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Understanding the Clean Energy Tax Breaks in the Inflation Reduction Act
The Inflation Reduction Act of 2022 provides numerous tax credits for clean energy initiatives . While too voluminous to list each credit and requirement , below are some programs that may benefit taxpayers who are interested in clean energy .
Investment Tax Credit ( ITC ) and Production Tax Credit ( PTC )
Through the Investment Tax Credit and Production Tax Credit , taxpayers may deduct a percentage of the expense of renewable energy systems for federal tax purposes . These credits are available to business entities . Currently , the Inflation Reduction Act has an Investment Tax Credit of 30 percent and a Production Tax Credit of $ 0.0275 / kWh ( 2023 value ), as long as projects meet prevailing wage and apprenticeship requirements . Additional changes will occur for projects starting after December 31 , 2024 .
Eligible projects for these credits include investments in solar , wind , geothermal , microturbines , and biomass energy systems as outlined under the following IRS tax code sections :
• Section 45 electricity produced from certain renewable sources ( PTC )
• Section 45Y clean electricity production tax credit ( PTC )
• Section 48 energy credit ( ITC )
• Section 48E clean electricity investment credit ( ITC )
Energy Communities Tax Credit Bonus
An additional bonus credit of 10 percent is eligible for taxpayers located in communities who have encountered economic hardship due to the closing of a coal-related energy source . These areas have been determined by economic factors that meet certain requirements . A large portion of Ohio falls under one of the following three categories eligible for the bonus credit :
1 . Brownfield Sites
2 . Metropolitan and non-metropolitan areas based on unemployment rated and census tracks where a coal mine was closed after 1999
3 . Metropolitan and non-metropolitan areas based on unemployment rated and census tracks where a coal-fired generator was closed after 2009
Residential Clean Energy Credit
As outlined by the IRS , the Residential Clean Energy Credit equals 30 percent of the costs of new , qualified clean energy property for the taxpayer ’ s primary residence installed anytime from 2022 through 2033 . The credit is nonrefundable , but taxpayers can carry forward any excess unused credit and apply it against taxes in future years . The credit has no annual or lifetime dollar limit except for credit limits for fuel cell property .
Qualified expenses include the costs of new ( not used ) clean energy property and associated costs including labor , assembly installation , and connection of the property to the residences . Types of clean energy include :
• Solar electric panels
• Solar water heaters
• Wind turbines
• Geothermal heat pumps
• Fuel cells
• Battery storage technology ( beginning in 2023 )
The Inflation Reduction Act offers taxpayers a myriad tax credits and bonus tax credits for switching to clean energy sources . Each tax credit and program requires that numerous qualifications and criteria are met in order to claim the credit . Talk with your Rea tax advisor before investing in any project to ensure proper compliance and guidance .
Dustin Sheppard , CPA , CCIFP
Principal ,
Rea & Associates 230 North Market St . Wooster , OH 44691 dustin . sheppard @ reacpa . com ( 234 ) 249 – 3460