Renewable Energy Credits for Texas AI Data Farms

Renewable Energy Credits for Texas

Texas AI data farms, powering the surge in artificial intelligence, require massive energy, and renewable sources like solar and wind offer cost-effective, sustainable options amid rising demand. Inexperienced advisors may overlook federal and state incentives, leading to higher operational costs or missed tax savings.

Are you claiming renewable energy credits to offset energy costs for your Texas AI data farm in 2025? At Kewal Krishan & Co, our expert tax advisors help Texas clients save an average of $50,000 annually, potentially totaling $775,000 over a decade through strategic energy tax planning. This blog explores renewable energy credits for Texas AI data farms in 2025, grounded in Internal Revenue Code (IRC) and Texas incentives, with detailed examples and compliance steps.

With Texas’s no-state-income-tax environment and the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, preserving federal credits like the Investment Tax Credit (ITC) under IRC § 48, these incentives can significantly reduce setup costs for data farms using renewables. Begin optimizing your data farm’s energy strategy today with insights from Our Tax Planning Services.

Understanding Renewable Energy Credits for Texas AI Data Farms

Renewable energy credits (RECs) and tax incentives encourage the adoption of solar, wind, and other clean energy sources for high-energy facilities like AI data farms. Federal credits under IRC provide direct tax relief, while Texas offers property tax abatements and no income tax, making it attractive for data centers.

Key Credits for 2025

• Federal Investment Tax Credit (ITC): 30% credit for solar, wind, geothermal, and battery storage installed in 2025 (IRC § 48, extended by OBBBA to 2032). For data farms, ITC applies to on-site solar panels or wind turbines powering servers.
• Production Tax Credit (PTC): $0.03/kWh (inflation-adjusted) for wind, solar, and biomass energy produced (IRC § 45, extended by OBBBA).
• Texas Incentives: Property tax abatements under Chapter 403 (Texas Tax Code § 403.001, replacing Chapter 313) for renewable projects creating jobs; up to 10 years at 50-80% abatement for qualifying data farms integrating renewables.
• OBBBA Benefit: Preserves ITC/PTC, adds clean energy manufacturing credits (IRC § 45X), beneficial for Texas data farms building renewable infrastructure.
• Franchise Tax: Renewable investments may qualify as COGS deductions, reducing 0.75% margin tax (Texas Tax Code § 171.002, TAC § 3.588).

Claim ITC/PTC on Form 3468 attached to Form 1120; Texas abatements via local appraisal districts. For details, see IRS Publication 946 and Texas Comptroller’s Renewable Energy Incentives.

Detailed Example: Credits for AI Data Farms

Consider a Texas AI data farm installing $10 million solar panels in 2025, generating 5 million kWh annually, with $5 million franchise-tax margin.

• Federal ITC: 30% × $10 million = $3 million credit, reducing federal tax (IRC § 48).
• PTC: $0.03/kWh × 5 million = $150,000 annual credit for 10 years (IRC § 45).
• Texas Abatement: 80% property tax abatement for 10 years on $10 million valuation (Chapter 403), saving $800,000/year if tax rate 2% (local appraisal district).
• Franchise-Tax Offset: Solar as COGS deducts $10 million, reducing margin to $0, saving $37,500 (0.75%).
• Total Savings: Federal $3 million + $1.5 million PTC over 10 years; Texas $8 million abatement + $37,500 franchise = ~$12.5 million.

Alternative Scenario

Without renewables: No credits, full $5 million margin tax $37,500, higher energy costs from grid ($0.15/kWh vs. $0.05 solar). Renewables save ~$500,000 annually in energy + taxes.

Step-by-Step Guide for Taxpayer Compliance

To claim renewable energy credits for Texas AI data farms in 2025, follow these steps:

1. Assess Eligibility: Confirm renewable project meets ITC/PTC criteria (IRC § 48/45); for Texas abatement, create jobs/invest minimum (Chapter 403).
2. Install Renewables: Place in service by December 31, 2025, for full credit; retain engineering certifications.
3. Apply for Texas Abatement: Submit to local appraisal district, negotiate agreement (Texas Tax Code § 403.002).
4. Calculate Federal Credits: Use installed cost for ITC, production for PTC; report on Form 3468 attached to Form 1120.
5. Compute Franchise Tax: Deduct renewable investments in COGS (TAC § 3.588); file Form 05-163/05-169 by May 15, 2026.
6. Claim Credits: Federal credits reduce liability; Texas abatement lowers property tax bills.
7. Carry Forward Excess: ITC/PTC carryforward 20 years (IRC § 39); unused abatement not applicable.
8. Retain Records: Keep installation proofs, production logs for three years (IRC § 6001, Texas Tax Code § 171.211).

For data farm projects, explore Our Business Tax Services.

Common Pitfalls to Avoid

• Ineligible Projects: Claim without ownership or production verification, disallowing credits (IRC § 48).
• Abatement Errors: Fail to meet job creation, losing Texas incentive (Chapter 403).
• Carryforward Oversight: Not tracking excess credits (IRC § 39).
• Underreporting Margin: Exclude deductions, inflating franchise tax (Texas Tax Code § 171.002).

Why Work with a Tax Expert?

Renewable energy credits for Texas AI data farms require coordinating IRC § 48/45 with Texas Chapter 403, where errors can forfeit credits or trigger audits. Generic advisors may miss OBBBA extensions or abatement negotiations, costing thousands. Kewal Krishan & Co specializes in Texas energy tax strategies, ensuring accurate claims and maximum savings. Our expertise mitigates pitfalls, as demonstrated in Our Tax Litigation Services.

Conclusion

Renewable energy credits under IRC § 45/48 offer Texas AI data farms significant federal savings in 2025, with Texas Chapter 403 abatements providing state-level relief in a no-income-tax environment. With OBBBA’s extensions and Texas’s renewable boom, these incentives support sustainable data centers—act now to claim credits and optimize your tax position.

Call to Action

Schedule a consultation with Anshul Goyal, CPA EA FCA, a licensed U.S. CPA and Enrolled Agent, admitted to practice before the IRS, specializing in tax litigation and cross-border tax for U.S. businesses and Indians in the U.S. Contact us at Kewal Krishan & Co to leverage renewable energy credits.

About Our CPA

Anshul Goyal, CPA EA FCA, is a licensed U.S. CPA and Enrolled Agent, representing clients in IRS tax litigation and assisting with cross-border tax compliance for U.S. businesses and Indians in the U.S. His expertise ensures tailored strategies that maximize savings and ensure compliance.

Disclaimer

This blog provides general information for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently, and individual circumstances vary. Consult a qualified tax professional before making decisions. The author and firm disclaim liability for actions taken based on this content.

FAQs

1. What’s the ITC for solar in 2025?

30% of cost for qualifying systems (IRC § 48).

2. How does PTC work?

$0.03/kWh for produced energy (IRC § 45).

3. What’s Texas Chapter 403?

Property tax abatement for renewables creating jobs (Texas Tax Code § 403.001).

4. Can credits be carried forward?

Yes, 20 years for federal (IRC § 39).

5. When is franchise tax due?

May 15, 2026, for 2025 reports.