The Energy Policy Act of 2005 created several tax incentives for those involved in green technologies. The Emergency Economic Stabilization Act of 2008 and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the expiration date for many of those incentives, which had been set to expire at the end of 2008.
The tax incentives are of limited application to small businesses, consisting mostly of credits or deductions for energy developers rather than for energy consumers, although some could apply to small business owners. Tax credits are dollar-for-dollar reductions in tax liability, while tax deductions are reductions in the amount of taxable income. Thus, tax credits are more desirable than tax deductions.
Energy-Efficient Buildings Deduction
A commercial building tax deduction provides a deduction of up to $1.80 per square foot for owners and designers of new and used commercial buildings that achieve at least a 50 percent energy savings in heating and cooling compared to a recognized standard (ASHRAE Standard 90.1-2001). A partial deduction of $.60 per square foot is available for energy-efficient measures taken on any of three of a building's systems: the envelope, lighting, and heating and cooling. The deduction applies to buildings modified or placed into service from January 1, 2006, and December 31, 2013.
Energy-Efficient Homes Credit
A $2,000 tax credit exists for home builders who build energy efficient homes that achieve 50 percent energy savings for heating and cooling compared to a recognized standard (the 2004 International Energy Conservation Code). At least one-fifth of the energy savings must come from what are referred to as the building envelope improvements. For those builders who cannot meet the 50 percent threshold, a $1,000 tax credit is available for new homes that achieve a 30 percent energy savings. The credit applies to homes built before January 1, 2012.
Energy Improvements Credits
A 30 percent tax credit exists for consumers who make residential solar electric expenditures through December 31, 2016, with no cap. The credit also exists for wind expenditures and geothermal heat pump expenditures.
Energy-Efficient Appliances Credit
A manufacturer's tax credit is available to those that manufacture energy efficient refrigerators, washing machines, and dishwashers that meet the EPA's ENERGY STAR requirements.
Renewable Energy Credit
Production tax credits exist for producers of renewable energy. Those who produce refined coal can use the credit through 2011.
Domestic Fuel Security Write-Off
Fifty percent of the cost of facilities that produce ethanol can be written off immediately if the facilities are placed in service before January 1, 2013.
Energy Investment Credits
A 30 percent investment tax credit is available for solar energy property, small wind energy property, and fuel cell property through January 1, 2017. An investment tax credit for microturbines and combined heat and power systems (such as geothermal heat pumps) is available through December 31, 2016.
Biodiesel Production Credit
A $1.00 per gallon production tax credit exists for small biodiesel producers through December 31, 2011.
Plug-In Vehicle Credit
A tax credit of between $2,500 and $7,500 may exist for those who buy plug-in electric vehicles.
Real Estate Bonds
Real estate developers can issue green building and sustainable project bonds through October 1, 2012.
State and Local Tax Incentives
Some states and municipalities do offer limited tax incentives for small businesses that adopt green technologies. To learn more about what your state might offer, go to Business.gov's compendium of state and local energy efficiency programs. Business.gov's website is managed by the Small Business Administration in conjunction with 21 other federal agencies.