Congress yesterday passed the “Consolidated Appropriations Act, 2021” (the “Bill”), which, among many other things, extends several energy-related tax provisions, including the production tax credit (“PTC”) under Section 45 of the Internal Revenue Code (the “Code”) and the investment tax credit (“ITC”) under Section 48 of the Code.
The PTC currently includes a phased reduction of the credit for qualified wind facilities based on when construction of the facility begins. For a qualified wind facility the construction of which begins before 2021, the PTC is reduced by 40% (i.e., the facility qualifies for 60% of the otherwise available PTC). The Bill extends the 60% PTC to wind facilities for which construction begins before 2022. This extension also applies to geothermal, landfill gas, trash, marine, hydrokinetic facilities, and certain closed-loop biomass, open-loop biomass, and qualified hydropower facilities.
The Bill also extends the ability of taxpayers to elect to claim the ITC in lieu of the PTC. For wind facilities, taxpayers could make such an election if construction began before 2022. Like the PTC, the ITC would be reduced by 40% of the otherwise available ITC.
The Bill also adds a new provision for qualified offshore wind facilities (those located in the inland navigable waters of the United States or in the coastal waters of the United States), for which taxpayers elect to claim the ITC in lieu of the PTC. Qualified offshore wind facilities would be eligible for the ITC if construction begins before January 1, 2026. In addition, it eliminates the phaseout that is applicable in the case of other wind facilities, effectively extending the 30% ITC to qualified offshore wind facilities construction of which begins before January 1, 2026.
For solar energy properties, the Bill extends the period over which the ITC is phased out. A solar energy property construction of which begins after December 31, 2019 and before January 1, 2023 would be eligible for the 26% ITC. Facilities for which construction begins in 2023 would be eligible for the 22% ITC. Facilities placed in service after December 31, 2025 would be eligible for the 10% ITC, regardless of when construction began.
The Bill also extends the Section 25D residential energy efficient property tax credit to facilities placed in service on or before December 31, 2023. The Bill likewise extends the phaseout of the credit so that facilities that are placed in service before January 1, 2023 are eligible for a 26% credit and facilities that are placed in service before January 1, 2024 (the deadline for the credit) are eligible for a 22% credit.
The Bill includes a number of additional energy-related provisions, including provisions related to nonbusiness energy property, ITC for waste energy recover property, production credit for Indian coal facilities, and the extension of excise tax credits relating to alternative fuels.