IRS Issues Proposed Regulations Defining Eligible Section 48 Energy Property

On November 17, 2023, the Internal Revenue Service (IRS) issued proposed regulations further defining the types of energy property eligible for Section 48 investment tax credit (ITC). Initially enacted in 1962 and amended by the Inflation Reduction Act of 2022 (IRA), Section 48 provides a tax credit for investment in energy property. The proposed rules update the types of energy properties eligible for the credit, including changes in the energy industry, technological advances, and updates from the IRA provisions.

The proposed regulations provide definitions of energy properties for which the ITC was available before the IRA, including solar process heat, fiber-optic solar property, combined heat and power system property, qualified fuel cell property, and qualified microturbine property. These proposed regulations also address technologies that were added to the ITC as energy property by the IRA, including electrochromic glass, energy storage technology, microgrid controllers, and biogas property. The IRA added new provisions to the ITC to allow smaller projects to include the cost of certain types of interconnection property in their credit amount.

Additionally, 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.

Once finalized, the proposed regulations will generally apply to property placed in service after 2022 in a tax year that begins after final regulations are published in the Federal Register. Comments on the proposed regulations are due by January 21, 2024, and a public hearing is scheduled for February 20, 2024.

Please contact our Ryan tax professionals to determine how these proposed regulations could apply to your business.

TECHNICAL INFORMATION CONTACT:

Ian Boccaccio
Principal and Practice Leader
Ryan
469.399.4545
ian.boccaccio@ryan.com

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.