“With the elimination of the 1603 cash grant, the primary tax incentive driving renewable energy investment will be the Investment Tax Credit or ITC,” said Kathy Parker, speaking last week in Boston at the Renewable Energy Development Incentives and Financing Seminar, hosted by the Environmental Business Council of New England. Kathy Parker, CPA, MST is a partner at CPA firm, Rodman & Rodman, P.C., and a leader at the firm’s “Green Team” renewable energy practice.
The ITC is not simply a deduction, explained Parker. It is a tax credit good for up to 30% of the cost of the project, and is often an incentive that can only be enjoyed by entities with substantial passive income and a large tax appetite. Passive losses can only be offset by passive income. “C corporations with large income are great candidates to take losses, but sometimes these investors are hard to find or the deals are too small for larger investors to take an interest,” noted Parker. The credit can also be used to offset the Alternative Minimum Tax (AMT).
Parker went on to say that passive investors are individuals or entities participating in management activities less than 500 hours per year. Losses and credits are limited through what the IRS defines as Passive Activity Loss (PAL). PAL can offset other passive income not related to the renewable energy project. Losses can be carried forward, while credits can be carried back one year and carried forward 20 years.
Tax equity can be structured several different ways for maximum return and minimum risk for the developer and tax equity investor, said Parker. Some of these options include Partnership Flips, and Sales – Leasebacks. “The choice of transaction type depends on the investor’s capital, liquidity, and need for return,” said Parker. “The flip affords the investor more flexibility while the leaseback does not require a substantial infusion of initial capital.”
About Rodman & Rodman P.C.
Founded in 1961 and listed in the Boston Business Journal’s “Top 50 Firms,” Rodman & Rodman, P.C. provides accounting, tax and business services to small and medium-sized companies. For three consecutive years, Rodman & Rodman has been named one of the “Best Accounting Firms to Work For” in Accounting Today. Rodman & Rodman is one of the only providers in New England with a specialized “Green Team”, a green energy and clean technology accounting and tax practice that serves “green” clients throughout the U.S. The company is Green Business Certified. The firm has locations in Newton and Braintree, MA. For more information, email firstname.lastname@example.org, visit their website at www.rodmancpa.com or contact (617) 965-5959.