Credits Benefiting the Environment

Currently, the largest group of tax credits are those designed to encourage energy conservation or other actions to help the environment. However, most of these credits are very narrowly targeted, so the number of people eligible for them is actually quite small.

Energy Credit

An energy credit is allowed for 30 percent of the cost of the following types of property placed in service during the year: fuel cell property; equipment that uses solar energy to generate electricity, heat or cool a structure, provide hot water, or provide solar process heat; equipment that uses solar energy in fiber optics; and small wind energy property. Equipment used to produce, distribute, or use geothermal energy stored in rocks, water, or steam; micro-turbines; and other energy property are eligible for a 10 percent credit. The property must be depreciable (i.e., tangible personal property used in your business).

The energy credit is part of the investment tax credit, and can be recaptured (paid back to the IRS) if the qualifying property is sold or disposed of before the end of its recovery period. It is claimed on Form 3468, Investment Credit.

Alcohol Fuels Credit

Producers of alcohol fuels or mixtures such as gasohol or ethanol, and producers of cellulosic biofuels, can receive a tax credit for any sales or use of such fuels. The alcohol fuels credit is part of the general business credit. It's claimed on Form 6478, Credit for Alcohol Used as Fuel.

Enhanced Oil Recovery Credit

If you begin or significantly expand a domestic oil recovery project that uses certain tertiary recovery methods - such as the injection of liquids, gasses, or other matter - to increase crude oil production, you can take a credit for 15 percent of your qualified enhanced oil recovery costs for the tax year. The credit is phased-out under certain circumstances. The enhanced oil recovery credit is part of the general business credit. It's claimed on Form 8830, Enhanced Oil Recovery Credit.

Renewable Resources Electricity Production Credit

This credit is based on electricity that was produced from wind or closed-loop biomass (organic material grown exclusively for electricity production) at a qualified facility and sold to third parties, from facilities placed in service before January 1, 2014.

The base amount of the credit for wind energy facilities, solar energy facilities, closed-loop biomass facilities, and geothermal energy for electricity produced in 2012 the credit rate is 2.17 cents per kilowatt hour. However, in the case of open-loop biomass facilities (including agricultural livestock waste nutrient facilities), small irrigation power facilities, landfill gas facilities, trash facilities, hydropower facilities, and marine and hydrokinetic facilities the rate is 1.08 cent per kilowatt hour for 2012. The credit is claimed on Form 8835, Renewable Electricity Production Credit.