Green initiatives aren’t just good for the planet – they can also be good for the bottom line. Over the past few years, the number of energy efficient tax incentives has grown, making it easier for businesses to benefit. Construction companies, real estate developers, builders and more can take advantage of these opportunities to reduce tax liability. While some are only available on the federal level, there are several others specifically for Utah residents including the Renewable Energy Systems Tax Credit and the Alternative Business Energy Incentive. To help clients, prospects, and others, Tanner has provided a summary of the prominent incentives below.
New Energy Efficient Home Credit (Section 45L)
This federal tax incentive is available to eligible contactors that build or substantially reconstruct qualified new energy-efficient homes. The value of the credit depends on the type of home and whether systems meet various standards for energy efficiency. A credit of up to $2,500 is available for homes that meet Energy Star Single Family New Home program requirements. A credit of up to $500 is available on multifamily homes that meet Multifamily New Construction program requirements. There are larger incentives for homes that meet the stricter Zero Energy Ready Home Program. Ultimately, the final of the credit will be determined by which energy star and additional program requirements are met.
Energy Efficient Commercial Buildings Deduction (Section 179D)
This deduction is available to owners and designers of qualified commercial buildings who place into service energy efficient commercial building property (EECBP) and energy efficient retrofit property (EEBRP).
Building Eligibility
- EECBP – This must be installed on or in a building located within the U.S. and within the scope of a specified Reference Standards 90.1 of the American Society of Heating Refrigerating, and Air Conditioning Engineers (ASHRAE). It must be property for which depreciation and amortization is permitted and installed as part of the interior lighting system, heating, cooling, ventilation (HVAC), how water systems, or the building envelope. To capture the tax benefit, it must cut total energy costs for these systems by 25% or more.
- EEBRP – This mist be installed on or in a qualified building as part of the interior lighting systems, HVAC, hot water systems, or the building envelope. Only buildings originally placed in service not less than 5 years before the retrofit plan was developed. It must be property for which depreciation and amortization is allowed and be certified to meet minimum energy saving requirements.
The available deduction for EECBP is the lessor of the cost of the installed property or the realized savings per square foot. This savings is calculated as $.50 per square foot for buildings with a 25% energy reduction, an additional $.02 per square foot for each percentage point of energy savings above 25%, and a maximum of $1.00 per square foot for 50% energy savings. It is important to note, if local prevailing wage and apprenticeship requirements are satisfied, then an increased maximum deduction of 5 times the savings per square foot applies.
Advanced Manufacturing Production Credit
The value of the credit is equal to a per unit rate based on the Eligible Components created by the manufacturer and sold in the same tax year. For example, Photovoltaic wafers generate $12 of credit for each square meter while each kw hour of battery cell generates $35.
The sale of components must be made to an unrelated person unless it is integrated into another Eligible Component which is then sold to an unrelated party. These Eligible Components include a variety of parts which fall into a number of eligible categories (e.g., solar energy, winder energy, inverters, electrode active materials, qualifying battery components, and certain critical minerals.)
Manufacturers must meet certain criteria to be eligible to claim this federal tax incentive. The eligible component must be produced in the U.S., or must be substantially transformed during the manufacturing process, and comply with select sales scenarios. This includes selling the components to an unrelated party, selling to a related party that sells to an unrelated party, or selling to a related party that makes an election to treat a related party as unrelated.
When claiming this credit, a tax-exempt or pass-through entity (partnership and S corporation can elect to receive a payment equal to the amount of the credit instead of claiming the credit.. Other taxpayers may treat the credit as a payment against tax or may elect to transfer any credit earned through the Advanced Manufacturing Production Credit to a third party.
Utah-Specific Programs
- Renewable Energy Systems Tax Credit – Utah also has a Renewable Energy Systems Tax Credit for residential renewable energy technologies, including geothermal, solar photovoltaic, biomass, and hydro projects. Solar PV systems were only eligible if they were installed before 2024, but all other technologies are still eligible for the credit at 25% of the system cost to a maximum of $2,000. Commercial buildings can get a credit of 10% of the eligible system cost with a maximum credit of $50,000.
- Alternative Energy Business Incentive (AEDI) – Businesses looking to make big alternative energy moves in Utah may be interested in the Alternative Energy Development Incentive (AEDI). This program offers significant incentives for projects that will produce, at minimum two megawatts of electricity or 1000 barrels of oil equivalent using an alternative energy source such as nuclear, wind, hydroelectric, solar, biomass, geothermal, or other “unconventional” resources. These projects should be job and revenue-generating and likely involve significant capital investments.
Contact Us
Several energy efficient tax credits and incentives are available to Utah business owners. These programs open the door to tax savings at both the federal and state levels. Now is the time to take advantage of these incentives. If you have questions about the information outlined above or need assistance determining if you qualify, Tanner Co can help. For additional information call 801-532-7444 or click here to contact us. We look forward to speaking with you soon.