§48E — Clean electricity investment credit
Statute Text — 26 U.S.C. §48E
For purposes of section 46, the clean electricity investment credit for any taxable year is an amount equal to the applicable percentage of the qualified investment for such taxable year with respect to—
any qualified facility, and
any energy storage technology.
Subject to paragraph (3)—
In the case of any qualified facility which is not described in subclause (I) or (II) of clause (ii) and does not satisfy the requirements described in subclause (III) of such clause, the applicable percentage shall be 6 percent.
In the case of any qualified facility—
with a maximum net output of less than 1 megawatt (as measured in alternating current),
the construction of which begins prior to the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (3) and (4) of subsection (d), or
which—
satisfies the requirements of subsection (d)(3), and
with respect to the construction of such facility, satisfies the requirements of subsection (d)(4),
the applicable percentage shall be 30 percent.
Subject to paragraph (3)—
In the case of any energy storage technology which is not described in subclause (I) or (II) of clause (ii) and does not satisfy the requirements described in subclause (III) of such clause, the applicable percentage shall be 6 percent.
In the case of any energy storage technology—
with a capacity of less than 1 megawatt,
the construction of which begins prior to the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (3) and (4) of subsection (d), or
which—
satisfies the requirements of subsection (d)(3), and
with respect to the construction of such property, satisfies the requirements of subsection (d)(4),
the applicable percentage shall be 30 percent.
In the case of any qualified investment with respect to a qualified facility or with respect to energy storage technology which is placed in service within an energy community (as defined in section 45(b)(11)(B), as applied without regard to clause (iv) thereof), for purposes of applying paragraph (2) with respect to such property or investment, the applicable percentage shall be increased by the applicable credit rate increase.
For purposes of clause (i), the applicable credit rate increase shall be an amount equal to—
in the case of any qualified investment with respect to a qualified facility described in paragraph (2)(A)(i) or with respect to energy storage technology described in paragraph (2)(B)(i), 2 percentage points, and
in the case of any qualified investment with respect to a qualified facility described in paragraph (2)(A)(ii) or with respect to energy storage technology described in paragraph (2)(B)(ii), 10 percentage points.
Rules similar to the rules of section 48(a)(12) shall apply, except that, for purposes of subparagraph (B) of such section and the application of rules similar to the rules of section 45(b)(9)(B), the adjusted percentage (as determined under section 45(b)(9)(C)) shall be determined as follows:
In the case of any qualified investment with respect to any qualified facility or energy storage technology the construction of which begins before
June 16, 2025
, 40 percent (or, in the case of a qualified facility which is an offshore wind facility, 20 percent).
In the case of any qualified investment with respect to any qualified facility or energy storage technology the construction of which begins on or after
June 16, 2025
, and before
January 1, 2026
, 45 percent (or, in the case of a qualified facility which is an offshore wind facility, 27.5 percent).
In the case of any qualified investment with respect to any qualified facility or energy storage technology the construction of which begins during calendar year 2026, 50 percent (or, in the case of a qualified facility which is an offshore wind facility, 35 percent).
In the case of any qualified investment with respect to any qualified facility or energy storage technology the construction of which begins after
December 31, 2026
, 55 percent.
For purposes of subsection (a), the qualified investment with respect to any qualified facility for any taxable year is the sum of—
the basis of any qualified property placed in service by the taxpayer during such taxable year which is part of a qualified facility, plus
the amount of any expenditures which are—
paid or incurred by the taxpayer for qualified interconnection property—
in connection with a qualified facility which has a maximum net output of not greater than 5 megawatts (as measured in alternating current), and
placed in service during the taxable year of the taxpayer, and
properly chargeable to capital account of the taxpayer.
For purposes of this section, the term “qualified property” means property—
which is—
tangible personal property, or
other tangible property (not including a building or its structural components), but only if such property is used as an integral part of the qualified facility,
with respect to which depreciation (or amortization in lieu of depreciation) is allowable, and
the construction, reconstruction, or erection of which is completed by the taxpayer, or
which is acquired by the taxpayer if the original use of such property commences with the taxpayer.
For purposes of this section, the term “qualified facility” means a facility—
which is used for the generation of electricity,
which is placed in service after
December 31, 2024
, and
for which the anticipated greenhouse gas emissions rate (as determined under subparagraph (B)(ii)) is not greater than zero.
Rules similar to the rules of section 45Y(b)(1)(C) shall apply for purposes of this paragraph.
Rules similar to the rules of section 45Y(b)(2) shall apply for purposes of this paragraph.
The term “qualified facility” shall not include any facility for which—
a renewable electricity production credit determined under section 45,
an advanced nuclear power facility production credit determined under section 45J,
a carbon oxide sequestration credit determined under section 45Q,
a zero-emission nuclear power production credit determined under section 45U,
a clean electricity production credit determined under section 45Y,
an energy credit determined under section 48, or
a qualifying advanced coal project credit under section 48A,
is allowed under section 38 for the taxable year or any prior taxable year.
For purposes of this paragraph, the term “qualified interconnection property” has the meaning given such term in section 48(a)(8)(B).
The qualified investment with respect to any qualified facility for any taxable year shall not include that portion of the basis of any property which is attributable to qualified rehabilitation expenditures (as defined in section 47(c)(2)).
The terms “qualified facility” and “qualified interconnection property” shall not include any facility or property the construction, reconstruction, or erection of which begins after December 31, 2025, if the construction, reconstruction, or erection of such facility or property includes any material assistance from a prohibited foreign entity (as defined in section 7701(a)(52)).
For purposes of this subsection, the terms “CO2e per KWh” and “greenhouse gas emissions rate” have the same meaning given such terms under section 45Y.
For purposes of subsection (a), the qualified investment with respect to energy storage technology for any taxable year is the basis of any energy storage technology placed in service by the taxpayer during such taxable year.
For purposes of this section, the term “energy storage technology” has the meaning given such term in section 48(c)(6) (except that subparagraph (D) of such section shall not apply).
The term “energy storage technology” shall not include any property the construction of which begins after December 31, 2025, if the construction of such property includes any material assistance from a prohibited foreign entity (as defined in section 7701(a)(52)).
Rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of subsection (a).
Rules similar to the rules of section 45(b)(3) shall apply.
Rules similar to the rules of section 48(a)(10) shall apply.
Rules similar to the rules of section 45(b)(8) shall apply.
In the case of a taxpayer making an election under section 6417 with respect to a credit under this section, rules similar to the rules of section 45Y(g)(12) shall apply.
No credit shall be determined under subsection (a) for any taxable year if the taxpayer is—
a specified foreign entity (as defined in section 7701(a)(51)(B)), or
a foreign-influenced entity (as defined in section 7701(a)(51)(D), without regard to clause (i)(II) thereof).
In the case of a taxpayer for which section 7701(a)(51)(D)(i)(II) is determined to apply for any taxable year, no credit shall be determined under subsection (a) for such taxable year if such determination relates to a qualified facility described in subsection (b)(3) or energy storage technology described in subsection (c)(2).
Subject to paragraph (4), the amount of the clean electricity investment credit under subsection (a) for any qualified investment with respect to any qualified facility or energy storage technology the construction of which begins during a calendar year described in paragraph (2) shall be equal to the product of—
the amount of the credit determined under subsection (a) without regard to this subsection, multiplied by
the phase-out percentage under paragraph (2).
