Business & Utilities Tax Incentives
The American Recovery and Reinvestment Act of 2009 ("Recovery Act") amended or added numerous energy tax incentives available to businesses and utilities. Many of these incentives were previously modified by Emergency Economic Stabilization Act in 2008. The majority of the incentives were originally passed into law under the Energy Policy Act of 2005 (EPACT).
For a summary of previous energy tax incentives, please read the Emergency Economic Stabilization Act of 2008 (PDF 48kb). Download Adobe Reader.
Renewable Energy Incentives
The Recovery Act amends several provisions of the U.S. Tax Code, expanding or providing new renewable energy incentives for businesses and utilities who produce or utilize renewable energy. These incentives generally take the form of tax credits for the production of electricity from, and facilities that utilize wind, refined coal, geothermal, biomass, solar, and combined heat and power systems.
The Recovery Act added greater flexibility to the Investment Tax Credit ("ITC"), Production Tax Credit ("PTC"), as well as creating a new "Grant in Lieu of" PTC/ITC Tax Credit program, administered by the Department of Treasury.
A. Investment Tax Credit ("ITC")
An ITC generally allows taxpayers to take a single tax credit against the project's tax basis equal to 30% in its first year and allows a taxpayer to elect certain qualified facilities to be characterized as energy property eligible for a 10% or 30% ITC, depending on the technology. The Recovery Act repealed the $4,000 limit on the ITC for small wind energy property, and the limitation on property financed by subsidized energy financing. The repeal applies to property placed in service after Dec. 31, 2008.
B. Production Tax Credit ("PTC")
Alternatively, the Recovery Act allows a tax credit for the generation of qualified energy from qualified facilities. The PTC amounts, credit periods, definitions of qualified facilities are technology-specific. Qualified energy resources include:
- Wind
- Closed-loop biomass
- Open-loop biomass
- Geothermal
- Solar
- Small Irrigation Power
- Municipal Solid Waste
- Qualified Hydropower Production
- Marine & Hydrokinetic Renewable Energy
To be eligible for the credit, electricity produced from qualified energy resources at qualified facilities must be sold by the taxpayer to an unrelated person.
The Recovery Act generally extends the "eligibility dates" of a tax credit for facilities producing qualified electricity. The Recovery Act also extends the "placed in service date" for wind facilities to Dec. 31, 2012. For the other facilities, the placed-in-service date was extended from Dec. 31, 2010 (Dec. 31, 2011 in the case of marine and hydrokinetic renewable energy facilities) to Dec. 31, 2013.
Please see IRS Notice 2009-40 for more information.
C. ITC and PTC Elections
A taxpayer cannot take both an investment tax credit (ITC) and a production tax credit (PTC) for a facility that could qualify for both - they must elect to either receive an ITC or PTC for each project.
A taxpayer may irrevocably elect the ITC instead of the PTC for qualifying renewable energy projects. If a taxpayer does elect to take an ITC for energy property that qualifies for a PTC, the amount of the ITC will be 30% of the property's tax basis.
Please see IRS Notice 2009-52: Election of Investment Tax Credit in Lieu of Production Tax Credit for more information (PDF 15kb). Download Adobe Reader.
D. §1603 Grant in Lieu of ITC Program
Recovery Act §1603 created a new renewable energy grant program administered by the U.S. Department of Treasury. This cash grant may be taken in lieu of the ITC. In July 2009, the Department of Treasury issued documents detailing guidelines for the grants, terms and conditions and a sample application. The tax credit for such property ranges between 10% and 30%, depending on the type of property.
Generally, Treasury grants are available to eligible property placed in service in 2009 or 2010, or property if construction began in 2009 or 2010, but not "placed in service" until after - with certain caveats. More specifically, Treasury guidelines include a "safe harbor" provision, defining the beginning of construction as the point at which the applicant has incurred or paid at least 5% of the total cost of the property, excluding land and certain preliminary planning activities.
There is an online application process, and applications are currently being accepted. For more information, please visit the 1603 program web site for further information.
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