The Internal Revenue Service and the Treasury Department released the
The ITC under Section 48 of the Tax Code provides a tax credit for investments in qualifying clean energy property, typically 30% of the cost of the project. The level of the credit can has traditionally varied over time and by technology, leading to uncertainty for energy project developers about how long they could rely on the tax credits being available to them.
The Inflation Reduction Act extended the ITC, along with the closely related Production Tax Credit, until 2025, at which point the ITC and PTC will switch to a tech-neutral approach with credits that will be available in full for projects beginning construction at least through 2033.
“By ending short-term legislative extensions for the Investment Tax Credit, the Inflation Reduction Act has given clean energy project developers clarity and certainty to undertake major investments and produce new clean power to meet growing electricity demand,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo in a statement last week. “Today’s announcement will help lower consumers’ utility bills, strengthen U.S. energy security, and create good-paying jobs.”
The final rules retain the core framework of the proposed rules and guidance that the Treasury and the IRS issued in November 2023, but the final rules clarify some of the general rules for the ITC and its definitions of property that’s eligible for the credit, after the Treasury and the IRS received 350 written comments on the proposed rules. Some of the issues raised by commenters that the final rules address involve offshore wind, geothermal heat pumps, biogas, co-located energy storage and hydrogen storage facilities. The final rules retain the clarification made in the proposed rules that owners of offshore wind farms can claim the credit for power conditioning and transfer equipment (e.g., subsea cables) that they own. They also clarify that the owner of underground coils for geothermal heat pumps can claim the ITC if they own at least one heat pump used in conjunction with the coils. They clarify what property is qualified biogas property and what is an integral part of qualified biogas property.
The final rules revise the definition of energy project to require ownership of the energy properties plus four or more factors from a list of seven factors and clarify that taxpayers can assess the factors at any point during construction or during the taxable year energy properties are placed in service.
They clarify that a Section 48 credit may be claimed for energy storage technology that is co-located with and shares power conditioning equipment with a qualified facility for which a section 45 credit is claimed. They also clarify that hydrogen energy storage property doesn’t need to store hydrogen that’s only used as energy and not for other purposes.
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