Green tax incentives for businesses

Business and property owners can decrease their tax liability by taking advantage of one of the many green tax incentives.

Tue, Dec 01 2009 at 9:00 AM EST

Photo: Army Environmental Update/Flickr

Yesterday I discussed several green tax incentives available to consumers. Business and commercial property owners can also reduce their tax liability by taking advantage of one of the many green tax incentives tailored specifically to businesses.

Energy efficiency – commercial buildings

If you are the owner of an energy efficient commercial building, you may be eligible to take a tax deduction of up to $1.80 per square foot. The buildings must be at least 50 percent more energy efficient than those meeting the ASHRAE Standard 90.1-2001.

Energy efficiency upgrades on a building’s envelope, lighting system, or HVAC systems may allow a business owner to qualify for up to a $0.60 per square foot tax deduction. This program began in January 2006 and due to an extension granted by the Emergency Economic Stabilization Act of 2008, these deductions won’t expire until Dec. 31, 2013.

For more information on these tax deductions, visit the IRS website: Deduction for Energy Efficient Commercial Buildings.

Energy-efficiency – homebuilders

Despite the housing bubble burst, there are still areas of the country where new homebuilders are seeing a demand for their product. Incorporating energy-efficiency upgrades allows these homebuilders to take a tax credit and will ultimately save homeowners on their energy bills.

There are two different tax credits for energy efficient homes: $2,000 for a new home that is 50 percent more efficient than what is set forth in the 2004 International Energy Conservation Code (IECC) and $1,000 for a manufactured home that is 30 percent more energy efficient.

More information on these two credits can be obtained from the IRS:

IRS Notice 2006-27 (PDF) – non-manufactured homes
IRS Notice 2006-28 (PDF) – manufactured homes

Hybrid vehicles

Business owners can also take advantage of the tax credit available when a qualified hybrid vehicle is purchased for business use. As is the case with consumers, the tax credit phase-out applies and not all hybrid passenger vehicles on the market are eligible.

In addition to the passenger vehicle credits described in the Green tax incentives for consumers article (linked above), several commercial hybrid vehicles are also eligible for a hybrid tax credit. For example, the 2010 Kenworth Model T370 Package Delivery Vehicle is eligible for a $12,000 tax credit. Several hybrid school buses also qualify for tax credits ranging from $6,000 to $12,000.

Visit the IRS website for a complete list of all of the commercial vehicles eligible for a business tax credit.

State tax incentives

In addition to the federal tax incentives available, many states offer green tax incentives to business owners. Combining the federal and state tax incentives is an effective way for business owners to reduce their overall tax liability.

The Database of State Incentives for Renewables & Efficiency (DSIRE) organizes tax credits available to both consumers and businesses by state. For example, business customers of Entergy in Arkansas may be eligible to take advantage of a $115/kW incentive for power reductions achieved through energy-efficiency upgrades.

Another example is the business energy tax credit in Oregon. Business owners who use solar, biomass, geothermal heat pumps, fuel cells and several other renewable energy technologies may be eligible to deduct a portion of the expenses associated with installing these products.

For more information on these green tax incentives and how they relate to your specific business situation, please consult your company’s accountant or tax professional.

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