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ITC and PTC Extensions Pass in House and Senate


12/18/15

Today, December 18, 2015, the Senate joined the House in passing both the Protecting Americans from Tax Hikes Act of 2015 (“the Tax Extenders Act”) and the “Military Construction and Veterans Affairs and Related Agencies Appropriations Act (the “Omnibus Spending Act”)” (see our prior alert).
 
For the renewable energy industry, the bills contain historic and meaningful extensions of both the federal production tax credit (PTC) for wind and other eligible technologies, and the federal investment tax credit (ITC) for solar and wind technologies.
 
The legislation passed in the House 316-113, and in the Senate 65-33. The President is expected to sign the bill today.
 
Key details of the legislation impacting the wind and solar sectors include:
 
Wind
 
Regarding the PTC for wind only, the credit is extended and remains indexed to inflation, but adjusted down (i.e., phased out) based on the following schedule:

  • For projects in which construction has begun before January 1, 2017, the PTC will remain at the full amount otherwise available
  • For projects in which construction has begun from January 1, 2017 through December 31, 2017, there is a 20% reduction to every year of the 10 years of the applicable PTC
  • For projects in which construction has begun from January 1, 2018 through December 31, 2018, there is a 40% reduction to every year of  the 10 years of the applicable PTC
  • For projects in which construction has begun from January 1, 2019 through December 31, 2019, there is a 60% reduction to every year of the 10 years of the applicable PTC
  • For projects in which construction has begun after December 31, 2019, the PTC is not available.
     

The rule providing for annual inflation adjustments to the PTC rate remains in effect.
 
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 as set forth above. For example, a wind project that will meet the begun construction requirements in 2017 will be eligible for a 24% ITC (calculated as 30% times 80%=24%).
 
The PTC commence construction rules apply in each year the credit is available to qualifying projects. Presumably, the same ‘begun construction’ rules apply. We expect the Treasury to issue additional IRS notices confirming or explaining more of the intricate details, as it has in the past. The legislation that was passed today did not contain any explanations. Therefore, we advise you to consult your CohnReznick tax advisor with any questions.
 
Solar
 
The Omnibus Spending Act bill will provide extensions for both Section 48 (the business solar credit) and Section 25D (the residential solar credit) over the following schedule:

  • For solar projects in which construction has begun construction before January 1, 2020, the ITC will remain at the full 30%
  • For solar projects in which construction has begun from January 1,2020 through December 31, 2020, the ITC will be 26%
  • For solar projects in which construction has begun from January 1, 2021 through December 31, 2021, the ITC will be 22%
  • For solar projects placed in service after December 31, 2021, the ITC is 10%.
     

The bill also requires that projects receiving a tax credit in excess of 10% be placed in service before January 1, 2024. There is no commence construction thereafter and the 10% ITC under Section 48 remains permanently in place after 2021. However, the residential 25D credit expires 12/31/21 and there is no commence construction provision for 25D.
 
NOTE: The commence construction rules now, for the first time, apply to the ITC. We anticipate that rules will be either identical, or substantially similar, to those for the PTC. However, the Treasury may have the IRS issue additional tax notices to clarify these rules and other points.
 
Other Extenders in the “Extenders Act” but not in the “Omnibus Bill”
Two-year extension of the PTC: 2015 (retroactive) and 2016.The provision extends the PTC for certain renewable sources of electricity to facilities for which construction has commenced before January 1, 2017
 
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 through December 31, 2017 and phases down, with 40% in 2018, and 30% 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. It also 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?
This is the most impactful industry legislation for the renewable energy industry in the past decade, helping to ensure the industry’s growth and market maturation. The extensions will continue to drive down the costs of renewable technology, accelerating a competitive playing field for all energy technologies in our country, and ultimately securing a stable future for solar and wind power generation.

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.


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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