Governments often use tax laws to encourage, or discourage, certain activities. Want people to do more of something? Offer a tax break for it. The federal tax code includes a variety of tax credits designed to promote different types of investment. Taxpayers claim many of these credits using IRS Form 3468.
Credits claimed using the form
In general, the investment credit is available to property owners who engage in specific types of projects on their property. Taxpayers can claim the following investment tax credits using Form 3468:
- Qualifying advanced coal project credit
- Qualifying gasification project credit
- Qualifying advanced energy project credit
- Rehabilitation credit
- Energy credit
If you lease property from someone rather than own in and use it in a way that qualifies for one of these credits, you may also be able to claim the credit by filling out Part I of the form.
Coal, gasification and advanced energy projects
Use Part II of the form to claim three specific energy-related credits. Each credit has specific qualifications spelled out in the instructions for Form 3468. In brief:
- Qualifying advanced coal projects generate electricity using coal, while significantly reducing emissions of carbon dioxide
- Qualifying gasification projects turn solid or liquid material from coal, petroleum, biomass and other substances into gas that can be used for energy
- Qualifying advanced energy projects involve such things as renewable-source energy (wind, solar, geothermal and fuel cells); the transmission or storage of renewable energy; clean-energy technology; plug-in electric motor vehicles; and projects that reduce greenhouse gas emissions
Rehabilitation and energy credits
Part III of the form is for claiming either the rehabilitation credit or the investment credit for energy properties:
- The rehabilitation credit is for work to restore, preserve or upgrade an older building or one that qualifies for historic status
- The energy investment credit is available for properties used for alternative energy; solar, wind or geothermal energy; shale oil production; recycling; certain kinds of natural gas production; and other technologies Congress chooses to designate
The credits on Form 3468 are generally claimed by businesses. Corporations use them to reduce their corporate income taxes. Sole proprietors use them to reduce their personal income taxes. Taxpayers who have an ownership stake in so-called pass-through entities, such as partnerships and Subchapter S corporations, share these credits earned by the business with the other owners of the business. These taxpayers should receive information from the business telling them what to put on the form to claim their portion.