IRS and Treasury Issue Final Rules for Energy Investment Tax Credit

The Internal Revenue Service (IRS) and the U.S. Department of the Treasury (Treasury) released final regulations this month for the Section 48 Energy Credit, also known as the energy Investment Tax Credit (ITC), focusing on enhancing clean energy initiatives outlined in the Inflation Reduction Act (IRA). The final rules are meant to support renewable energy projects, such as those in under-served and low-income communities, as well as offer new incentives to encourage investment in clean energy, particularly solar and wind energy projects.

Key provisions of the final regulations include the following:

• Tech-Neutral Credits: The rules apply to Section 48 ITC (for energy property) and Section 48E ITC (technology-neutral credits). The latter focuses on facilities achieving zero greenhouse gas emissions and applies to properties placed in service on or after Jan. 1, 2025.
• Expanded Eligibility: Offshore wind projects and other clean energy initiatives benefit from expanded definitions of qualifying property and equipment under the ITC, including land-based equipment used in conjunction with offshore facilities.
• Qualified Facilities: Facilities must meet specific criteria to be eligible. For example, they must include integral components like power conditioning equipment and exclude unrelated elements like transmission lines and access roads.
• Domestic Content Bonus: Additional credits are available for facilities meeting domestic manufacturing requirements, meant to promote U.S. supply chains.
• Low-Income and Energy Community Adders: Solar and wind projects in low-income or underserved communities can receive extra credits. Similarly, projects in “energy communities” affected by fossil fuel transitions, like coal mines or power plants, also qualify for bonuses.
• Recapture Rules: Credits are subject to a five-year recapture period if a qualifying facility undergoes changes that disqualify it within that timeframe.
• Effective Date: While the tech-neutral ITC applies to properties placed in service starting Jan. 1, 2025, the general updates to Section 48 ITC rules take effect immediately upon publication in the Federal Register, offering guidance for projects currently in development.

For questions or more information about how the final regulations impact your development project, contact your Windham Brannon advisor today.