Federal Tax Credits and Incentives
Tax Credits for Energy Efficiency - Individuals
Taxpayers who make use of renewable energy for upgrades to their homes to improve energy efficiency may be eligible for certain tax credits.
The Residential Energy Efficiency Property Credit covers fuel-cell, solar, wind, and geothermal technology. This credit is for 30 percent of the expenditures made by a taxpayer during the taxable year for: qualified solar electric systems, qualified solar water heaters, qualified fuel cell property, qualified small wind energy property, and qualified geothermal heat pumps. The credit for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property. The credit is available for property placed in service through December 31, 2016.
The Nonbusiness Energy Property Tax Credit is a credit of 10 percent of the cost of qualified energy-efficient improvements. Qualified improvements include adding energy-efficient exterior windows and doors, insulation, and certain roofs. The cost of installation is not included in the tax credit calculation. There is also a credit available for certain high-efficiency water heaters and stoves that burn biomass fuel, as well as high-efficiency heating and air-conditioning systems. For these purchases, the costs of installation are included in the tax credit calculation. This credit has a lifetime limitation of $500, of which only $200 can be used for windows. In order to qualify for the credit, improvements must have been placed in service in the taxpayer's principal residence no later than December 31, 2016.
Tax Deductions for Energy Efficiency - Businesses
Section 179D Commercial Buildings Energy Efficiency Tax Deduction is a tax incentive that takes the form of a deduction rather than a credit. A deduction of $1.80 per square foot is available to owners of new or existing businesses who install interior lighting, building envelope, or cooling, heating, ventilation or hot water systems that reduce the building's total energy and power cost by 50% or more. A reduced deduction of $0.60 per square foot is available to owners of buildings with systems that partially qualify.
Deductions are taken in the year in which systems are placed in service. The systems and buildings must have been placed in service by December 31, 2016 in order to qualify.
Other Federal Tax Credits
Work Opportunity Tax Credit (WOTC) provides subsidies to firms that hire targeted groups. The Work Opportunity Tax Credit targets veterans, disadvantaged workers, welfare recipients, food stamp recipients, people with disabilities, and others. When the requirements are met, the tax credit can be between $1,200 and $9,600 per employee, depending on the target group of the new employee and the number of hours worked in the first year.
All Work Opportunity tax credits are time sensitive. You have a very short window of opportunity to apply for the credit. Various forms must be filed with the IRS and the State Workforce Agency within 28 calendar days of the employee's start date in order to get the process started. If the requirements are not met, the credit is lost forever.
On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) that extended and modified the WOTC Program. The Act retroactively reauthorized the WOTC Program target groups for a five-year period, from December 31, 2014 to December 31, 2019. It also introduced a new target group, Qualified Long-term Unemployment Recipients, for new hires that begin work on or after January 1, 2016 through December 31, 2019.
Empowerment Zone Employment Tax Credit provides tax incentives to companies located within federally-designated areas that hire individuals who both live and work in these communities. The Empowerment Zone Tax Credit is equal to 20% of the first $15,000 in wages in any year if the employee lives and provides services in an Empowerment Zone. This credit expires on December 31, 2016.
Research and Development Tax Credit is available to companies that are developing or improving processes, software, or products. The tax credit earned is a portion of the increase in R&D spending. Many industries qualify: for example, engineering, computer science, or biotechnology. Starting in 2016, eligible startups with less than $5 million in gross receipts can apply up to $250,000 of their R&D tax credit against their payroll taxes. The R&D tax credit was made permanent by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) in December 2015.
Disabled Access Credit is a non-refundable credit for small businesses that incur expenditures for the purpose of providing access to persons with disabilities. An eligible small business is one that had no more than 30 full-time employees or earned $1 million or less in the previous year. The business may qualify for up to $5,000 in tax credits.
Architectural Barrier Removal Tax Deduction provides businesses with an annual deduction of up to $15,000 for expenses incurred to remove physical, structural, and transportation barriers to the mobility of persons with disabilities and the elderly.