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April 24, 2024
Green Energy Tax Incentives
Green Incentives -
Individuals
Individuals may be able to claim green energy credits for qualified vehicles and home improvements.
Individual’s Clean Vehicle Credits
New Clean Vehicle Credit
Taxpayers may receive a credit for a new clean vehicle (an electric or fuel cell vehicle) placed in service during the tax year. The final assembly of a qualified vehicle must occur in North America. The credit has two components: a $3,750 credit applies if the vehicle satisfies domestic content requirements for critical minerals in the battery, and a $3,750 credit applies if the vehicle satisfies domestic content requirements for battery components. Thus, the maximum credit for each vehicle is $7,500. These credits are flat amounts that are unrelated to the cost of the vehicle.
An eligible taxpayer’s modified adjusted gross income (MAGI) for the credit year (or, if less, for the preceding tax year) cannot exceed $150,000 (or $300,000 for joint filers and surviving spouses, and $225,000 for heads of household). The manufacturer’s suggested retail price (MSRP) for a qualified vehicle cannot exceed $80,000 for a van, sports utility vehicle (SUV), or pick-truck; or $55,000 for any other vehicle. For a vehicle placed in service in a tax year beginning after 2023, the taxpayer may elect to transfer the credit to the dealer, and receive its value in the form of a cash payment, a price reduction, or a deemed payment for the vehicle.
The Department of Energy website includes a tool that identifies vehicle makes and models that are generally eligible for the credit. Taxpayers may also use the Vin Decoder Tool to determine where a vehicle was assembled based on its VIN.
The new clean vehicle credit generally is treated as a nonrefundable personal credit. However, to the extent the credit is attributable to depreciable property (that is, property used for business or investment purposes), the credit is part of the general business credit.
Used Clean Vehicle Credit
An individual may be able to claim a nonrefundable credit equal to 30% of the cost of a previously owned clean vehicle placed in service during the tax year, up to a maximum credit of $4,000.
The used vehicle must be a qualified fuel cell or clean electric vehicle that is at least two years old. A qualified buyer’s modified adjusted gross income (MAGI) for the credit year or the preceding tax year (which ever is less) cannot exceed $75,000 ($150,000 for joint filers and surviving spouses, and $112,500 for heads of household). In addition, a qualified buyer cannot have used the credit during the three years preceding the purchase, and cannot qualify as another taxpayer’s dependent. The taxpayer must acquire the vehicle in a qualified sale by a dealer (that is, a person licensed to sell motor vehicles) for a price of $25,000 or less. The sale must be the first transfer of the vehicle to a qualified buyer after August 16, 2022, other than the transfer to the original owner. For a vehicle placed in service after 2023, a taxpayer may elect to transfer the credit to the dealer and receive its value in the form of a cash payment, a price reduction, or a deemed payment for the vehicle.
Alternative Fuel Vehicle Refueling Property Credit
A taxpayer may claim a tax credit for a portion of the cost of qualified alternative fuel vehicle refueling property placed in service during the tax year. Qualified property must be used to store or dispense a clean-burning fuel or recharge an electric vehicle; it must be depreciable or be installed on the taxpayer’s principal residence; it must be placed in service in an eligible census tract (a low-income or non-urban area); and its original use must begin with the taxpayer. Clean burning fuels may include electricity, ethanol, natural gas, hydrogen, and biodiesel. The credit is generally equal to 30% of the cost of non-depreciable property installed on the taxpayer’s principal residence, but the credit for any single item of property is limited to $1,000.
Taxpayers may rely on a description of forthcoming regulations describing eligible census tracts.
The alternative fuel vehicle refueling property credit generally is treated as a nonrefundable personal credit. However, any part of the credit that is attributable to depreciable property (that is, property used for business or investment purposes) is part of the general business credit.
For further discussion, see Alternative Fuel Vehicle Refueling Property Credit.
Alternative Motor Vehicle Credit
A taxpayer may claim a credit for an alternative motor vehicle purchased before January 1, 2022, and placed in service during the tax year. A qualified vehicle must be made by a manufacturer, and it must comply with applicable safety and clean air standards. The taxpayer must acquire the vehicle for use or lease rather than resale, and the original use of the vehicle must commence with the taxpayer. The amount of the credit ranges from $4,000 to $40,000 depending on the vehicle’s weight and fuel economy.
The alternative motor vehicle generally is treated as a nonrefundable personal credit. However, any part of the credit that is attributable to depreciable property (that is, property used for business or investment purposes) is part of the general business credit.
For further discussion, see Alternative Motor Vehicle Credit.
Individual’s Residential Credits
Energy Efficient Home Improvement Credit
An individual may claim an energy efficient home improvement credit that is generally equal to 30% of the cost of qualified energy efficiency improvements, qualified residential energy property, and home energy audits. However, several limits apply to the annual credit, including limits for each type of improvement and limits on the total credit.
Qualified energy efficiency improvements and qualified residential energy property must be new systems and materials that meet energy efficiency standards. Energy efficiency improvements must be made to the homeowner’s principal residence, and residential energy property must be installed on an existing home that the taxpayer uses as a residence. An energy efficiency improvement is a qualified building envelope component (insulation and exterior doors and windows). Qualified residential energy property includes heat pumps, central air conditioners, water heaters, hot water boilers, biomass stoves and boilers, and electric system improvements and replacements. After 2024, the taxpayer’s return must include the manufacturer’s unique identification number for exterior doors, exterior windows and qualified energy property (specified property).
