Energy Credit (I.R.C. 48)

July 10, 2014

General Description:

The energy credit for any taxable year is the “energy percentage” of the basis of each “energy property” placed in service during the taxable year.

“Energy percentage” means 30% for qualified fuel cell property, certain solar energy equipment (but not for periods after 2016), certain geothermal energy equipment and qualified small wind energy property.  For all other types of energy property, “energy percentage” means 10%.

Property that is a qualified rehabilitation expenditure does not also qualify as energy property.

“Energy property” means:

  1. certain solar energy electricity generation property or illumination property (but not after 2016), geothermal energy, qualified fuel cell property or qualified microturbine property, combined heat and power system property, qualified small wind energy property, thermal energy property (but not after 2016);
  2. the construction must be completed by the taxpayer or, if the taxpayer acquires the property, the original use must commence with the taxpayer;
  3. depreciation (or amortization in lieu of depreciation) must be allowable with respect to the property; and
  4. property that meets certain performance and quality standards.

Relationship to Section 45:

“Energy property” does not include property that is part of a facility the production from which is allowed as a credit under I.R.C. 45 (the production tax credit).

Section 48(a)(5) permits an election to treat “qualified facilities” as energy property.

If “qualified property” is part of a “qualified investment credit facility,” such qualified property is treated as if it were “energy property,” and is eligible for an energy percentage of 30%.

“Qualified property” means property that (1) is tangible personal property, or certain other tangible property, (2) with respect to which depreciation (or amortization in lieu of depreciation) is allowable, (3) that is constructed, reconstructed or acquired by the taxpayer and (4) the original use of which commences with the taxpayer.

“Qualified investment credit facility” means a facility described in I.R.C. 45(d)(1), (2), (3), (4), (6), (7), (9) or (11).  (Wind, closed-loop biomass, open-loop biomass, geothermal or solar energy facility, landfill gas facilities, trash facilities, qualified hydropower facility and marine and hydrokinetic renewable energy facilities).  Refined coal facilities are not eligible.  The facility must be placed in service after 2008 and the construction must have begun before January 1, 2014.  No I.R.C. 45 PTC may have been allowed.

The taxpayer must elect for I.R.C. 48(a)(5) apply.