The phase-out percentage under this paragraph is equal to—
for any qualified investment with respect to any qualified facility or energy storage technology the construction of which begins during the first calendar year following the applicable year, 100 percent,
for any qualified investment with respect to any qualified facility or energy storage technology the construction of which begins during the second calendar year following the applicable year, 75 percent,
for any qualified investment with respect to any qualified facility or energy storage technology the construction of which begins during the third calendar year following the applicable year, 50 percent, and
for any qualified investment with respect to any qualified facility or energy storage technology the construction of which begins during any calendar year subsequent to the calendar year described in subparagraph (C), 0 percent.
For purposes of this subsection, the term “applicable year” has the same meaning given such term in section 45Y(d)(3).
This section shall not apply to any qualified property placed in service by the taxpayer after December 31, 2027, which is part of an applicable facility.
For purposes of this paragraph, the term “applicable facility” means a qualified facility which—
uses wind to produce electricity (within the meaning of such term as used in section 45(d)(1), as determined without regard to any requirement under such section with respect to the date on which construction of property begins), or
uses solar energy to produce electricity (within the meaning of such term as used in section 45(d)(4), as determined without regard to any requirement under such section with respect to the date on which construction of property begins).
This paragraph shall not apply with respect to any energy storage technology which is placed in service at any applicable facility.
In this section, the term “greenhouse gas” has the same meaning given such term under section 45Y(e)(2).
For purposes of section 50, if the Secretary determines that the greenhouse gas emissions rate for a qualified facility is greater than 10 grams of CO2e per KWh, any property for which a credit was allowed under this section with respect to such facility shall cease to be investment credit property in the taxable year in which the determination is made.
In the case of any applicable facility with respect to which the Secretary makes an allocation of environmental justice capacity limitation under paragraph (4)—
the applicable percentage otherwise determined under subsection (a)(2) with respect to any eligible property which is part of such facility shall be increased by—
in the case of a facility described in subclause (I) of paragraph (2)(A)(iii) and not described in subclause (II) of such paragraph, 10 percentage points, and
in the case of a facility described in subclause (II) of paragraph (2)(A)(iii), 20 percentage points, and
the increase in the credit determined under subsection (a) by reason of this subsection for any taxable year with respect to all property which is part of such facility shall not exceed the amount which bears the same ratio to the amount of such increase (determined without regard to this subparagraph) as—
the environmental justice capacity limitation allocated to such facility, bears to
the total megawatt nameplate capacity of such facility, as measured in direct current.
For purposes of this subsection—
The term “applicable facility” means any qualified facility—
which is not described in section 45Y(b)(2)(B),
which has a maximum net output of less than 5 megawatts (as measured in alternating current), and
which—
is located in a low-income community (as defined in section 45D(e)) or on Indian land (as defined in section 2601(2) of the Energy Policy Act of 1992 (
25 U.S.C. 3501(2)
)), or
is part of a qualified low-income residential building project or a qualified low-income economic benefit project.
A facility shall be treated as part of a qualified low-income residential building project if—
such facility is installed on a residential rental building which participates in a covered housing program (as defined in section 41411(a) of the Violence Against Women Act of 1994 (
34 U.S.C. 12491(a)(3)
),
1
1 So in original. Another closing parenthesis probably should precede the comma.
a housing assistance program administered by the Department of Agriculture under title V of the Housing Act of 1949, a housing program administered by a tribally designated housing entity (as defined in section 4(22) of the Native American Housing Assistance and Self-Determination Act of 1996 (
25 U.S.C. 4103(22)
)) or such other affordable housing programs as the Secretary may provide, and
the financial benefits of the electricity produced by such facility are allocated equitably among the occupants of the dwelling units of such building.
A facility shall be treated as part of a qualified low-income economic benefit project if at least 50 percent of the financial benefits of the electricity produced by such facility are provided to households with income of—
less than 200 percent of the poverty line (as defined in section 36B(d)(3)(A)) applicable to a family of the size involved, or
less than 80 percent of area median gross income (as determined under section 142(d)(2)(B)).
For purposes of subparagraphs (B) and (C), electricity acquired at a below-market rate shall not fail to be taken into account as a financial benefit.
For purposes of this subsection, the term “eligible property” means a qualified investment with respect to any applicable facility.
Not later than January 1, 2025, the Secretary shall establish a program to allocate amounts of environmental justice capacity limitation to applicable facilities. In establishing such program and to carry out the purposes of this subsection, the Secretary shall provide procedures to allow for an efficient allocation process, including, when determined appropriate, consideration of multiple projects in a single application if such projects will be placed in service by a single taxpayer.
The amount of environmental justice capacity limitation allocated by the Secretary under subparagraph (A) during any calendar year shall not exceed the annual capacity limitation with respect to such year.
For purposes of this paragraph, the term “annual capacity limitation” means 1.8 gigawatts of direct current capacity for each calendar year during the period beginning on January 1, 2025, and ending on December 31 of the applicable year (as defined in section 45Y(d)(3)), and zero thereafter.
If the annual capacity limitation for any calendar year exceeds the aggregate amount allocated for such year under this paragraph, such limitation for the succeeding calendar year shall be increased by the amount of such excess. No amount may be carried under the preceding sentence to any calendar year after the third calendar year following the applicable year (as defined in section 45Y(d)(3)).
If the annual capacity limitation for calendar year 2024 under section 48(e)(4)(D) exceeds the aggregate amount allocated for such year under such section, such excess amount may be carried over and applied to the annual capacity limitation under this subsection for calendar year 2025. The annual capacity limitation for calendar year 2025 shall be increased by the amount of such excess.
Paragraph (1) shall not apply with respect to any property which is placed in service after the date that is 4 years after the date of the allocation with respect to the facility of which such property is a part.
Any amount of environmental justice capacity limitation which expires under clause (i) during any calendar year shall be taken into account as an excess described in subparagraph (D)(i) (or as an increase in such excess) for such calendar year, subject to the limitation imposed by the last sentence of such subparagraph.
The Secretary shall, by regulations or other guidance, provide for recapturing the benefit of any increase in the credit allowed under subsection (a) by reason of this subsection with respect to any property which ceases to be property eligible for such increase (but which does not cease to be investment credit property within the meaning of section 50(a)). The period and percentage of such recapture shall be determined under rules similar to the rules of section 50(a). To the extent provided by the Secretary, such recapture may not apply with respect to any property if, within 12 months after the date the taxpayer becomes aware (or reasonably should have become aware) of such property ceasing to be property eligible for such increase, the eligibility of such property for such increase is restored. The preceding sentence shall not apply more than once with respect to any facility.
No credit shall be determined under this section for any qualified investment during the taxable year with respect to property described in paragraph (1) or (4) of section 25D(d) (as applied by substituting “lessee” for “taxpayer”) if the taxpayer rents or leases such property to a third party during such taxable year.
For purposes of this section, in the case of any qualified fuel cell property (as defined in section 48(c)(1), as applied without regard to subparagraph (E) thereof)—
subsection (b)(3)(A) shall be applied without regard to clause (iii) thereof,
for purposes of subsection (a)(1), the applicable percentage shall be 30 percent and such percentage shall not be increased or otherwise adjusted by any other provision of this section, and
subsection (g) shall not apply.
Not later than January 1, 2025, the Secretary shall issue guidance regarding implementation of this section.
Treasury Regulations
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Treas. Reg. §1.48E-0Table of contents
This section lists the captions contained in §§ 1.48E-1 through 1.48E-5.
