Earth Day is an opportunity for business owners to explore sustainability and help protect the environment. So, to mark the occasion and lend a hand, we put together a list of 5 tax breaks available in 2023 for eco-friendly businesses and businesses that want to go green (and save a little green along the way).
Clean Energy Investment Credits
A number of new or updated clean energy investment tax credit options are available to businesses in 2023 through the Inflation Reduction Act. These credits, claimable with IRS Form 3468, apply towards investment in geothermal energy, solar power, fuel cell storage, microturbines and small wind energy properties, waste energy, and geothermal heat pump systems.
Businesses can receive up to 30% of the value of their original investment into equipment and other property for collecting these environmentally-friendly energy sources.
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Renewable Electricity Production Credit
Another credit available to energy-producing businesses, the Renewable Electricity Production Credit, offers credit for energy produced at eligible facilities. This credit is $0.0275 for every kilowatt hour of electricity produced by wind, solar, geothermal and closed-loop biomass power. That may not seem like very much, but considering that a single small commercial wind turbine can produce up to a megawatt in an hour, that fractional credit could add up to over $240,000!
Credit is also available for producers of energy from open-loop biomass, landfill gas, trash, hydropower and marine/hydrokinetic renewables—but at a reduced $0.0125 rate.
The Renewable Electricity Production Credit can be applied for with IRS Form 8835.
Energy Efficient Home Credit
If you own or are starting a business that constructs and sells or leases qualified energy-efficient properties, you may be able to claim the Energy Efficient Home Credit.
A number of different efficiency standards are available to qualify, with credits ranging from $500 to $5000 per home sold. Contractors must own and have basis (financial investment) in the home during construction in order to be eligible.
The Energy Efficient Home Credit can be claimed with IRS Form 8908.
Clean Vehicle Purchase Credits
Electric cars are increasingly popular, and with the way the price of gasoline can spike, they’re becoming an even better investment. On top of that, purchasing a clean vehicle for your LLC or other business may allow you to claim credits when filing for tax year 2023. Partial credit may even be available if a vehicle you own for personal use is also used for your business.
Some restrictions apply. For example, new and used clean vehicles with gross weight ratings under 14,000 pounds must have a motor with a battery capacity of at least 7 kilowatt hours in order to be eligible for the credit.
New clean vehicles: Claimable by filing IRS Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit, buyers of eligible vehicles can receive up to $7,500 in credit for their purchase. To qualify, a new clean vehicle must also meet these requirements:
- Be made by a qualified manufacturer with final assembly in North America.
- Meet critical mineral and battery component standards (if put into service on or after April 18).
- Maximum suggested retail price: $80,000 for vans, SUVs and pickups, $55,000 for other vehicles.
Used clean vehicles: Also claimable with Form 8936, purchasing a qualified used electric or fuel cell vehicle may earn you a credit of 30% of the sale price (up to $4,000). Eligible used vehicles must have:
- Be a model year at least 2 years older than the calendar year you buy it.
- Be a qualifying vehicle purchased from a dealer.
- Maximum sale price: $25,000
Commercial clean vehicles: Under Internal Revenue Code 45w, businesses and tax-exempt organizations buying a commercial clean vehicle can earn up to $40,000 in tax credit, depending on the vehicle’s size and cost. Plug-in vehicles with gross weight ratings over 14,000 pounds must have motor battery capacity of at least 15 kilowatt hours. Certain other requirements include:
- A vehicle subject to a depreciation allowance.
- Made by a qualified manufacturer.
- Meeting Clean Air Act motor vehicle and Internal Revenue Code mobile machinery standards.
Commercial clean vehicle tax credit forms will be available later in 2023.
Alternative Fuel Vehicle Refueling Property Credit
Lastly, if your employees drive electric vehicles (or if you’ve acquired one for company use and a Clean Vehicle Purchase Credit), you might consider installing a charging station at your place of business. Doing so may grant you the Alternative Fuel Vehicle Refueling Property Credit: either 30% of the property’s cost, or $100,000—whichever amount is lowest, if your charging location meets certain requirements as a qualifying property.
This credit is also available for refueling property for ethanol, natural gas, and hydrogen. Also, bear in mind that personal use of the charging station outside of business or investment purposes can cut into the amount of the credit you can receive.
You can claim the Alternative Fuel Vehicle Refueling Property Credit with IRS Form 8911.
Additional Tax Credits for Green Businesses
These five options are just a few of the many credits that will be available for green businesses in tax year 2023. With credits for carbon capture and sequestration, battery storage technology, and for advanced energy manufacturing projects—just to name a few—there’s a lot of ways to make good choices for the planet that are also good choices for your company’s bottom line.