Taxes · June 26, 2020

5 Types of Tax Breaks for Eco-Friendly Businesses

Federal and state governments now offer compelling tax breaks for eco-friendly businesses. When you add this to the potential for increased loyalty from customers who care about sustainability, going green can be profitable business strategy.

The policies and incentives vary by state. Some perks are tax credits, while others are deductions or savings. Here are five common types of tax breaks that might make it worthwhile to be eco-friendly and embrace a greener perspective.


1 Tax deduction for energy-efficient commercial buildings

Also called the 17D deduction, this tax break is especially beneficial for building owners. However, other tenants can qualify. You may be able to deduct $0.30 to $1.80 per square foot of the cost of energy-efficient improvements made to HVAC, hot-water systems, lighting and the building envelope—including walls, doors, windows and the roof. The deduction amount depends on the technology you use and how much it reduces energy usage.

To receive the 17D deduction, which can make going green with your building even more affordable, you'll need to have your building independently certified.

2 Tax credit for qualified electric motor vehicles

If your business purchases qualified electric vehicles, it can take advantage of the associated tax credit in the year purchased. If you haven't purchased the vehicle yet, confirm your eligibility before you do. Leases and hybrid vehicles don't count toward this credit.

Businesses operating as sole proprietorships, partnerships and S corporations must file Form 8910 to claim the credit, while C corporations must file form 3800.

3 Biodiesel income tax credit

If your firm operates as a wholesaler or a large fleet using pure unblended biodiesel, agri-biodiesel or renewable diesel, you may qualify for a $1.00 per gallon incentive. The credit doesn't apply to retail purchases, and it runs through December 31, 2022.

4 Alternative energy tax credits

If you want to boost sustainability by installing solar, fuel cells and small wind turbines at your facility, the federal government's corporate tax credits may offset some of the cost. The tax credit is as follows:

  • 26% of expenditures for small wind turbines 200 kilowatts or less, fuel cells 0.5 kilowatts or greater, and solar power
  • 10% of expenditures for microturbines 2 megawatts, or less, combined heat and power of 50 megawatts or less, and geothermal

The maximum incentive is:

  • $1,500 per 0.5 kilowatts for fuel cells and $200 per kilowatts for microturbines
  • No maximum applies to small wind turbines

5 ENERGY STAR deductions and initiatives

All businesses can take advantage of ENERGY STAR, an energy management initiative by the Environmental Protection Agency. The program focuses saving costs on energy bills, reducing energy waste and lowering greenhouse gas emissions.

ENERGY STAR helps businesses replace current lighting with fluorescent or LED lighting. It also provides tools for monitoring and tracking energy and water use. Through this program, your energy provider may offer you a usage inspection free of charge, as well as supplies at reduced rates.

Know your options

Beyond credits, government tax breaks for green companies include grants and special or subsidized loans. You may also qualify for free or reduced-cost technical resources from the USDA, state development authorities, and other federal and state entities. They could assist you in building or expanding certain types of energy-producing or conserving facilities.

Start by researching what's available in your state and specific industry and chart your path toward a more sustainable—and profitable—business.

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