Renewable Energy Tax Credits Receive Multiyear Extension in Congressional Omnibus Bill

Congressional leadership reached agreement late last evening on an omnibus spending and tax bill that will be voted on by the House and Senate later this week. The bill reflects a global agreement among the leaders on tax and spending for the balance of this 114th Congress. Here’s what you need to know.

The “Consolidated Appropriations Act” (the Bill), would extend several expired (or expiring) energy-related tax provisions, including the production tax credit under Section 45 of the Internal Revenue Code (PTC) and the investment tax credit under Section 48 of the Internal Revenue Code (ITC).

In the case of wind facilities, the Bill would extend the PTC to facilities with respect to which construction begins before January 1, 2020. The PTC for wind facilities would phase out based on when construction begins. The PTC would be reduced by 20 percent if construction begins in 2017, 40 percent if construction begins in 2018 and 60 percent if construction begins in 2019. In the case of geothermal, landfill gas, trash, marine, and hydrokinetic facilities and certain closed-loop biomass, open-loop biomass, and qualified hydropower facilities, a taxpayer would be eligible to claim the PTC if construction begins before January 1, 2017, with no phase-out.

The Bill also would extend the ability of taxpayers to elect to claim the ITC in lieu of the PTC. For wind facilities electing to claim the ITC instead of the PTC, the ITC would phase out in the same manner as it would for the PTC--by 20 percent if construction begins in 2018, 40 percent if constructions begins in 2018 and 60 percent if construction begins in 2019.

In the case of solar facilities, the Bill would extend the 30 percent ITC and would replace the current requirement that the facility be placed in service by a certain date with a requirement that construction begin on the facility by a certain date. The “beginning construction” requirement is comparable to that currently in the PTC.

The amount of the ITC for solar facilities would decrease depending on the year in which construction begins. If construction begins any time before 2020, the ITC would equal 30 percent of eligible costs. If construction begins in 2020, the ITC would equal 26 percent of eligible costs, and if construction begins in 2021, the ITC would equal 22 percent of eligible costs. If construction on an eligible solar facility begins after 2021, the ITC would drop to 10 percent of eligible costs. The Bill also includes a reduction in the ITC if certain projects do not meet a placed-in-service deadline. If construction of a solar facility begins before 2022 but the facility is not placed in service before 2024, the ITC would be reduced to 10 percent.

The Bill also would extend the Section 25D residential solar tax credit to solar facilities placed in service before January 1, 2022. The credit percentages described above for the solar ITC also would apply to the residential credit. However, the placed-in-service requirement (rather than a beginning of construction requirement) would remain in effect for purposes of determining the amount of the credit.

The Bill also would extend through 2016 a number of additional energy-related provisions, including credits for nonbusiness qualified energy efficiency improvements and residential energy property expenditures, electricity produced by Indian coal facilities, and new energy-efficient homes, and the deduction for energy-efficient commercial building property in Section 179D.

If you have any questions regarding these extensions or any other energy-related provisions of the Bill, please contact one of the key contributors.