U.S. Tax Energy Credits Available to Businesses
With the aim of addressing climate change, the Inflation Reduction Act incorporates a range of tax incentives. The IRA increases the value of many existing energy tax credits, broadens the scope of activities eligible for such credits, and extends the duration for which these credits will remain in effect. The following is a detailed description of the tax credits involved.
- The Tax Credit for A New Energy-Efficient Home
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Qualification for the Credit
The tax credit for newly constructed energy-efficient homes is accessible to builders. During the tax year, the credit is applicable for each qualified new energy-efficient home that is constructed by an eligible contractor and acquired by an individual from the eligible contractor for residential purposes.
Home builders are eligible for a $2500 tax credit for the following new energy-efficient homes:
(a) Single-family homes
Single-family homes purchased prior to January 1, 2025, are required to adhere to the Energy Star Single-Family New Homes National Program Requirements 3.1 as outlined in the Internal Revenue Code (IRC ?45L(c)(2)(A)).
For homes acquired after December 31, 2024, are required to adhere to the Energy Star Single-Family New Homes National Program Requirements 3.2 as outlined in the Internal Revenue Code (IRC ?45L(c)(2)(A)).
(b) Multifamily homes
Tax credits can be granted to multifamily homes that adhere to the relevant criteria of the Energy Star Multifamily New Construction Program or obtain certification as a zero energy-ready home through the Zero Energy Ready Home Program, both administered by the U.S. Department of Energy.
Meanwhile, if multifamily homes remunerate laborers and mechanics with prevailing wages during the construction process, they can receive a higher tax credit.
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How to Claim the Credit?
(a) Eligible contractors should use Form 8908 to claim.
(b) Claim the credit for each qualified energy-efficient home sold or leased within the tax year.
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- Plug-In Electric Drive Motor Vehicle Credit
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Qualification for Credits
(a) In order to qualify for the credit, a plug-in electric drive motor vehicle must satisfy specific criteria regarding the sourcing of critical minerals and battery components.
(b) Furthermore, it is a requirement for the vehicles to undergo final assembly in North America in order to qualify.
(c) Starting from 2025, none of the materials used in the vehicle’s battery can be sourced or processed by a foreign entity.
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How to Claim the Credit?
(a) To claim the plug-in electric drive motor vehicle credit, corporations should use Form 8936 for business/investment (Part II).
(b) Retain the manufacturer’s certification that the vehicle complies with IRS requirements in support of the credit.
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- Renewable Electricity Production Tax Credit
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Qualification for Credits
In the realm of energy resources, there exist several types that meet the criteria for qualification. These include wind energy, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, etc.
(a) The energy must be sold from eligible resources at the qualified facility within a specified credit period following the facility’s initial operation, while also being subject to a gradual elimination and other deductions. In general, corporations can claim the credit for a period of ten years after the commencement of operations of the facility.
(b) Furthermore, it is worth noting that refined coal and coal production facilities situated on lands owned by or held on behalf of Native American tribes are also eligible for the credit.
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How to Claim the Credit?
To claim renewable electricity production tax credit, corporations should use Form 8835 and Form 3800.
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- Energy Investment Tax Credit
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Qualification for Credits
(a) The energy credit is available to businesses that place energy property in service. The energy property’s basis should be decreased by 50% of the determined energy credit.
(b) The businesses must either construct the equipment or be the original user of the equipment.
(c) All equipment must comply with any performance and quality standards that are in effect at the time of acquisition.
(d) The energy equipment must be operational in the year when the credit is initially claimed.
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How to Claim the Credit?
To claim the business energy investment tax credit, corporations should use Form 3468.
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