INCLUDING FINAL REGULATIONS ON TRANSFERABILITY AND DIRECT PAY, AND PROPOSED ENERGY PROPERTY REGULATIONS BY HANNAH FISCHER FREY, CARRIE E. SCHWAB & JACK SUTER, BAIRD HOLM LLP THE INVESTMENT TAX CREDIT (ITC) AND PRODUCTION TAX Credit (PTC) provide substantial financial incentives designed to promote renewable energy investment and production in the United States. Section 38 allows a federal income tax credit equal to the sum of various business credits, including the ITC and PTC. The ITC, embodied in Section 48 of the Internal Revenue Code (Code), encourages potential investors to partake in the installation of renewable and clean energy systems. The PTC, detailed in Section 45 of the Code, provides a per-kilowatt-hour tax credit for electricity generated from qualified renewable resources. Together, these credits drive environmentally sustainable practices and support the growth of clean energy. This article revisits the general ITC and PTC requirements and provides an overview of recently published final and proposed regulations related to such credits. GENERAL ITC & PTC REQUIREMENTS A. General ITC Requirements To qualify for the ITC, eligible energy properties must satisfy three key criteria: (i) the taxpayer must own the property;1 (ii) the property must reach operational status within the year the credit is first claimed; and (iii) the property and project must comply with specific federal and state guidelines.2 The ITC applies primarily to energy properties, including solar, wind, and geothermal energy properties.3 Applicable energy properties include a wide range of equipment and systems, such as solar energy systems, geothermal systems, fuel cells, and small wind turbines. The ITC base rate under the Code stands at 6% for specific energy properties (including solar, fuel cells, waste energy recovery, combined heat and power, and small wind), and 2% for microturbine property. These rates can increase to 30% for specific energy properties and 10% for microturbine property, if the project satisfies the prevailing wage and apprenticeship requirements.4 The energy property must be “placed in service,” meaning it must be ready and available for use, in the year the tax credit is claimed.5 However, for property that satisfies the “beginning of construction” requirement, the ITC UPDATES TO INVESTMENT & PRODUCTION TAX CREDITS CONTINUED ON PAGE 16 15 nescpa.org
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