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ITC and PTC Extension: Legislative Update


12/16/15

Synopsis
 
On Tuesday, December 15, 2015, House Republicans unveiled legislation that included multiyear extensions of tax credits for solar and wind. 
 
Two separate bills are currently moving through Congress. One addresses the Production Tax Credit (PTC) and the other addresses both the PTC and the Investment Tax Credit (ITC).  While the prospects are very good for passage of these bills, it is not a done deal. The bills may be voted on as soon as Thursday or Friday of this week.
 
Overview of Proposed Legislation
 
Omnibus Budget Bill
 
Summary: 
Filed on the morning of Wednesday, December 16, the “Omnibus” budget bill contains provisions for a long-term extension and phasing down of both the PTC and ITC. The bill also contains measures to lift the ban on exports of U.S. crude oil.
 
  • Specifically, the Omnibus bill provides an extension (retroactive to January 1, 2015) for wind and extends the ability of taxpayers with wind facilities to elect the ITC in lieu of the PTC. (Please reference page 2002-2008 of the bill.)
  • Non-wind PTC projects are NOT covered in the Omnibus bill. Bonus Depreciation is also NOT covered in the Omnibus bill.

What’s in the bill?
Here is what we know about the PTC and ITC provisions in the Omnibus from the text of the bill.
 
Wind
For the extension of the PTC for wind ONLY, the credit is extended at its current 2.3 cent rate, and presumably remains indexed to inflation, but adjusted down (i.e., phased out) on the following schedule:
 
  • 100% of current tax credit rate then in effect for 2015 and 2016
  • 80% of then current rate for 2017
  • 60%  of then current rate for 2018
  • 40% of then current rate for 2019
  • Permanently ends in 2020

The ITC election in lieu of the PTC is also preserved to 2020, and also phases down the ITC at the identical percentages to the PTC in each year.
 
Commence construction rules apply in each year the credit is alive, presumably under the current rules.
 
Solar
Specifically, the Omnibus bill will provide extensions for both section 48 and 25D over the following schedule:
 
2017 – 30%
2018 – 30%
2019 – 30%
2020 – 26%
2021 – 22%
 
  • The bill modifies the tax code to allow for commence construction as long as the project is placed in service by 12/31/23. Then, the permanent 10% ITC under Section 48 remains in place after 2021.
  • The 25D credit expires 12/31/21. There is no commence construction provision for 25D.
  • Commence construction rules apply in each year the credit is above 10%. After that, there is no commence construction.
 
Tax Extenders Bill
 
The Protecting Americans from Tax Hikes (PATH) Act of 2015, known as the “tax extenders bill,” covers 50+ expired tax provisions. The bill would extend the PTC for two years beyond this year’s expiry.  
  • View a copy of the bill here.
  • View a section-by-section summary of the legislation here.
Other tax extenders in the “Extenders Act” that are not in the Omnibus Bill include:
 
  • PTC extended for two years, 2015 (retroactive and also 2016). 
The provision extends the PTC for certain renewable sources of electricity to facilities for which construction has commenced by the end of 2016.
 
  • Extension and modification of bonus depreciation. 
The provision extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). 
 
The bonus depreciation percentage is 50% for property placed in service during 2015, 2016 and 2017 and phases down, with 40% in 2018, and 3% in 2019. 
 
The provision continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015. 
 
The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation.  
 
What does CohnReznick Think?
The solar and wind industries, along with their capital markets, stand to benefit from certainty and stability the extensions would provide.
 
The five-year extension for solar would also coincide with the Clean Power Plan commencement. We believe this legislation, if passed, would enable a pragmatic pathway to the Clean Power Plan, and ensure that wind and solar can compete in a low carbon future.
 
To take action to support the bill, please contact your representatives in both chambers.
 
Contact
 
For more information, please contact Lee Peterson, JD, Senior Manager, Renewable Energy Industry Practice, at 404-847-7744, or Timothy Kemper or Anton Cohen, CohnReznick partners and Co-National Directors of the Firm’s Renewable Energy Industry Practice, at 404-847-7764 or 301-280-1822 respectively.
 
To learn more about CohnReznick’s Renewable Energy Industry Practice, visit our website.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.  

 
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