The CHP federal tax credit is an incentive for the installation of combined heating and power (CHP) units, a sustainable alternative to conventional boiler systems. CHP units use natural gas efficiently to collect and utilize heat that would otherwise be wasted with a conventional system. Because the CHP federal tax credit expires in 2024, now more than ever is the perfect time to begin your CHP project.
What is the CHP federal tax credit?
In its Bipartisan Budget Act of 2018 Congress included an extension of the combined heat and power federal tax credit. The CHP federal tax credit is a 10 percent investment tax credit (ITC) granted to an eligible property owner of a CHP system under section 48 of the Internal Revenue Code (IRC). CHP qualifies for a tax credit because it is recognized as a sustainable energy solution and therefore encouraged by the federal government. The tax credit applies to both newly installed CHP systems and improvements on eligible existing ones.
Eligibility and guidelines
To be eligible for the CHP federal tax credit, construction of the CHP system or unit must begin before January 1, 2022. An eligible CHP system is defined as, “… property compromising a system that uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including heating and cooling applications)” in IRC section 48.
There are other eligibility requirements that the CHP system in question must meet. Unless the system uses biomass, it must attain an energy efficiency percentage greater than 60 percent. It must also generate at least 20 percent of its useful energy total in the form of thermal energy which isn’t used in generation of mechanical, electrical or a combination of power.
IRC section 48 includes recapture rules along with eligibility requirements. Recapture rules state that the taxpayer must hold on to their CHP investment until five years from the project placement date or risk loosing the ITC. This rule is meant to inhibit taxpayers claiming ITCs and quickly exiting or selling their CHP investment. Taxpayers are also at risk if the CHP system’s operations permanently discontinue. Government agencies are tax-exempt entities and therefore ineligible to receive a CHP federal tax credit.
Interested in installing a CHP unit?
EnergyLink is a certified Energy Service Company (ESCO) who has the knowledge, skills, and team to get a CHP system installed with fast payback. To learn more about CHP units and how to finance them speak with an expert at (866) 218-0830 or click the button below for a free quote.
