Legislative update: Solar and wind energy tax credits, extending provisions

US: Solar and wind energy tax credits

A year-end package of legislation, introduced in the House late last night, includes amendments and provisions relating to solar and wind energy tax credits that had expired or would soon expire.

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Overview

In summary, the proposed amendments to Code sections for wind and solar tax credits would provide:

  • Five-year extensions of the production tax credit and investment tax credit for wind facilities
  • Five-year extensions of the investment tax credit and individual tax credit for solar energy property
  • A “begun construction deadline” approach for determining eligibility of solar energy property for the investment tax credit

All of the credits, however, would be subject to phase outs over the extended five-year periods. Read the statutory excerpts [PDF 33 KB] of the provisions relating to the solar and wind energy tax credits.

The discussion below provides details of the amendments to the Code sections for wind and solar tax credits contained in the year-end legislation.

Other provisions being extended

Although not directly related to wind and solar, the “tax extenders” part of the year-end legislative package would:

  • Authorize the allocation of $3.5 billion of new markets tax credits for each year from 2015 through 2019
  • Provide for 50% bonus depreciation for property placed in service during 2015 through 2017, 40% bonus depreciation for property placed in service in 2018, and 30% bonus depreciation for property placed in service in 2019

Production, investment tax credits for wind, sections 45 and 48

With respect to wind facilities, the “begin construction deadline” for the production tax credit would be extended five years from the current deadline of December 31, 2014, to December 31, 2019.  In addition, the “begin construction deadline” with respect to the election to claim the investment tax credit in lieu of the production tax credit also would be extended to December 31, 2019.  

The amount of the either credit would be reduced the later construction begins:

Period in which construction begins

Reduction to credit

Before January 1, 2017

No reduction

After December 31, 2016, and before January 1, 2018

20% reduction

After December 31, 2017, and before January 1, 2019

40% reduction

After December 31, 2018, and before January 1, 2020

60% reduction

 

The effective date for these amendments relating to wind facilities under Code sections 45 and 48 would be January 1, 2015.

Investment tax credit for solar, under section 48

With respect to the 30% investment tax credit for solar energy facilities under section 48, such facilities would now be required only to have begun construction by a certain deadline—rather than being placed in service (i.e., a “begin construction deadline” approach).  

The deadline for solar energy property would be extended five years from the current deadline of December 31, 2016, to property whose construction begins on or before December 31, 2021.

Similar to the amendments for wind facilities, the investment tax credit for solar would be reduced the later construction begins:

Period in which construction begins

Credit rate

Before January 1, 2020

30%

After December 31, 2019, and before January 1, 2021

26%

After December 31, 2020, and before January 1, 2022

22%

 

In addition—unique to the proposed amendments for solar energy property—for any project for which the construction begins before January 1, 2022, but is not placed in service before January 1, 2024, the credit rate would be 10%.

The effective date for these amendments relating to solar energy property under section 48 would be the date of enactment of the legislation.

KPMG observation

The “begin construction approach” for solar energy property would appear to “level the playing field” between wind and solar with respect to the tax credit eligibility deadlines (however, solar energy property still would not be eligible for the production tax credit).

"Individual" tax credit for solar under section 25D

With respect to the 30% “individual” tax credit for solar electric property and solar water heating property expenditures under section 25D, the deadline for placing such property in service would similarly be extended five years from the current deadline of December 31, 2016, to December 31, 2021, but reduced in later years.  The amendments do not provide for a “begin construction deadline” approach for the credits under section 25D; the credit amount would depend on the year the property is placed in service.

A phase out is also included in the amendments to the credit under this section:

Period in which property is placed in service

Credit rate

After December 31, 2016, and before January 1, 2020

30%

After December 31, 2019, and before January 1, 2021

26%

After December 31, 2020, and before January 1, 2022

22%

 

The effective date for these amendments relating to solar energy property and solar water heating property under section 25D would be January 1, 2017.

KPMG observation

The House is expected to vote on the legislation this week, and assuming passage, Senate action is expected to follow. Both parts of the year-end legislative package—the extenders legislation and the accompanying government funding legislation—would likely require substantial bipartisan support, so passage is not yet certain.

 

For more information, contact a tax professional with KPMG's Washington National Tax:

Rich Blumenreich | +1 (202) 533-3032 | rblumenreich@kpmg.com

Katherine Breaks | +1 (202) 533-4578 | kbreaks@kpmg.com

Shariff Barakat | +1 (202) 533-8978 | sbarakat@kpmg.com

Read a printable version [PDF 84 KB] of this report.

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