The Department of the Treasury and the Internal Revenue Service (IRS) have recently proposed regulations to update rules for the investment tax credit under section 48 (ITC). These rules, last revised in 1987, govern the types of energy properties eligible for the section 48 ITC.
The proposed updates reflect changes in the energy industry, advancements in technology, and revisions from the Inflation Reduction Act of 2022 (IRA). These updates mark a significant shift in policy, addressing the evolving energy landscape.
Participants in the energy industry will find that the proposed regulations provide definitions for energy properties previously eligible for the ITC before the IRA’s implementation. These include solar process heat, fiber-optic solar property, combined heat and power system property, qualified fuel cell property, and qualified microturbine property, among others.
In addition, the proposed regulations also cover technologies added to the ITC as energy property by the IRA. These newly added technologies include electrochromic glass, energy storage technology, microgrid controllers, and biogas property.
Notably, the IRA introduced new provisions to the ITC, enabling smaller projects to include the cost of certain types of interconnection property in their credit amount. This is a significant allowance that could potentially boost the feasibility and implementation of smaller-scale energy projects.
Furthermore, the proposed regulations provide general rules for the ITC, including the application of the “80/20” Rule to retrofitted energy property, dual-use property, and issues related to multiple owners of an energy property.
The Treasury and IRS’s proposed rules represent a proactive approach to adapting tax credits to the evolving energy sector, reflecting the industry’s technological advances and the changing regulatory environment. These updates are expected to provide clearer guidance to industry participants and encourage further investments in energy property.
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