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Buckle up as we break down the 300 plus pages of energy tax related provisions.
This legislation constitutes the largest-ever U.S. investment in climate action and is designed to accelerate the buildout of renewable energy, speed up the adoption of electric vehicles (EVs) and aid in the deployment of energy efficiency technologies in low income and minority communities. It puts us on a credible path to achieving a roughly 40% reduction in greenhouse gas emissions by 2030.
Tax incentives in the plan would stabilize federal energy policy, incentivize domestic manufacturing, and benefit communities impacted most by the changing energy landscape.
“The 10-year tax credit policy will provide the solar and energy storage sectors with needed certainty,” according to Abigail Ross Hopper, Solar Energy Industries Association president and CEO.
“For example, the bill extends the solar investment tax credit, or ITC, and makes it “buildable” by making it larger if certain labor and domestic content criteria are met,” Hopper said Monday during a press briefing. Also, the credit can cover interconnection costs.
The ITC is extended through 2024. In 2025, these tax credits change to emissions-based, technology-neutral tax credits available to any power generation that’s net-zero, potentially a lifeline to fossil fuels if they can demonstrate robust carbon capture. Power producers would have the flexibility to use either the ITC, the Production Tax Credit (PTC) or sell credits to unrelated third parties for cash.
Another key tax feature is the ability to stack tax incentives. Along with a base ITC of 30%, power producers can add on:
- An additional 10% ITC (or a 10% increase in equivalent PTC), by using a certain percentage of steel, iron and manufactured products produced in the United States
- 10% for facilities in census tracts with retired coal infrastructure, or that post-1999 had high employment levels by the coal, oil or natural gas industry
- 20% for small wind and solar projects in low-income communities
for utilizing domestic content
for projects in high unemployment areas
for projects in low-income communities
This monumental legislation provides much-needed certainty around the implementation of renewable energy projects, allowing for this structure to remain in place for the next ten years, rather than changing on a yearly basis.
Further, there is a novel feature that is truly an epic deviation from previous tax code: Taxpayers will now have the ability to transfer any or all tax credits to an unrelated transferee for cash payments. “It’s a fundamental split from basically the entire history of U.S. federal tax law, which has long held that you cannot sell tax credits,” Heather Cooper, of McDermott Will and Emery said. This is a radical departure from traditional tax equity financing normally undertaken for renewable energy projects. This exchange of credits would constitute a nontaxable event, being excluded from the seller’s income and buyer’s expenses. This could be a game changer for young companies that aren’t yet reporting positive earnings to take a cash advantage from the credits.
It would also enable state, governmental, tribal and nonprofit entities to use their tax credits for a direct pay option. Credits would be claimed as a refund on their tax returns and receive a check from the IRS.
Taken together, these tax credits make up the backbone of the plan’s priorities. These are calculated measures to foster a domestic clean energy supply chain, invest in communities looking to find their economic identity in the energy transition, and create well-paying jobs across the United States.
Contact Velo Solar to speak about the credits your business may qualify for and the steps you can take for your clean energy future.
*Velo Solar is not offering tax advice.