wind, and hydropower. Utilizing renewable energy not only contributes to environmental protection but also helps reduce energy costs through various tax incentives. In this article, we will explore some of the available renewable energy tax incentives, including:

Investment Tax Credit (ITC)

The ITC is a renewable energy tax incentive available to individuals and businesses who own their solar system. With this credit, one can claim up to 26% of the total cost of solar system installation on federal income tax. However, it reduces to 22% in 2023 and will phase out by 2024 for residential solar systems but remain at 10% for commercial systems. Therefore, it’s wise to install solar systems before 2023 to maximize ITC benefits.

Production Tax Credit (PTC)

PTC is another renewable energy tax incentive available for wind, geothermal, and biomass plants, but it doesn’t apply to solar systems. Individuals and organizations can receive up to $0.02 per kilowatt-hour for ten years or more from the date they start generating electricity. The PTC is also set to phase out by 2024, so it’s best to set up wind, geothermal, or biomass plants before this date to maximize PTC benefits.

Sales Tax Exemption

States like New York, California, and Texas provide sales tax exemptions for renewable energy systems. This exemption allows individuals and businesses to save money when purchasing renewable energy equipment. However, sales tax exemptions vary from state to state and typically apply only to residential or commercial systems. Hence, it’s critical to understand your state’s laws to determine your eligibility.

State and Local Tax Incentives

Aside from federal incentives, state and local governments offer tax incentives to encourage renewable energy usage. The incentives available vary from state to state. For example, California provides tax credits for hybrid and electric cars, while other states provide cash rebates and tax credits for solar installations. Most state and local governments have websites that outline renewable energy incentives available in their area and provide an online calculator to estimate tax credits. Therefore, it’s essential to research and check your state or local government’s website for available renewable energy tax incentives.

Accelerated Depreciation

Accelerated depreciation is a tax incentive available for commercial installations. The tax code allows commercial facilities to write off the total costs of solar installation within the first year, allowing businesses to recover their expenses faster and reduce their taxable income. MACRS is used to calculate depreciation benefits, and one can claim an accelerated depreciation of up to 85% of the installation cost in the first year, depending on the type of installation.

Unrelated Business Taxable Income

Nonprofits have faced a dilemma when considering renewable energy systems as electricity generated is considered a taxable revenue source, causing unwanted complications. Fortunately, the Consolidated Appropriations Act of 2021 provides a temporary provision known as the Energy Investment Tax Credit for Nonprofits (EITC-NP) that helps address UBTI for solar installations in nonprofits. This new provision helps nonprofits to enjoy the benefits of renewable energy tax incentives, just like individuals and commercial businesses do.

Conclusion

Renewable energy systems can help reduce energy bills and save money, and the various tax incentives and exemptions available make them more accessible. It’s crucial to understand the types of incentives available and their requirements to maximize the savings derived from these programs. Before purchasing or installing renewable energy systems, conduct thorough research and consult with professionals to ensure efficiency, safety, and cost-effectiveness. By utilizing renewable energy tax incentives and contributing towards climate change mitigation, we can save costs and make the world a better place.