(a) Overview.
(1) In general.
(2) Claim.
(3) Code.
(4) EST.
(5) kWh.
(6) Qualified facility.
(7) Qualified investment with respect to a qualified facility.
(8) Qualified investment with respect to EST.
(9) Secretary.
(10) Section 48E credit.
(11) Section 48E regulations.
(12) Waste energy recovery property (WERP).
(b) Credit amount.
(1) In general.
(2) Applicable percentage.
(3) Base rate.
(4) Alternative rate.
(5) Energy communities increase in credit rate.
(i) In general.
(ii) Applicable credit rate increase.
(6) Domestic content increase in credit rate.
(i) In general.
(ii) Applicable credit rate increase.
(c) Credit phase-out.
(1) In general.
(2) Phase-out percentage.
(3) Applicable year.
(d) Related taxpayers.
(1) Definition.
(2) Related taxpayer rule.
(e) Applicability date.
(a) Qualified investment with respect to a qualified facility.
(1) In general.
(2) Total basis amount.
(b) Qualified facility.
(1) In general.
(2) Placed in service.
(i) In general.
(ii) Qualified facility subject to § 1.48-4 election to treat lessee as purchaser.
(c) Qualified property.
(1) In general.
(2) Location of property.
(d) Property included in qualified facility.
(1) In general.
(2) Unit of a qualified facility.
(i) In general.
(ii) Functionally interdependent.
(3) Integral part.
(i) In general.
(ii) Power conditioning and transfer equipment.
(iii) Roads.
(iv) Fences.
(v) Buildings.
(vi) Shared integral property.
(vii) Examples.
(e) Definitions related to requirements for qualified property.
(1) Tangible personal property.
(2) Other tangible property.
(3) Depreciation allowable.
(i) In general.
(ii) Exclusions from allowable.
(4) Construction, reconstruction, or erection of the property.
(5) Acquisition of qualified property.
(6) Original use of the property.
(7) Retrofitted qualified facility.
(f) Coordination with other credits.
(1) In general.
(2) Allowed.
(3) Examples.
(g) EST.
(1) Property included in EST.
(2) Unit of EST.
(i) In general.
(ii) Functionally interdependent.
(3) Integral part.
(4) Qualified investment with respect to EST.
(5) Placed in service.
(i) In general.
(ii) EST subject to § 1.48-4 election to treat lessee as purchaser.
(6) Types of EST.
(i) Electrical energy storage property.
(ii) Thermal energy storage property.
(iii) Hydrogen energy storage property.
(7) Modification of EST.
(h) Applicability date.
(a) In general.
(b) Qualified facility or EST requirements.
(c) Nameplate capacity for purposes of the One Megawatt Exception.
(1) Qualified facilities.
(2) Nameplate capacity for qualified facilities that generate in direct current for purposes of the One Megawatt Exception.
(3) EST.
(i) In general.
(ii) Electrical energy storage property.
(iii) Thermal energy storage property.
(iv) Hydrogen energy storage property.
(4) Integrated operations.
(i) One Megawatt Exception.
(ii) EST One Megawatt Exception.
(d) Transition waiver of penalty for prevailing wage requirements.
(e) No alteration or repair during recapture period described in § 1.48-13(c)(3).
(f) Applicability date.
(a) Qualified interconnection costs included in certain lower-output qualified facilities.
(1) In general.
(2) Qualified interconnection property.
(3) Five-Megawatt Limitation.
(i) In general.
(ii) Nameplate capacity for purposes of the Five-Megawatt Limitation.
(iii) Nameplate capacity for qualified facilities that generate in direct current for purposes of the Five-Megawatt Limitation.
(4) Interconnection agreement.
(5) Utility.
(6) Reduction to amounts chargeable to capital account.
(7) Examples.
(b) Expansion of facility; Incremental production (Incremental Production Rule).
(1) In general.
(2) Measurement standard.
(3) Special rule for restarted facilities.
(4) Computation of qualified investment for a new unit or an addition of capacity.
(i) New unit.
(ii) Addition of capacity.
(5) Examples.
(c) Retrofit of an existing facility (80/20 Rule).
(1) In general.
(2) Expenditures taken into account.
(3) Cost of new components.
(4) New costs.
(5) Excluded costs.
(6) Examples.
(d) Special rules regarding ownership.
(1) Qualified investment with respect to a qualified facility or EST.
(2) Multiple owners.
(3) Section 761(a) election.
(4) Examples.
(e) Coordination rule for section 42 credits and section 48E credits.
(f) Recapture.
(1) In general.
(2) Recapture event.
(i) In general.
(ii) Changes to the Annual Table.
(iii) Yearly determination.
(iv) Carryback and carryforward adjustments.
(3) Recapture amount.
(i) In general.
(ii) Applicable recapture percentage.
(4) Recapture period.
(5) Increase in tax for recapture.
(g) Qualified progress expenditure election.
(h) Incremental cost.
(i) Cross references.
(j) Applicability date.
(a) In general.
(b) Definitions.
(c) Non-C&G Facilities.
(d) C&G Facilities.
(e) Use of methane from certain sources to produce electricity.
(f) Carbon capture and sequestration.
(g) Annual publication of emissions rates.
(h) Provisional emissions rates.
(1) In general.
(2) Rate not established.
(3) Process for filing a PER petition.
(4) PER determination.
(5) Emissions value request process.
(6) LCA model for determining an emissions value for C&G Facilities.
(7) Effect of PER.
(i) Determining anticipated greenhouse gas emissions rate.
(1) In general.
(2) Examples of objective indicia.
(j) Reliance on Annual Table or Provisional Emissions Rate.
(k) Substantiation.
(1) In general.
(2) Sufficient substantiation.
(l) Applicability date.
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Treas. Reg. §1.48E-0(a)In general.
In general.
-
Treas. Reg. §1.48E-0(b)Definitions.
Definitions.
-
Treas. Reg. §1.48E-0(c)Non-C&G Facilities.
Non-C&G Facilities.
-
Treas. Reg. §1.48E-0(d)C&G Facilities.
C&G Facilities.
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Treas. Reg. §1.48E-0(e)Use of methane from certain sources to produce electricity.
Use of methane from certain sources to produce electricity.
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Treas. Reg. §1.48E-0(f)Carbon capture and sequestration.
Carbon capture and sequestration.
-
Treas. Reg. §1.48E-0(g)Annual publication of emissions rates.
Annual publication of emissions rates.
-
Treas. Reg. §1.48E-0(h)Provisional emissions rates.
Provisional emissions rates.
(1) In general.
(2) Rate not established.
(3) Process for filing a PER petition.
(4) PER determination.
(5) Emissions value request process.
(6) LCA model for determining an emissions value for C&G Facilities.
(7) Effect of PER.
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Treas. Reg. §1.48E-0(i)Determining anticipated greenhouse gas emissions rate.
Determining anticipated greenhouse gas emissions rate.
(1) In general.
(2) Examples of objective indicia.
-
Treas. Reg. §1.48E-0(j)Reliance on Annual Table or Provisional Emissions Rate.
Reliance on Annual Table or Provisional Emissions Rate.
-
Treas. Reg. §1.48E-0(k)Substantiation.
Substantiation.
(1) In general.
(2) Sufficient substantiation.
-
Treas. Reg. §1.48E-0(l)Applicability date.
Applicability date.
-
Treas. Reg. §1.48E-0(v)Buildings.
Buildings.
(vi) Shared integral property.
