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1 [1] (April 23, 2021)

handle is hein.crs/govedbv0001 and id is 1 raw text is: nIoimiri~ I Vita e e 1 14 9 Updated April 23, 2021 The Energy Credit or Energy Investment Tax Credit (ITC) Internal Revenue Code (IRC) Section 48 provides an investment taxcredit (ITC) for certain energy-related property. This In Focus summarizes the current renewable energy ITC and reviews its legislative history. Current Law Certain investments in renewable energyproperty qualify for an ITC. The amount of the credit is determined as a percentage ofthe taxpayer's basis in eligible property (generally, the cost of acquiring or constructing eligible property). The taxcredit rate and other credit parameters depend on the type of property or technology for which the credit is being claimed, as summarized in Table 1. Table I. Energy Credit: Summary of Current Law Credit Expiration Date Eligible Technology Rate (End of Year) Offshore Windb 30*o 2025 Solar, Geothermal Energy 10*o Permanent Notes: Credit expiration dates are start-of-construction deadlines. For nonpermanent credits, property generally must be placed in service fouryears afterthe start of construction to qualify (five years if construction started in 2016 or20 17). a. Waste energy recovery property is eligible starting in 2021. b. Offshorewind facilitiesthat began constructionafter20 16 are eligible. Facilities that began construction before 2017 may claim the ITC in lieu of the productiontax credit (PTC). Solar energy has a permanent 10% ITC. Temporarily, the credit rate for solar was increased to 30% through 2019, before being reduced to 26% through 2022 and 22% in 2023. Investments in small wind property (a wind turbine with 100 kilowatts of capacity or less) qualified for the 30% ITC through 2019, with the credit rate reduced to 26% through 2022 and 22% in 2023. Investments in fuel cell power plants and fiber optic solar may qualify for the ITC at theses ame rates. The credit for fuel cells is limited to $1,500 per 0.5 kilowatts in capacity. Wasteenergy recoveiy property thatis not partofa combined heat andpower (CHP) system and has a maximum capacity of 50 megawatts or les s can qualify for the 26% credit if constructionbegins in 2021 or 2022, and a 22% credit if constructionbegins in 2023. Investments in microturbines, CHP systems, and geothermalheat pumps qualify fora 10% ITC. There is a 30% ITC for offshore wind property beginning construction by the end of 2025. The expiration dates for the ITC are commence constructiondeadlines. Forexample, solarpropertythat https://crsrepo was under constructionby the end of 2019 may qualify for the 30% tax credit, even if the property is notplacedin service (or ready for us e) until a later date. Like the 10% ITC for solar, the 10% ITC for geothermal energy property is permanent. Geothermal energy property may also qualify for the renewable energy production tax credit (PTC) under IRC Section 45. Legislative History The Early Years The energy taxcredit was first enacted in the Energy Tax Act of 1978 (P.L. 95-618), which created a temporary 10% taxcredit for business energyproperty andequipment using energy resources other than oil or naturalgas. Taxcredits for solar and wind energy property were refundable (credits could be received as a payment if the taxpayer did nothave taxliability 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 andresources. Generally, the energy credits were scheduled to expire December 31, 1982. The Windfall Profit Tax Act of 1980 (P.L. 96-223) expanded the energy credit to further the objective of developing an abundant range of energyresources and promoting investment in energy conservation. Taxcredits 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 taxcredit for geothermal was also increased from10% to 15% and ocean thermal equipment was added as qualifying property. The 10% credit forbiomass was also extended for three years, through 1985. The definition ofbiomass 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 - generationproperty (e.g., property thatproduces heator other usefulenergy in addition to electricity) through 1982. The act made a number of other changes to thebusiness energy ITC (the changes notedhere are those mostclosely related to the current energy ITC). When considering the TaxReform Act of 1986 (TRA86; P.L. 99-514), Congress believed it desirable to maintain tax credits for renewable energy to continue stimulating technological development and the use ofrenewable energy sources. While there was not support for a broad extension of the energy credit (investment credits generally were repealed or allowed to expire in TRA86), investment tax credits for solar and geothermal energy property were

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