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Energy-Related Tax Incentives for Businesses Under the Inflation Reduction Act (IRA)

Energy Saving Strategies

The 2022 Inflation Reduction Act (IRA) included an array of tax credits to encourage businesses to invest in energy efficiency. Here are a few of the energy-related tax incentives that businesses may consider pursuing.

Energy Efficient Commercial Buildings Deduction for Businesses
Starting in 2022, the IRA expanded the energy efficient commercial buildings tax deduction. To qualify, a property must reduce its associated energy costs by at least 25%, using the American Society of Heating, Refrigerating, and Air-Conditioning Engineers’ latest standard.

The Section 179D deduction gives tax credits to business owners who make energy efficient improvements to lighting, heating, cooling, ventilation and other systems. For the 2022 tax year, Section 179D allows deductions of up to $1.88 per square foot for improvements to new and existing buildings. Starting with tax year 2023, the IRA more than doubles this tax deduction to a maximum of $5 per square foot.

Clean Vehicle Credits for Businesses
The IRA provided a tax credit for businesses that place new ‘clean vehicles’ into service during the tax year. The eligibility rules for vehicles purchased in 2022 or before differ from those purchased in 2023 or after. Credits of up to $7,500 are allowed for each vehicle propelled by electricity or a hydrogen fuel cell that meets critical mineral or battery component requirements and is assembled in North America. Vehicles that meet one of the requirements, but not both, are eligible for a credit of $3,750.

Federal Solar Tax Credits for Businesses
There are two tax credits available for businesses and other entities that purchase solar energy systems. An investment tax credit (ITC) may be claimed for a percentage of the cost of a solar system installed during the tax year. A production tax credit (PTC) is a per kilowatt-hour (kWh) tax credit for electricity generated by solar and other qualifying technologies that may be claimed for the first 10 years of a system’s operation. It is adjusted annually for inflation. In general, project owners cannot claim both the ITC and the PTC for the same property.

An experienced business taxes accountant like S.J. Gorowitz Accounting & Tax Services can provide guidance on these and other energy-related tax incentives. We are an Alpharetta, Georgia-based Certified Public Accounting (CPA) and business advisory firm that specializes in the needs of expanding and emerging businesses.

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