(vii) Examples.
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Treas. Reg. §1.48E-1Clean electricity investment credit
(a) Overview—(1) In general. For purposes of section 46 of the Internal Revenue Code (Code), the section 48E credit (defined in paragraph (a)(10) of this section) is determined under section 48E of the Code and the section 48E regulations (defined in paragraph (a)(11) of this section). This paragraph (a) provides definitions of terms that, unless otherwise specified, apply for purposes of section 48E, the section 48E regulations, and any provision of the Code or this chapter that expressly refers to any provision of section 48E or the section 48E regulations. Paragraph (b) of this section provides rules for determining the amount of the section 48E credit for any taxable year. Paragraph (c) of this section provides rules regarding the phase-out of the section 48E credit. See § 1.48E-2 for rules relating to qualified investments in qualified facilities and energy storage technology (EST) for purposes of the section 48E credit. See § 1.48E-4 for rules of general application for the section 48E credit. See § 1.48E-5 for rules to determine greenhouse gas emissions rates for qualified facilities under section 48E.
(2) Claim. For purposes of determining a taxpayer's section 48E credit with respect to a qualified facility or EST or a credit described in section 48E(b)(3)(C), the term claim means filing a completed Form 3468, Investment Credit, or any successor form(s), or other relevant form as it relates to the credits described in section 48E(b)(3)(C), with the taxpayer's timely filed (including extensions) Federal income tax return or Federal return, as appropriate, for the taxable year in which the qualified facility or EST is placed in service, and for the taxable year in which the facility for which the credit described in section 48E(b)(3)(C) is placed in service. It includes making an election under section 6417 or 6418 of the Code and 26 CFR 1.6417-1 and 1.6418-1, respectfully, with respect to such section 48E credit on the taxpayer's filed return.
(3) Code. The term Code means the Internal Revenue Code.
(4) EST. The term EST for purposes of the section 48E credit means energy storage technology as defined in § 1.48E-2(g).
(5) kWh. The term kWh means kilowatt hours.
(6) Qualified facility. The term qualified facility for purposes of the section 48E credit has the meaning provided in § 1.48E-2(b).
(7) Qualified investment with respect to a qualified facility. The term qualified investment with respect to a qualified facility for purposes of the section 48E credit has the meaning provided in § 1.48E-2(a).
(8) Qualified investment with respect to EST. The term qualified investment with respect to EST for purposes of the section 48E credit has the meaning provided in § 1.48E-2(g)(4).
(9) Secretary. The term Secretary means the Secretary of the Treasury or their delegate.
(10) Section 48E credit. The term section 48E credit means the clean electricity investment credit determined under section 48E of the Code and the section 48E regulations.
(11) Section 48E regulations. The term section 48E regulations means this section and §§ 1.48E-2 through 1.48E-5.
(12) Waste energy recovery property (WERP). WERP is property that generates electricity solely from heat from buildings or equipment if the primary purpose of such building or equipment is not the generation of electricity. Examples of buildings or equipment the primary purpose of which is not the generation of electricity include, but are not limited to, manufacturing plants, medical care facilities, facilities on school campuses, and associated equipment.
(b) Credit amount—(1) In general. For purposes of section 46 of the Code, the section 48E credit for any taxable year is an amount equal to the applicable percentage of the qualified investment for such taxable year with respect to any qualified facility and any EST.
(2) Applicable percentage. The term applicable percentage means the base rate described in paragraph (b)(3) of this section or the alternative rate described in paragraph (b)(4) of this section. The applicable percentage may be increased as provided in section 48E(a)(3)(A) and paragraph (b)(5) of this section in the case of a qualified facility that is located in an energy community. Similarly, the applicable percentage may be increased as provided in section 48E(a)(3)(B) and paragraph (b)(6) of this section in the case of a qualified facility that satisfies the domestic content requirements.
(3) Base rate. Under section 48E(a)(2)(A)(i) and (B)(i), in the case of any qualified facility or EST that does not satisfy the requirements provided in section 48E(a)(2)(A)(ii) or (B)(ii), the applicable percentage is the base rate, which is 6 percent.
(4) Alternative rate. In the case of any qualified facility or EST that satisfies the prevailing wage and apprenticeship requirements provided in section 48E(a)(2)(A)(ii) or (B)(ii), the applicable percentage is the alternative rate, which is 30 percent.
(5) Energy communities increase in credit rate—(i) In general. In the case of any qualified facility or EST that is placed in service within an energy community (as defined in section 45(b)(11)(B)), the applicable percentage under section 48E(a)(2) and paragraph (b)(2) of this section will be increased by the applicable credit rate increase described in section 48E(a)(3)(A)(ii) and paragraph (b)(5)(ii) of this section.
(ii) Applicable credit rate increase. In the case of any qualified investment with respect to a qualified facility or EST to which the base rate is applicable, the applicable credit rate increase is 2 percentage points, and with respect to any qualified investment with respect to a qualified facility or EST to which the alternative rate is applicable, the applicable credit rate increase is 10 percentage points.
(6) Domestic content increase in credit rate—(i) In general. In the case of any qualified facility or EST that satisfies the requirements of section 45(b)(9)(B) (domestic content requirement), the applicable percentage under section 48E(a)(2) and paragraph (b)(2) of this section will be increased by the applicable credit rate increase described in paragraph (b)(6)(ii) of this section.
(ii) Applicable credit rate increase. In the case of any qualified investment with respect to a qualified facility or EST to which the base rate is applicable, 2 percentage points, and with respect to any qualified investment with respect to a qualified facility or EST to which the alternative rate is applicable, 10 percentage points.
(c) Credit phase-out—(1) In general. The amount of the credit as determined under section 48E(a) and paragraph (b) of this section for any qualified facility or EST, the construction of which begins during a calendar year described in section 48E(e)(2) and paragraph (c)(2) of this section is equal to the product of—
(i) The amount of the credit determined under section 48E(a) and paragraph (b) of this section without regard to section 48E(e) and paragraph (c) of this section; multiplied by
(ii) The phase-out percentage under section 48E(e)(2) and paragraph (c)(2) of this section.
(2) Phase-out percentage. The phase-out percentage under this paragraph (c)(2) is equal to—
(i) For any qualified investment with respect to any qualified facility or EST the construction of which begins during the first calendar year following the applicable year, 100 percent;
(ii) For any qualified investment with respect to any qualified facility or EST the construction of which begins during the second calendar year following the applicable year, 75 percent;
(iii) For any qualified investment with respect to any qualified facility or EST the construction of which begins during the third calendar year following the applicable year, 50 percent; and
(iv) For any qualified investment with respect to any qualified facility or EST the construction of which begins during any calendar year subsequent to the calendar year described in paragraph (c)(2)(iii) of this section, 0 percent.
(3) Applicable year. For purposes of this paragraph (c), the term applicable year has the same meaning provided under § 1.45Y-1(c)(3).
(d) Related taxpayers—(1) Definition. For purposes of the section 48E credit, the term related taxpayers means members of a group of trades or businesses that are under common control (as defined in § 1.52-1(b)).
(2) Related taxpayer rule. For purposes of the section 48E credit, related taxpayers are treated as one taxpayer in determining whether a taxpayer has made an investment in a qualified facility or EST with respect to which a section 48E credit may be determined.
(e) Applicability date. This section applies to qualified facilities and ESTs placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025.
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Treas. Reg. §1.48E-1(a)Overview—(1) In general.
