When to Use Investment Tax Credits

Investment tax credits are basically a federal tax incentive for business investment. They let individuals or businesses deduct a certain percentage of investment costs from their taxes. These credits are in addition to normal allowances for depreciation.
Investment tax credits differ from accelerated depreciation in that they offer a percentage deduction at the time an asset is purchased. 
Investment tax credits were introduced in 1962, to protect American business from emerging foreign competition. Over time, though, their basic objective has changed. Today, credits are deployed more in areas of pollution control, energy conservation, green technology, and other methods of economic development. The many flavors of investment tax credits include the Reforestation Credit, Rehabilitation Tax Credit, Solar Energy Investment Tax Credit, and Federal Business Energy Investment Credit, among others.
That last one is also known as a corporate tax credit. Eligible technologies include solar thermal process heat, solar thermal electric, solar water heat, solar space heat, fuel cells, geothermal direct use, biomass, wind, geothermal heat pumps, and others.

Game Plan

There are a wide variety of local and national organizations that provide detailed information on individual tax credits. For example, the Solar Energy Industry Association® (SEIA) provides detailed information on the solar tax credit. But be sure to search for the specific type of investment credit you’re seeking online. Then, discuss IRS Form 3468 with your tax professional. In addition, search for investment tax credits on your own state government’s website, since many states have their own incentives.
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