United States IRC allows production or investment tax credits for taxpayers using wind to produce electricity or for placing wind energy property in service; availability and amount of production tax credit PTC or investment tax credit ITC depends on when taxpayer begins constructing a wind project.
The 10% ITC would also apply to projects that commenced construction in prior years but did not meet the placed-in-service deadline.
Given that the 2019 Bill did not provide any extensions for claiming ITCs with respect to solar projects, these changes mark a welcomed development for the solar industry. Notably, the Extenders Bill coincides with the increasing competiveness of the solar energy industry, paving the way for a continued solar boom.
Although the placed-in-service date for such projects was extended by two years to December 31, 2025, we expect that developers of projects that commenced construction during or prior to 2020 will nevertheless strive to cause such projects to be placed-in-service for tax purposes prior to 2025, in order to meet the four-year continuity safe harbor provided by the IRS in several of its notices ( Continuity Safe Harbor ).
OVERVIEW
New guidance from the Internal Revenue Service (IRS, the Service) extends the Continuity Safe Harbor to 10 years for both offshore wind projects and projects on federal land.
IN DEPTH
As background, eligibility for the production tax credit (PTC) under Section 45 and the investment tax credit (ITC) under Section 48 ties to the date when a project “begins construction.” There is extensive existing guidance from the Service regarding when a project is treated as having begun construction. Broadly speaking, a project is treated as having begun construction when it meets either the Physical Work Test (performing physical work of a significant nature) or the Five Percent Safe Harbor (spending 5% of the total cost of the project). In addition, the taxpayer must satisfy certain continuity requirements with respect to the project. The Service has provided a “Continuity Safe Harbor,” whereby a project is treated as satisfying the continuity requirements if it is placed in
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On Monday, December 21, 2020, the United States Congress passed a second large stimulus bill[1] (the “Relief Bill”) aimed at curtailing the economic disruptions caused by COVID-19. The Relief Bill, among other things, extends renewable energy tax credits for wind projects, solar projects and carbon capture and sequestration and contains specific provisions addressing offshore wind farms. These extensions include a one-year extension for wind projects, a two-year extension for solar projects and a two-year extension for carbon capture and sequestration projects.
Wind Tax Credits
Section 45 of the Internal Revenue Code (the “Code”) allows a production tax credit (“PTC”) against federal income tax for electricity produced by a taxpayer at a “qualified facility” during the 10-year period beginning on the date such facility is originally placed in service. A “qualified facility” includes wind facilities. T
On December 31, 2020, the US Treasury Department and the Internal Revenue Service (the “IRS”) issued Notice 2021-05 (the “Notice”), which provides relief for offshore renewable energy.