Overview—(1) In general. For purposes of section 46 of the Internal Revenue Code (Code), the section 48E credit (defined in paragraph (a)(10) of this section) is determined under section 48E of the Code and the section 48E regulations (defined in paragraph (a)(11) of this section). This paragraph (a) provides definitions of terms that, unless otherwise specified, apply for purposes of section 48E, the section 48E regulations, and any provision of the Code or this chapter that expressly refers to any provision of section 48E or the section 48E regulations. Paragraph (b) of this section provides rules for determining the amount of the section 48E credit for any taxable year. Paragraph (c) of this section provides rules regarding the phase-out of the section 48E credit. See § 1.48E-2 for rules relating to qualified investments in qualified facilities and energy storage technology (EST) for purposes of the section 48E credit. See § 1.48E-4 for rules of general application for the section 48E credit. See § 1.48E-5 for rules to determine greenhouse gas emissions rates for qualified facilities under section 48E.
(2) Claim. For purposes of determining a taxpayer's section 48E credit with respect to a qualified facility or EST or a credit described in section 48E(b)(3)(C), the term claim means filing a completed Form 3468, Investment Credit, or any successor form(s), or other relevant form as it relates to the credits described in section 48E(b)(3)(C), with the taxpayer's timely filed (including extensions) Federal income tax return or Federal return, as appropriate, for the taxable year in which the qualified facility or EST is placed in service, and for the taxable year in which the facility for which the credit described in section 48E(b)(3)(C) is placed in service. It includes making an election under section 6417 or 6418 of the Code and 26 CFR 1.6417-1 and 1.6418-1, respectfully, with respect to such section 48E credit on the taxpayer's filed return.
(3) Code. The term Code means the Internal Revenue Code.
(4) EST. The term EST for purposes of the section 48E credit means energy storage technology as defined in § 1.48E-2(g).
(5) kWh. The term kWh means kilowatt hours.
(6) Qualified facility. The term qualified facility for purposes of the section 48E credit has the meaning provided in § 1.48E-2(b).
(7) Qualified investment with respect to a qualified facility. The term qualified investment with respect to a qualified facility for purposes of the section 48E credit has the meaning provided in § 1.48E-2(a).
(8) Qualified investment with respect to EST. The term qualified investment with respect to EST for purposes of the section 48E credit has the meaning provided in § 1.48E-2(g)(4).
(9) Secretary. The term Secretary means the Secretary of the Treasury or their delegate.
(10) Section 48E credit. The term section 48E credit means the clean electricity investment credit determined under section 48E of the Code and the section 48E regulations.
(11) Section 48E regulations. The term section 48E regulations means this section and §§ 1.48E-2 through 1.48E-5.
(12) Waste energy recovery property (WERP). WERP is property that generates electricity solely from heat from buildings or equipment if the primary purpose of such building or equipment is not the generation of electricity. Examples of buildings or equipment the primary purpose of which is not the generation of electricity include, but are not limited to, manufacturing plants, medical care facilities, facilities on school campuses, and associated equipment.
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Treas. Reg. §1.48E-1(b)Credit amount—(1) In general.
Credit amount—(1) In general. For purposes of section 46 of the Code, the section 48E credit for any taxable year is an amount equal to the applicable percentage of the qualified investment for such taxable year with respect to any qualified facility and any EST.
(2) Applicable percentage. The term applicable percentage means the base rate described in paragraph (b)(3) of this section or the alternative rate described in paragraph (b)(4) of this section. The applicable percentage may be increased as provided in section 48E(a)(3)(A) and paragraph (b)(5) of this section in the case of a qualified facility that is located in an energy community. Similarly, the applicable percentage may be increased as provided in section 48E(a)(3)(B) and paragraph (b)(6) of this section in the case of a qualified facility that satisfies the domestic content requirements.
(3) Base rate. Under section 48E(a)(2)(A)(i) and (B)(i), in the case of any qualified facility or EST that does not satisfy the requirements provided in section 48E(a)(2)(A)(ii) or (B)(ii), the applicable percentage is the base rate, which is 6 percent.
(4) Alternative rate. In the case of any qualified facility or EST that satisfies the prevailing wage and apprenticeship requirements provided in section 48E(a)(2)(A)(ii) or (B)(ii), the applicable percentage is the alternative rate, which is 30 percent.
(5) Energy communities increase in credit rate—(i) In general. In the case of any qualified facility or EST that is placed in service within an energy community (as defined in section 45(b)(11)(B)), the applicable percentage under section 48E(a)(2) and paragraph (b)(2) of this section will be increased by the applicable credit rate increase described in section 48E(a)(3)(A)(ii) and paragraph (b)(5)(ii) of this section.
(ii) Applicable credit rate increase. In the case of any qualified investment with respect to a qualified facility or EST to which the base rate is applicable, the applicable credit rate increase is 2 percentage points, and with respect to any qualified investment with respect to a qualified facility or EST to which the alternative rate is applicable, the applicable credit rate increase is 10 percentage points.
(6) Domestic content increase in credit rate—(i) In general. In the case of any qualified facility or EST that satisfies the requirements of section 45(b)(9)(B) (domestic content requirement), the applicable percentage under section 48E(a)(2) and paragraph (b)(2) of this section will be increased by the applicable credit rate increase described in paragraph (b)(6)(ii) of this section.
(ii) Applicable credit rate increase. In the case of any qualified investment with respect to a qualified facility or EST to which the base rate is applicable, 2 percentage points, and with respect to any qualified investment with respect to a qualified facility or EST to which the alternative rate is applicable, 10 percentage points.
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Treas. Reg. §1.48E-1(c)Credit phase-out—(1) In general.
Credit phase-out—(1) In general. The amount of the credit as determined under section 48E(a) and paragraph (b) of this section for any qualified facility or EST, the construction of which begins during a calendar year described in section 48E(e)(2) and paragraph (c)(2) of this section is equal to the product of—
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Treas. Reg. §1.48E-1(d)Related taxpayers—(1) Definition.
Related taxpayers—(1) Definition. For purposes of the section 48E credit, the term related taxpayers means members of a group of trades or businesses that are under common control (as defined in § 1.52-1(b)).
(2) Related taxpayer rule. For purposes of the section 48E credit, related taxpayers are treated as one taxpayer in determining whether a taxpayer has made an investment in a qualified facility or EST with respect to which a section 48E credit may be determined.
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Treas. Reg. §1.48E-1(e)Applicability date.
Applicability date. This section applies to qualified facilities and ESTs placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025.
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Treas. Reg. §1.48E-1(i)§1.48E-1(i)
For any qualified investment with respect to any qualified facility or EST the construction of which begins during the first calendar year following the applicable year, 100 percent;
(ii) For any qualified investment with respect to any qualified facility or EST the construction of which begins during the second calendar year following the applicable year, 75 percent;
(iii) For any qualified investment with respect to any qualified facility or EST the construction of which begins during the third calendar year following the applicable year, 50 percent; and
(iv) For any qualified investment with respect to any qualified facility or EST the construction of which begins during any calendar year subsequent to the calendar year described in paragraph (c)(2)(iii) of this section, 0 percent.
(3) Applicable year. For purposes of this paragraph (c), the term applicable year has the same meaning provided under § 1.45Y-1(c)(3).
