Tax Incentives for Energy Upgrades to Businesses

With the April 15 tax deadline looming, you may be contemplating ways to reduce your tax bill for next year. One smart solution: Get Uncle Sam to pay you for cutting your energy use.

Beyond the assortment of utility rebates, grants and low-cost loans available to businesses for energy upgrades, the federal government also offers tax incentives to businesses that substantially reduce their energy use. (Keep in mind that the value of the incentives vary. A “tax credit,” for instance, reduces your tax bill dollar for dollar, while a tax deduction lowers your taxable income before the tax obligation is calculated.)

Here are some incentives to consider in 2010 and in coming years:

Commercial Building Tax Deduction: In 2008, Congress extended a tax deduction that allows owners or tenants of new or existing commercial buildings to deduct as much as $1.80 per square foot on the cost of energy upgrades, such as installing high-efficiency interior lighting and heating, ventilating, air-conditioning and hot-water systems. The improvements must reduce the energy usage by a certain amount. The deduction is available through Dec. 31, 2013. Read the full details about the incentive here.

Combined Heat and Power System: Through 2016, businesses may be eligible for a tax credit of as much as 10% of the cost of purchasing a combined heat and power system or geothermal system, which are generally used in larger commercial facilities. Read more.

Renewable-Energy Production: Also through 2016, businesses may be eligible for a 30% tax credit on the purchase of solar photovoltaic panels, small wind turbines, fuel cells and solar water heaters. Read the specifics.

Fuel Cells and Microturbines: Businesses that put into place fuel cell power-generation system through 2016 may receive a tax credit of 30% the cost, up to $3,000 per kilowatt. Mircoturbine systems may be eligible for a credit of up to 10% the cost, capped at $200 per kilowatt of power. Read more.

Consult your accountant or another tax professional to find out whether these incentives make sense for you and your eligibility.

Many tax incentives are also available to consumers who make energy-saving improvements to their homes. Read more about those incentives here.

Have you made any energy improvements in recent months? How quickly are they paying for themselves?