Energy-Related Tax Provisions of the American Taxpayer Relief Act of 2012

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 (the “Act”).  President Obama signed the Act into law on January 2, 2013.  The Act contains multiple business tax provisions.  The following is a summary of certain tax provisions relevant to renewable energy projects.

The Act extends the production tax credit (“PTC”) for wind facilities under Section 45 for one year.[1]  PTC for wind facilities had been set to expire at the end of 2012.  Under the Act, qualifying wind facilities are eligible for PTC so long as the construction of such facility has begun before January 1, 2014.  The Act also modifies Section 45 to allow certain other renewable energy facilities (including certain biomass, geothermal, solid waste, hydroelectric, and marine energy facilities) to qualify for PTC so long as construction begins before January 1, 2014.  Prior to the Act, such facilities qualified for PTC only if the facility was placed in service before January 1, 2014.  The Act allows taxpayers to elect, in lieu of PTC, the 30% investment tax credit (“ITC”) under Section 48 for facilities qualifying for the PTC if construction of such facility begins before January 1, 2014.

The Act does not modify the availability of PTC and ITC with respect to solar facilities.  Qualified solar facilities are eligible for a 30% ITC if placed in service before the end of 2016 and for a 10% ITC if placed in service in 2017 or later.  PTC is unavailable for any solar facility placed in service after 2005.

The Act extends “bonus” depreciation under Section 168(k) for one year.  Bonus depreciation had been set to expire at the end of 2012.  Under the Act, taxpayers may take bonus depreciation for qualifying property placed in service before January 1, 2014 (or before January 1, 2015 for certain assets).  The bonus depreciation allowance is the same for 2013 as it was for 2012 – a first year deduction equal to 50% of the tax basis of the qualifying property.

The Act contains several other energy-related provisions, including extensions of tax credits relating to biofuels and energy efficient homes.
 

For any questions regarding this matter, please contact:

Greg Riddle
Partner
griddle@orrick.com
(415) 773-5533

Wolfram Pohl
Associate
wpohl@orrick.com
(415) 773-4252


[1] Unless otherwise noted, all Section references are to the Internal Revenue Code of 1986, as amended.