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Treas. Reg. §1.48E-2Qualified investments in qualified facilities and EST for purposes of section 48E
(a) Qualified investment with respect to a qualified facility—(1) In general. A qualified investment of a taxpayer for a taxable year with respect to a qualified facility is the total basis amount for the taxable year with respect to the qualified facility.
(2) Total basis amount. The total basis amount is the sum of:
(i) The basis of any qualified property that is a part of the qualified facility and that is placed in service by the taxpayer during the taxable year; plus
(ii) The amount of any expenditures paid or incurred by the taxpayer for qualified interconnection property (as defined in section § 1.48E-4(a)(2)) in connection with a qualified facility which has a maximum net output of not greater than five megawatts (as measured in alternating current), that was placed in service during the taxable year of the taxpayer, and that are properly chargeable to the capital account.
(b) Qualified facility—(1) In general. A qualified facility is a facility that:
(i) Is used for the generation of electricity, meaning that it is a net generator of electricity taking into account any electricity consumed by the facility;
(ii) Is placed in service by the taxpayer after December 31, 2024; and
(iii) Has an anticipated greenhouse gas emissions rate of not greater than zero (as determined under the rules provided in § 1.48E-5).
(2) Placed in service—(i) In general. A qualified facility is considered placed in service in the earlier of:
(A) The taxable year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to such qualified facility begins; or
(B) The taxable year in which the qualified facility is placed in a condition or state of readiness and availability to produce electricity, whether in a trade or business or in the production of income. A qualified facility in a condition or state of readiness and availability to produce electricity includes, but is not limited to, components of property that are acquired and set aside during the taxable year for use as replacements for a particular qualified facility (or facilities) in order to avoid operational time loss and equipment that is acquired for a specifically assigned function and is operational but is undergoing testing to eliminate any defects. However, components of property acquired to be used in the construction of a qualified facility are not considered in a condition or state of readiness and availability for a specifically assigned function.
(ii) Qualified facility subject to § 1.48-4 election to treat lessee as purchaser. Notwithstanding paragraph (b)(2)(i) of this section, a qualified facility with respect to which an election is made under section 50(d)(5) of the Code and § 1.48-4 to treat the lessee as having purchased such qualified facility is considered placed in service by the lessor in the taxable year in which possession is transferred to such lessee.
(c) Qualified property—(1) In general. For purposes of this paragraph (c), the term qualified property means all property owned by the taxpayer that meets all of the requirements of paragraphs (c)(1)(i) through (iii) of this section:
(i) The property is tangible personal property (as defined in paragraph (e)(1) of this section) or other tangible property (as defined in paragraph (e)(2) of this section) but only if such other tangible property is used as an integral part of the qualified facility;
(ii) Depreciation (or amortization in lieu of depreciation) is allowable (as defined in paragraph (e)(3) of this section) with respect to the property; and
(iii) Either—
(A) The construction, reconstruction, or erection of the property is completed by the taxpayer (as defined in paragraph (e)(4) of this section) with respect to the property; or
(B) The taxpayer acquires the property (as defined in paragraph (e)(5) of this section) and the original use of the property (as defined in paragraph (e)(6) of this section) commences with the taxpayer.
(2) Location of property. Any component of qualified property that otherwise satisfies the requirements of this paragraph (c) is part of a qualified facility regardless of where such component is located.
(d) Property included in qualified facility—(1) In general. A qualified facility includes a unit of a qualified facility (as defined in paragraph (d)(2) of this section) owned by the taxpayer. A qualified facility also includes components of qualified property owned by the taxpayer that are an integral part (as defined in paragraph (d)(3) of this section) of the qualified facility. Any component of qualified property that meets the requirements of this paragraph (d) is part of a qualified facility regardless of where such component of qualified property is located. A qualified facility does not include any electrical transmission equipment, such as electrical transmission lines and towers, or any equipment beyond the electrical transmission stage. See § 1.48E-4(b) regarding the Incremental Production Rule and § 1.48E-4(c) for rules regarding a retrofitted qualified facility (80/20 rule).
(2) Unit of a qualified facility—(i) In general. For purposes of the section 48E credit, a unit of a qualified facility includes all functionally interdependent components of property (as defined in paragraph (d)(2)(ii) of this section) owned by the taxpayer that are operated together and that can operate apart from other property to produce electricity. No provision of this section, § 1.48E-1, or §§ 1.48E-3 through 1.48E-5 uses the term unit in respect of a qualified facility with any meaning other than that provided in this paragraph (d)(2)(i).
(ii) Functionally interdependent. Components of property are functionally interdependent if the placing in service of each of the components is dependent upon the placing in service of the other components to generate electricity.
(3) Integral part—(i) In general. For purposes of the section 48E credit, a component of property owned by a taxpayer is an integral part of a qualified facility if it is used directly in the intended function of the qualified facility and is essential to the completeness of such function. Property that is an integral part of a qualified facility is part of the qualified facility. A taxpayer may not claim the section 48E credit for any property not owned by the taxpayer that is an integral part of the qualified facility owned by the taxpayer.
(ii) Power conditioning and transfer equipment. Power conditioning equipment and transfer equipment are integral parts of a qualified facility. Power conditioning equipment includes, but is not limited to, transformers, inverters and converters, which modify the characteristics of electricity into a form suitable for use, transmission, or distribution. Parts related to the functioning or protection of power conditioning equipment are also treated as power conditioning equipment and include, but are not limited to, switches, circuit breakers, arrestors, and hardware used to monitor, operate, and protect power conditioning equipment. Transfer equipment includes components of property that allow for the aggregation of electricity generated by a qualified facility and components of property that alter voltage to permit electricity to be transferred to a transmission or distribution line. Transfer equipment does not include transmission or distribution lines. Examples of transfer equipment include, but are not limited to, wires, cables, and combiner boxes that conduct electricity. Parts related to the functioning or protection of transfer equipment are also treated as transfer equipment and may include items such as current transformers used for metering, electrical interrupters (such as circuit breakers fuses, and other switches) and hardware used to monitor, operate, and protect transfer equipment.
(iii) Roads. Roads that are integral to the intended function of the qualified facility such as onsite roads that are used to operate and maintain the qualified facility are an integral part of a qualified facility. Roads used primarily to access the site, or roads used primarily for employee or visitor vehicles, are not integral to the intended function of the qualified facility, and thus are not an integral part of a qualified facility.
(iv) Fences. Fencing is not an integral part of a qualified facility because it is not integral to the intended function of the qualified facility.
(v) Buildings. Generally, buildings are not integral parts of a qualified facility because they are not integral to the intended function of the qualified facility. For purposes of section 48E, a structure that is essentially an item of machinery or equipment is not considered a building. In addition, a structure is not a building if it houses components of property that are integral to the intended function of the qualified facility and if the use of the structure is so closely related to the use of the housed components of property therein that the structure clearly can be expected to be replaced if the components of property it initially houses are replaced.
(vi) Shared integral property. Multiple qualified facilities (whether owned by one or more taxpayers), including qualified facilities with respect to which a taxpayer has claimed a credit under section 48E or another Federal income tax credit, may include shared property that may be considered an integral part of each qualified facility so long as the cost basis for the shared property is properly allocated to each qualified facility and the taxpayer only claims a section 48E credit with respect to the portion of the cost basis properly allocable to a qualified facility for which the taxpayer is claiming a section 48E credit. The total cost basis of such shared property divided among the qualified facilities may not exceed 100 percent of the cost of such shared property. In addition, a component of property that is shared by a qualified facility as defined by section 48E(b)(3) (48E Qualified Facility) and a qualified facility as defined in section 45Y(b) (45Y Qualified Facility) that is an integral part of both qualified facilities will not affect the eligibility of the 48E Qualified Facility for the section 48E credit or the 45Y Qualified Facility for the section 45Y credit.
