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1 [1] (November 2, 2018)

handle is hein.crs/crsmthzzbsb0001 and id is 1 raw text is: Cogesoa ReerhIevc Updated November 2, 2018 The Energy Credit: An Investment Tax Credit for Renewable Energy Internal Revenue Code (IRC) Section 48 provides an investment tax credit (ITC) for certain energy-related investments. The incentive was enacted in 1978 and has been substantially modified over time. Under current law, the ITC for most nonsolar technologies will expire at the end of 2021. There is a permanent 10% ITC for solar and geothermal technologies. Increased credit rates for solar are available through 2021. Current Law Certain investments in renewable energy property qualify for an ITC. The amount of the credit is determined as a percentage of the taxpayer's basis in eligible property (generally, the cost of acquiring or constructing eligible property). The tax credit rate and other credit parameters depend on the type of property or technology for which the credit is being claimed. Current law for the energy credit is summarized in Table 1. Table I. Energy Credit: Summary of Current Law Credit Expiration Date Eligible Technology Rate (End of Year) 30% 2019 Solar, Fiber Optic Solar, Fuel 26% 2020 Cells, Small Wind 22% 2021 Microturbines, Combined Heat and Power, Geothermal 10% 2021 Heat Pump Solar, Geothermal Energy 10% Permanent Notes: Credit expiration dates are start-of-construction deadlines. For nonpermanent credits, property generally must be placed in service by December 31, 2023. Wind property may be eligible for the Section 45 production tax credit (PTC), and elect to receive the ITC in lieu of PTC through 2019. Solar energy has a permanent 10% ITC. Temporarily, the credit rate for solar is 30% through 2019, before being reduced to 26% in 2020 and 22% in 2021. Investments in small wind property (a wind turbine with 100 kilowatts of capacity or less) may qualify for a 30% ITC through 2019, with the credit rate reduced to 26% in 2020 and 22% in 2021. Investments in fuel cell power plants and fiber optic solar may qualify for the ITC at these same rates. The credit for fuel cells is limited to $1,500 per 0.5 kilowatts in capacity. Investments in microturbines, combined heat and power (CHP) systems, and geothermal heat pumps qualify for a 10% ITC. The expiration dates for the ITC are commence construction deadlines. For example, solar property that is under construction by the end of 2019 may qualify for the 30% tax credit, even if the property is not placed in service (or ready for use) until a later date. However, if property is placed in service after December 31, 2023, no credit is allowed, except for solar, where the credit is reduced to 10%. The ITC for geothermal energy property is permanent. The credit rate for geothermal is 10%. Geothermal energy property may also qualify for the renewable energy production tax credit (PTC) under IRC Section 45. Legislative History Special tax credits for energy have been part of the tax code since the late 1970s. The Early Years The energy tax credit was first enacted in the Energy Tax Act of 1978 (P.L. 95-618), which created a temporary 10% tax credit for business energy property and equipment using energy resources other than oil or natural gas. Tax credits for solar and wind energy property were refundable (credits could be received as a payment if the taxpayer did not have tax liability to offset), with nonrefundable credits available for a wide range of other qualifying technologies and property. The rationale behind the credits was to reduce U.S. consumption of oil and natural gas by encouraging the commercialization of a broader range of energy technologies and resources. Generally, the energy credits were scheduled to expire December 31, 1982. The Windfall Profit Tax Act of 1980 (P.L. 96-223) substantially expanded the energy credit to further the objective of developing an abundant range of energy resources and promoting investment in energy conservation. Tax credits for solar and wind energy property investments were extended for three years, through 1985. Additionally, the credit rate for solar and wind was increased to 15%, and the credit was made nonrefundable. The tax credit for geothermal was also increased from 10% to 15% and ocean thermal equipment was added as qualifying property. The 10% credit for biomass was also extended for three years, through 1985. The definition of biomass included materials such as municipal solid waste. The act also provided an 11% credit for small-scale hydroelectric generating property, through 1985. A 10% credit was provided for co-generation property (e.g., property that produces heat or other useful energy in addition to electricity) through 1982. The act also made a number of other changes to the business energy investment credit. The changes noted here are those most closely related to the current energy credit. When enacting the Tax Reform Act of 1986 (TRA86; P.L. 99-514), Congress believed it desirable to maintain tax www.crs.gov 7-5700

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