 |
| |
Under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (ARRA), taxpayers building a business property with renewable energy may apply for a grant from the U.S. Treasury instead of claiming other energy tax credits. |
Deadline Approaches For Alternative Energy Section 1603 Grant
Companies that have built property with renewable energy sources may be eligible for a nontaxable grant from the government. However, those looking to collect from the U.S. Department of the Treasury must demonstrate that the project is complete, or that construction of a significant nature has begun, by December 31, 2011.
“The deadline is quickly coming up, so businesses should act soon if they want to take advantage of this grant, which can significantly help mitigate the costs of investing in alternative energy sources,” says Cory Wiese, a construction and real estate principal with LarsonAllen.
Grant eligibility
Under Section 1603 of the
American Recovery and Reinvestment Tax Act of 2009 (ARRA), taxpayers building a business property with renewable energy may apply for a grant from the U.S. Treasury instead of claiming other energy tax credits.
To be eligible for a grant, the depreciable business property must be:
- Placed in service during 2009, 2010, or 2011, or construction of a significant nature has begun
- Used predominantly in the United States
- Original use property
The property must be in service by:
- December 31, 2013, for large wind
- December 31, 2017, for solar and certain property receiving the energy investment credit (also referred to as the investment tax credit or ITC)
- December 31, 2014, for all others, including certain property receiving the electricity production credit (also referred to as the production tax credit or PTC)
Businesses ineligible for the grants include governments, tax-exempt organizations, certain cooperatives, and pass-through entities that own interests in such companies.
Still under construction
Companies can use two methods to prove construction has begun:
- Meet a 5 percent safe harbor test. Applicants must demonstrate that the amount paid or incurred before the end of 2011 is equal to or greater than 5 percent of the total cost of the property. The 5 percent test is applied against the final total cost and not the estimated cost. For properties exceeding $1 million, applicants must submit a report from an independent accountant by October 1, 2012, showing how much was spent on the property by the end of 2011.
- Begin significant physical work by the end of 2011. To demonstrate that physical work of a significant nature has commenced at the site, applicants should submit a sworn statement from the project engineer or installer that describes the project’s eligibility. This must include a detailed construction schedule, estimated budget for the project, a description of the work that has commenced, and any invoices for the work performed. For projects with an anticipated cost basis of $1 million or more, the report must be from an independent engineer.
This information can be submitted via the online application.
In addition to the documentation detailed above, applicants must provide proof of the original cost of the property. For properties with costs in excess of $500,000, applicants must submit an independent accountant’s certification attesting to the accuracy of all costs claimed as part of the basis of the property.
Construction complete
The grant will not be included in gross income. When the applicant files taxes, the property’s original cost basis must be reduced by 50 percent of the grant received. Properties that are disposed of within five years from the date placed in service or otherwise cease to be a specified energy property will be recaptured, which requires repayment to the U.S. Treasury on a prorated basis, except in the case of certain sale-leaseback transactions.
How we can help
Performing a cost-benefit analysis can help you determine if alternative energy sources will benefit your business and which improvements are the best investment. We can help you interpret the expanding federal and state tax regulations, and assist your company in deciding on the best credit or grant to pursue for your situation.
Cory Wiese, Construction and Real Estate Principal
cwiese@larsonallen.com or 715-852-1144
View our construction and real estate principals and tax principals.