If you are a small business owner whose business is involved in capturing carbon dioxide and undertaking enhanced oil or natural gas recovery projects, you may be eligible to claim the "carbon dioxide sequestration credit" as a tax credit. Although this tax credit is not a tax deduction, it has the net effect of reducing your business's taxable income.
Deduction vs. Credit
A tax deduction is an amount that individual or business taxpayers can subtract from gross income to determine taxable income. The Internal Revenue Service usually grants individual and business taxpayers tax deductions for personal or business expenses. An example of a business tax deduction is the startup cost of going into business. On the other hand, a tax credit is an incentive that allows individual or business taxpayers to reduce the total amount of taxes payable to the IRS if they meet certain qualifications. An example of a business tax credit is the carbon dioxide sequestration credit. Both tax deductions and tax credits reduce the amount of money you must pay in taxes.
Eligible Taxpayer
The IRS grants the carbon dioxide sequestration credit to small business owners who capture qualified carbon dioxide at a qualified facility and physically or contractually ensures its disposal in a secure geological storage or its use in a qualified enhanced oil or natural gas recovery project. To claim this credit, a business owner files Form 8933 as an attachment to his tax return. If a business owner is not in a partnership or an S corporation or if he is in a partnership with a valid 761(a) election, he reports this credit directly on line 1x of Form 3800, "General Business Credit."
Definitions
"Qualified carbon dioxide" is carbon dioxide captured from an industrial source following IRS criteria after October 8, 2008. A "qualified facility" is any facility that the taxpayer owns and that houses carbon capture equipment, capturing at least 500,000 metric tons of carbon dioxide during the tax year. "Secure geological storage" includes storage in deep saline formations, oil and gas reservoirs and unminable coal seams according to IRS regulations. A "tertiary injectant" is an injectant used as part of a tertiary recovery method, with the exception of hydrocarbon. A "qualified enhanced oil or natural gas recovery project" is any project located in the U.S. that applies one or more tertiary recovery methods following certain specifications. Petroleum engineers must certify such projects.
Credit Amount
For fiscal year 2010, the credit amounts are $20.24 per metric ton for qualified carbon dioxide captured at a qualified facility, disposed of in secure geological storage and not used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project and $10.12 per metric ton for the same if used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project. These amounts are adjusted for inflation. For measuring purposes, the amount of qualified carbon dioxide is the lesser of the amount measured at capture and verified at disposal or injection unless it can be established that the greater amount is the correct amount.
Tags: carbon dioxide, enhanced natural, enhanced natural recovery, natural recovery, natural recovery project, qualified enhanced, qualified enhanced natural
