Tax deductions and credits for energy-saving upgrades
Are you planning a heating, lighting or other energy-saving improvement at your existing business?
Did you incorporate energy efficiency in your new construction?
If so, you may qualify for business tax deductions or credits through the Inflation Reduction Act (IRA). Building owners who install new equipment to improve the energy efficiency of their properties may be able to claim a tax deduction to help offset their equipment costs.
Eligible improvements include:
- HVAC
- Interior lighting
- Hot water systems
- Building envelope
For property placed in service in 2023 or after, a deduction can be taken for the lesser of the:
- Cost of the installed property or
- Savings per square foot, calculated as:
- $0.50 per square foot for a building with 25% energy savings.
- Plus $0.02 per square foot for each percentage point of energy savings above 25%.
- Up to a maximum of $1.00 per square foot for a building with 50% energy savings.
Additionally, if local prevailing wages are paid and apprenticeship requirements are met, the minimum amount increases to five times the savings per square foot to:
- $2.50 per square foot for a building with 25% energy savings.
- Plus $0.10 per square foot for each percentage point of energy savings above 25%.
- Up to a maximum of $5.00 per square foot for a building with 50% energy savings.
For property placed in service before 2023, the deduction is capped at $1.80 per square foot for buildings with 50% energy savings. A partial deduction is available on certain property.
Contact your tax advisor to learn more about additional criteria that must be met to qualify for these tax credits.
Learn more
More details about these tax deductions and credits are available from the Dane County Office of Energy & Climate Change.
Contact your MGE Account Representative or email business@mge.com to learn about energy-saving strategies for your business.
