Amount
of Incentives
What
is the amount of the business and residential credits?
Thirty percent of the total installed cost of the system.
Can a system owner use the credit in addition to a state
credit or rebate, federal grant, or other government incentive? If so, how
does this work?
Pursuant to AREA, for periods after December 31, 2008, a
system owner can use either credit in addition to a state credit or rebate,
federal grant, or other government incentive. Under prior law, in
determining the amount of credit allowable with respect to certain
government-subsidized projects, the taxpayer was required to reduce the cost
of the project to reflect the government subsidy.
Can a system owner use the credit against the Alternative Minimum Tax?
The credit can offset the tentative minimum tax of the taxpayer.
If a system owner cannot use all of the credit in a single
tax year, can the remainder be carried over to (a) following year(s)?
If a system owner cannot use the entire amount of the
residential credit in a taxable year because of insufficient tax liability
in such year, the unused amount of the credit may be carried forward to and
used in a succeeding taxable year (subject to similar limitations in such
succeeding year.) The business small wind credit is part of the general
business credit and may be carried forward 20 years.
Owner and Equipment Eligibility
What equipment qualifies for the credits? Is there any
specific equipment that does not qualify?
In the case of the business credit the definition of
qualified property is property that uses a wind turbine with a nameplate
capacity of not more than 100 kilowatts to generate electricity. The
property must be constructed or erected by, or the original use of the
property must begin with, the taxpayer. The property must be of a character
for which depreciation is allowed, must be used in the United States, and
generally cannot be owned or used by a government agency, foreign person or
other tax-exempt person. The Secretary of the Treasury, in consultation with
the Secretary of Energy, may prescribe performance and quality standards for
qualified property. Such regulations will be applied prospectively. In the
case of the residential credit, the definition of qualified property is
property that uses a wind turbine to generate electricity for use in
connection with a dwelling unit located in the United States and used as a
residence by the taxpayer. Expenditures that are allocable to a swimming
pool, hot tub, or any other energy storage medium that has a function other
than storage does not qualify for the credit. In general, the original use
of the property must begin with the taxpayer.
Can the credits be applied to used or refurbished equipment?
In general, the property must be new. Tax rules that determine when
refurbished equipment is treated as new property are complicated and beyond
the scope of this document. A consumer should consult a tax advisor with
respect to this and any other issue involving the credit.
How is "business use" defined?
In the case of the "business" credit, the property must be of a character
for which depreciation is allowed. This generally means that the property is
used in a trade or business or held for the production of income.
Can utilities use the business credit?
For-profit utilities are eligible for the business credit. Municipal power
systems are not eligible.
Can schools use the business credit?
For-profit schools are eligible for the business credit. Public and
tax-exempt schools are not eligible.
In the case of a manufacturer leasing equipment to a third party, who claims
the credit?
In general, the owner of the property may claim the credit. In the case of a
lease, complicated tax rules determine the owner of the property for tax
purposes. A consumer should consult a tax advisor with respect to this and
any other issue involving the credit.
In the case of the residential credit, must the system be used for a primary
residence only, or are second homes eligible?
The legislation does not distinguish between principal residences and second
homes.
In the case of multiple turbines on a single property, can the credit be
used toward each installation or just one of them?
There is no limitation based on a single location.
Project Timing
When do the credits take effect?
The credit applicable to businesses applies to periods after the date of
enactment (October 3, 2008). The residential credit applies to taxable years
beginning after December 31, 2007.
Can the credit be applied retroactively to turbines installed in 2008, but
before the October 3, 2008 enactment of the law?
See answer to question 13 above.
How is the "placed-in-service date" for a system defined?
The credit applicable to businesses applies to qualified property when it is
placed in service. "Placed in service" is a technical tax term and the
determination is based on the underlying facts and circumstances. In
general, property is placed in service when it is in a condition or state of
readiness and available for its intended use.
a. For a new home, is this the date a homeowner moves in, or the date the
installation is completed?
The credit applicable to residences applies when expenditures are made for
qualified property, not when the property is placed in service. For this
purpose, an expenditure with respect to an item is deemed to be made when
the original installation of the item is completed. In the case of an
expenditure in connection with the construction or reconstruction of a
structure, the expenditure is deemed made when the original use of the
structure by the taxpayer begins.
If the installation began before the date of the credit's enactment, or was
completed after the credit's expiration in 2016 (assuming the credit is not
extended), can the credit still apply?
As described above, the credits generally are applicable with respect to
completion activity, not initiation activity.
Applying for the Credit
To apply for the credit, what legal forms and documentation does a turbine
owner(s) need to complete/provide?
The credits will be claimed on the tax return of the taxpayer for the year
for which the credit is claimed. Business credits generally are claimed on
Forms 3468 and 3800 and individual energy credits generally are claimed on
Form 5695.
a. To whom?
The Internal Revenue Service.
b. At what stage in the process?
With the filing of the tax return for the taxable for which the credit
applies.
c. Where are the forms available?
As of 1/5/2008 the forms have not yet been updated to reflect the new
law, but should become available on the IRS website (www.irs.gov/formspubs/)
before the 2008 filing season.
d. When are the due dates?
With the due date of the applicable tax return.
e. In the case of an installation for a business use, is the amount
subject to depreciation affected by this law?
The taxpayer must reduce its depreciable basis in property by the half the
amount of the credit. A full basis reduction is required for residential use
property, although such property is not subject to depreciation.
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