The IRS website includes frequently asked questions (FAQs) for the credit. The IRS also explained how rebates under the Department of Energy’s Home Energy Rebate Programs affect the credit; and described a transition rule and future proposed regulations for home energy audits and for the product identification number (PIN) requirement.
Energy Efficient Home Improvement Credit
An individual may claim a residential clean energy credit that is generally equal to 30% of the cost of qualified property placed in service during the tax year. Qualified property includes solar water heating, solar electric, fuel cell, small wind energy, and geothermal heat pump property, as well as battery storage technology. The credit is limited to new property installed on an existing or newly constructed home that the taxpayer uses as a residence (but fuel cell property must be installed on the taxpayer’s principal residence).
Businesses
Business Credits for Clean Vehicles
For depreciable property (property used for business or investment purposes), the general business credit also includes the credits for new clean vehicles and for alternative motor vehicles discussed in the Individuals section above, to the extent those credits are attributable to depreciable property.
Commercial Clean Vehicle Credit
The general business credit includes a credit for a qualified commercial clean vehicle acquired after December 31, 2022, and before January 1, 2033. The credit is the sum of the credit amounts for each qualified commercial clean vehicle the taxpayer places in service during the tax year for use in the taxpayer’s trade or business.
Qualified vehicles are depreciable electric or fuel cell vehicles and mobile machinery. The credit is equal to 15% of the basis of the vehicle (30% if the vehicle is not powered by a gasoline or diesel internal combustion engine); or, if less, the incremental cost of the vehicle (that is, the excess of the vehicle’s purchase price over the price of a comparable vehicle powered solely by a gasoline or diesel internal combustion engine). However, the credit is limited to $40,000 for each vehicle, or $7,500 if the vehicle has a gross vehicle weight rating (GVWR) of less than 14,000 pounds.
The IRS has provided safe harbors for determining the incremental cost of some vehicles placed in service in calendar year 2023 or calendar year 2024. The IRS has also provided procedures for qualified manufacturers to register and submit written reports. The IRS website includes frequently asked questions (FAQs) for the credit.
Alternative Fuel Vehicle Refueling Property Credit
The general business credit includes the alternative fuel vehicle refueling property credit for depreciable property. Qualified property is discussed in the Individuals section above. The credit is equal to 6% of the cost of the depreciable property, with a $100,000 maximum credit for any single item of property. The credit rate is increased to 30% for property installed as part of a project that satisfies prevailing wage and apprenticeship (PWA) requirements. The IRS has described eligible census tracts for installation of qualified property, and has also proposed regulations for the PWA requirements.
The alternative fuel vehicle refueling property credit for non-depreciable property is treated as a nonrefundable personal credit.
Business Credits for Clean Energy Production and Carbon Capture
Energy Investment Credit
The investment credit component of the general business credit includes an energy investment tax credit (ITA) for qualified property placed in service before 2025. For facilities placed in service after 2024, the credit is effectively replaced by a resource-neutral clean energy investment credit.
The credit is generally equal to 6% of the taxpayer’s basis in qualified energy property in a qualified energy facility. Qualified energy property includes solar energy property, solar illumination property, geothermal energy property, geothermal heat pump systems, combined heat and power system property (CHPS), qualified fuel cell property, qualified small wind energy property, waste energy recovery property, energy storage technology, qualified biogas property, microgrid controllers, and interconnection property. A 2% credit also applies to qualified microturbine property. The credit multipliers and increases that apply to the renewable electricity production credit discussed above also generally apply to the energy investment credit. In addition, the credit is increased for projects in low-income communities that receive allocations of environmental justice solar and wind capacity limitation.
The IRS has adopted final regulations and issued additional guidance for the low-income communities bonus credit, including application procedures for the 2024 program year. The IRS also proposed regulations for definitions of energy property, the increased credit for satisfying prevailing wage and apprenticeship requirements, and the election to treat clean hydrogen property as energy property.
Business Incentives for Buildings
New Energy Efficient Home Credit
The general business credit includes a credit for new energy efficient homes that an eligible contractor constructs or manufactures. The credit applies for the tax year in which a person acquires the home for use as a residence. The credit for each single family home (including a manufactured home) is $5,000 or $2,500, depending on its level of energy efficiency. The credit for each unit in multi-family building is $1,000 or $500, depending on its level of energy efficiency, but it is multiplied by five if the building satisfies prevailing wage requirements.
Energy Efficient Commercial Building Deduction
Eligible taxpayers may deduct a portion of the cost of qualified energy efficient commercial building property (EECB). An eligible taxpayer is the owner of the building; or, for buildings owned by certain government entities and tax-exempt organizations, the designer of the EECB. Qualified EECB is major energy-savings improvements to interior lighting, HVAC and hot water systems or the building envelope, including qualified retrofit property. The deduction is based on the building’s square footage multiplied by an inflation-adjusted applicable dollar value. The deduction may be increased if the EECB reduces the building’s energy usage by more than 25%, or if installation of the EECB satisfies prevailing wage and apprenticeship requirements. The credit may be increased for qualified property that satisfies prevailing wage and apprenticeship requirements.
Excluded above, are Green Energy Tax Incentives related to utilities, clean energy producer and nuclear power.
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