(vii) Examples. This paragraph (d)(3)(vii) provides examples illustrating the rules of this paragraph (d).
(A) Example 1. Co-located qualified facilities owned by the same taxpayer that share integral property. X constructs and owns a solar facility (Solar Facility) and nearby also constructs and owns a wind facility (Wind Facility) that are each a qualified facility. The Solar Facility and Wind Facility each connect to a shared transformer that steps up the electricity produced by each qualified facilities to electrical grid voltage before it is transmitted to the electrical grid through an intertie. X assigns 50% of the cost of the shared transformer to the Solar Facility and the Wind Facility, respectively. The fact that the Solar Facility and Wind Facility share property that is integral to both does not impact the ability of X to claim a section 48E credit for both qualified facilities. When X places the qualified facilities in service, 50% of the cost of the transformer is included in X's basis in each of the qualified facilities for purposes of computing the section 48E credit.
(B) Example 2. Co-located qualified facilities owned by different taxpayers that share integral property. X constructs and owns a solar facility (Solar Facility), and nearby Y constructs and owns a wind facility (Wind Facility) that are each a qualified facility. The Solar Facility and the Wind Facility both connect to a shared transformer that steps up the electricity produced by both qualified facilities to electrical grid voltage before it is transmitted to the electrical grid through an intertie. X and Y each pay 50% of the cost of the shared transformer. The fact that the Solar Facility and Wind Facility share property that is integral to both does not impact the ability of X or Y to claim a section 48E credit for their respective qualified facilities. When X and Y place their respective qualified facilities in service, 50% of the cost of the transformer is included in X's and Y's basis in their respective qualified facilities for purposes of computing the section 48E credit.
(C) Example 3. Co-located qualified facility and Energy Storage Technology (EST) owned by the same taxpayer. X constructs and owns a wind facility (Wind Facility) that is co-located with an EST that X also constructs and owns. The Wind Facility and EST share transfer equipment that is integral to both. X assigns 50% of the cost of the shared transfer equipment to the Wind Facility and 50% of the cost to the EST. The fact that the Wind Facility and EST share property that is integral to both does not impact the ability of X to claim a section 48E credit for the Wind Facility and the EST. X may include 50% of the cost of the transfer equipment in its basis to determine a section 48E credit for the Wind Facility and the EST.
(D) Example 4. Co-located qualified facility and Energy Storage Technology owned by different taxpayers. X constructs and owns a solar facility that is a qualified facility (Solar Facility) and is co-located with an EST constructed and owned by Y. The Solar Facility and EST share transfer equipment that is integral to both. X and Y each incur 50% of the cost of the transfer equipment. The fact that the Solar Facility and EST share property that is integral to both does not impact the ability of X to claim a section 48E credit for the Solar Facility or Y to claim a section 48E credit for the EST. When X and Y place in service the Solar Facility and EST, for purposes of computing the section 48E credit, 50% of the cost of the transfer equipment is included in X's basis in the Solar Facility and 50% of the cost is included in Y's basis in the EST.
(E) Example 5. Qualified facility with integral property owned by a different taxpayer. X constructs and owns a hydropower production facility that is a qualified facility (Hydropower Facility). The Hydropower Facility connects to a dam owned by Y, a government entity, that is an integral part of the Hydropower Facility. X pays for upkeep of the dam. The fact that X does not own the dam does not impact the ability of X to claim a section 48E credit for the Hydropower Facility. When X places in service the Hydropower Facility, for purposes of computing the section 48E credit, the cost incurred by X related to the dam would not be included in X's basis in the Qualified Facility because X does not own the dam.
(e) Definitions related to requirements for qualified property—(1) Tangible personal property. The term tangible personal property means any tangible property except land or improvements thereto, such as buildings or other inherently permanent structures (including items that are structural components of such buildings or structures. Tangible personal property includes all property (other than structural components) that is contained in or attached to a building. Further, all property that is in the nature of machinery (other than structural components of a building or other inherently permanent structure) is considered tangible personal property even though located outside a building. Machinery located outside of a building is qualified property if it is used for the generation of electricity and the components of machinery are functionally interdependent. Local law does not control whether property is tangible property or is tangible personal property for purposes of the section 48E credit. Thus, tangible property may be tangible personal property for purposes of the section 48E credit even though under local law the property is considered a fixture and therefore is real property under local law.
(2) Other tangible property. The term other tangible property means tangible property other than tangible personal property (not including a building and its structural components) that is used as an integral part of furnishing electricity by a person engaged in a trade or business of furnishing any such service. Other tangible property may be tangible property for purposes of the section 48E credit even though under local law the property is considered a fixture and is therefore real property under local law.
(3) Depreciation allowable—(i) In general. For purposes of applying paragraph (c) of this section, depreciation (or amortization in lieu of depreciation) (collectively, depreciation) is allowable with respect to the property if such property is of a character subject to the allowance for depreciation under section 167 of the Code and the basis or cost of such property is recovered using a method of depreciation (for example, the straight line method), which includes any additional first year depreciation deduction method of depreciation (for example, under section 168(k) of the Code). Further, if an adjustment with respect to the Federal income tax or Federal return, as appropriate, for such taxable year requires the basis or cost of such qualified property to be recovered using a method of depreciation, depreciation is allowable to the taxpayer with respect to the qualified property.
(ii) Exclusions from allowable. For purposes of paragraph (c) of this section, depreciation is not allowable with respect to a qualified facility if the basis or cost of such qualified facility is not recovered through a method of depreciation but, instead, such basis or cost is recovered through a deduction of the full basis or cost of the qualified facility in one taxable year (for example, under section 179 of the Code).
(4) Construction, reconstruction, or erection of the property. The term construction, reconstruction, or erection of the property means work performed to construct, reconstruct, or erect property either by the taxpayer or for the taxpayer in accordance with the taxpayer's specifications.
(5) Acquisition of qualified property. The term acquisition of qualified property means a transaction by which a taxpayer acquires the rights and obligations to establish tax ownership of the property for Federal tax purposes.
(6) Original use of the property. The term original use of the property means the first use to which the unit of property is put, whether or not such use is by the taxpayer.
(7) Retrofitted qualified facility. A retrofitted qualified facility acquired by the taxpayer will not be treated as being put to original use by the taxpayer unless the rules in § 1.48E-4(c) regarding retrofitted qualified facilities (80/20 Rule) apply. The question of whether a qualified facility meets the 80/20 Rule is a facts and circumstances determination.
(f) Coordination with other credits—(1) In general. The term qualified facility (as defined in section 48E(b)(3)) and paragraph (b) of this section does not include any facility for which a credit determined under section 45, 45J, 45Q, 45U, 45Y, 48, or 48A is allowed under section 38 of the Code for the taxable year or any prior taxable year. A taxpayer that directly owns a qualified facility (as defined in section 48E(b)(3)) for which the taxpayer is eligible for both a section 48E credit and another Federal income tax credit is eligible for the section 48E credit only if the other Federal income tax credit was not allowed to the taxpayer with respect to the qualified facility. Nothing in this paragraph (f) precludes a taxpayer from claiming a section 48E credit with respect to a qualified facility (as defined in section 48E(b)(3)) that is co-located with another facility for which a credit determined under section 45, 45J, 45Q, 45U, 45Y, 48, or 48A is allowed under section 38 of the Code for the taxable year or any prior taxable year.
