The Treasury Department and the IRS issued proposed regs on the Code Sec. 45Y Clean Electricity Production Credit and the Code Sec. 48E Clean Electricity Investment Credit as established by the Inflation Reduction Act (PL 117-169) that provide definitions, rules for determining credit amounts, and guidance on which types of property are eligible. (REG-119283-23; IR 2024-150, 5/29/2024)
Background.
Both credits generally apply to facilities placed in service after December 31, 2024. Qualified facilities or energy property may be eligible for multiple credits under Sections 45, 45Y, 48, or 48E, but a taxpayer may only claim one of these credits with respect to the same qualified facility or energy property.
The Section 45Y credit is calculated based on the amount of kilowatt hours (kWh) of clean electricity produced at a qualified facility. There is a base amount of 0.3 cents and an alternative higher rate of 1.5 cents for facilities that meet further requirements.
The Section 48E credit has a base rate of 6% and a higher alternative rate of 30% for tax years in which a qualified investment is made with respect to a qualified facility and energy storage technology (EST).
Proposed regs.
The proposed regs clarify the terms “combined heat and power system property,” “metering device,” “related person,” “unrelated person,” and “qualified facility” for the Clean Electricity Production Credit. A qualified facility must have a greenhouse gas (GHG) emissions rate of not greater than zero. Taxpayers may petition the Treasury secretary if they own a facility under a category for which an emissions rate has not yet been established.
Rules for the Clean Electricity Investment Tax Credit provide guidance on applicable definitions and the calculation of the credit, including those relating to a qualified facility, a qualified investment, a qualified property, and an EST. They address when components of a property are considered functionally interdependent, as well as when property is considered an integral part of a qualified facility. There is a credit recapture window of five years beginning when a property is placed into service. During that period, a qualified facility cannot have a GHG emissions rate that exceeds 10 grams of CO2e per kWh.
The regs provide several examples illustrating various scenarios involving different energy types, including wind, solar, and hydropower.
Applicability date.
The proposed regs would apply to qualified facilities and ESTs placed into service after December 31, 2024, and during taxable years ending on or after the date of publication of the final regulations in the Federal Register.
Public hearing and request for comments.
A public rulemaking hearing is scheduled for August 12-13. The second hearing date will be conducted by telephone only. Once the regs are published in the Federal Register, there will be a 60-day comment period. The IRS identifies several areas throughout the regs where it would like to receive public feedback.
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