(2) Allowed. For purposes of this paragraph (f), the term allowed only includes credits that taxpayers have claimed on a Federal income tax return or Federal return, as appropriate, and that the Internal Revenue Service (IRS) has not challenged in terms of the taxpayer's eligibility.
(3) Examples. This paragraph (f)(3) provides examples illustrating the rules provided in this paragraph (f).
(i) Example 1. Taxpayer claims a section 45Y credit on a solar farm and section 48E credit on co-located Energy Storage Technology. X owns a solar farm that is a qualifying facility (as defined in § 1.45Y-2(a)) (Solar Qualified Facility), and a co-located EST (Energy Storage). The Energy Storage is not part of the Solar Qualified Facility, and therefore X may claim the section 45Y credit based on the kWh of electricity produced by the Solar Qualified Facility, and X may also claim the section 48E credit based on its qualified investment in the Energy Storage.
(ii) Example 2. Different taxpayers claim a section 45Y credit for a solar farm and a co-located Energy Storage Technology. X owns a solar farm that is a qualifying facility (as defined in § 1.45Y-2(a)) (Solar Qualified Facility), and Y owns a co-located EST (Energy Storage). The Energy Storage is not part of the Solar Qualified Facility, and therefore, X may claim the section 45Y credit based on the kWh of electricity produced by the Solar Qualified Facility, and Y may claim the section 48E credit based on its qualified investment in the Energy Storage.
(iii) Example 3. Taxpayer claiming a section 48E credit; another credit is not allowed. X owns a wind facility that satisfies the requirements of a qualified facility under section 48E as well as the requirements of a qualified facility as defined in § 1.45Y-2(a) under section 45Y. X claims a section 45Y credit with respect to the wind facility. While a credit may be available with regard to the wind facility under section 48E, because X has already claimed a section 45Y credit with respect to the wind facility, a section 48E credit is not allowed. Local law is not controlling for purposes of determining whether property is or is not tangible property or tangible personal property. Thus, tangible property may be personal property for purposes of the energy credit even though under local law the property is considered a fixture and therefore real property.
(iv) Example 4. Interaction of section 48E and section 45Q credits for single qualified facility. X owns a qualified facility (Facility A) that includes carbon capture equipment, which is needed for the facility to meet the zero greenhouse gas requirement, so it is functionally interdependent to the production of electricity by the Facility A. X uses the carbon capture equipment to capture and utilize (as described in section 45Q(f)(5)) qualified carbon dioxide and claimed a section 45Q credit in the current taxable year. As a result, X cannot claim a section 48E credit for its 48E Facility A because a qualified facility does not include a facility for which a credit determined under section 45Q is allowed.
(v) Example 5. Interaction of section 48E and section 45Q credits for co-located qualified facilities. Assume the same facts as in paragraph (f)(3)(iv) of this section (Example 4), except that X owns a co-located qualified facility (Facility B) that also includes carbon capture equipment, which is needed for the facility to meet the zero greenhouse gas requirement, so it is functionally interdependent to the production of electricity by the Facility B. X uses the carbon capture equipment to capture and utilize (as described in section 45Q(f)(5)) qualified carbon dioxide, but does not claim a section 45Q credit with respect to the Facility B. While X claimed a section 45Q credit in the current taxable year for the Facility A (see Example 4), the Facility B is not part of the Facility A, and, therefore, X may claim the section 48E credit for its Facility B.
(g) EST—(1) Property included in EST. An EST includes a unit of energy storage technology (unit of EST) (as defined in paragraph (g)(2) of this section) that meets the requirements of paragraph (g)(2)(ii) of this section. An EST also includes property owned by the taxpayer that is an integral part (as defined in paragraph (g)(3) of this section) of the EST. An EST does not include equipment that is an addition or modification to an existing EST. For purposes of the section 48E credit, EST includes electrical energy storage property (as described in paragraph (g)(6)(i) of this section), thermal energy storage property (as described in paragraph (g)(6)(ii) of this section), and hydrogen energy storage property (as described in paragraph (g)(6)(iii) of this section).
(2) Unit of EST—(i) In general. For purposes of the section 48E credit, a unit of EST includes all functionally interdependent components of property (as defined in paragraph (g)(2)(ii) of this section) owned by the taxpayer that are operated together and that can operate apart from other property to perform the intended function of the EST. No provision of this section, § 1.48E-1, or §§ 1.48E-3 through 1.48E-5 uses the term unit in respect of an EST with any meaning other than that provided in this paragraph (g)(2)(i).
(ii) Functionally interdependent. Components of property are functionally interdependent if the placing in service of each of the components is dependent upon the placing in service of each of the other components to perform the intended function of the EST.
(3) Integral part. For purposes of the section 48E credit, property owned by a taxpayer is an integral part of an EST owned by the same taxpayer if it is used directly in the intended function of the EST and is essential to the completeness of such function. Property that is an integral part of an EST is part of that EST. A taxpayer may not claim the section 48E credit for any property not owned by the taxpayer that is an integral part of EST owned by the taxpayer.
(4) Qualified investment with respect to EST. The qualified investment with respect to any EST for any taxable year is the basis of any EST placed in service by the taxpayer during such taxable year.
(5) Placed in service—(i) In general. An EST is considered placed in service in the earlier of:
(A) The taxable year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to such EST begins; or
(B) The taxable year in which the EST is placed in a condition or state of readiness and availability for the intended function of the EST, whether in a trade or business or in the production of income. An EST in a condition or state of readiness and availability for its intended function includes, but is not limited to, components of property that are acquired and set aside during the taxable year for use as replacements for a particular EST (or ESTs) in order to avoid operational time loss and equipment that is acquired for a specifically assigned function and is operational but is undergoing testing to eliminate any defects. However, components of property acquired to be used in the construction of an EST are not considered in a condition or state of readiness and availability for a specifically assigned function.
(ii) EST subject to § 1.48-4 election to treat lessee as purchaser. Notwithstanding paragraph (g)(5)(i) of this section, EST with respect to which an election is made under section 50(d)(5) of the Code and § 1.48-4 to treat the lessee as having purchased such EST is considered placed in service by the lessor in the taxable year in which possession is transferred to such lessee.
(6) Types of EST—(i) Electrical energy storage property. Electrical energy storage property is property (other than property primarily used in the transportation of goods or individuals and not for the production of electricity) that receives, stores, and delivers energy for conversion to electricity, and has a nameplate capacity of not less than 5 kWh. For example, subject to the exclusion for property primarily used in the transportation of goods or individuals, electrical energy storage property includes but is not limited to rechargeable electrochemical batteries of all types (such as lithium-ion, vanadium redox flow, sodium sulfur, and lead-acid); ultracapacitors; physical storage such as pumped storage hydropower, compressed air storage, flywheels; and reversible fuel cells.
(ii) Thermal energy storage property—(A) In general. Thermal energy storage property is property comprising a system that is directly connected to a heating, ventilation, or air conditioning (HVAC) system; removes heat from, or adds heat to, a storage medium for subsequent use; and provides energy for the heating or cooling of the interior of a residential or commercial building. Thermal energy storage property includes equipment and materials, and parts related to the functioning of such equipment, to store thermal energy for later use to heat or cool, or to provide hot water for use in heating a residential or commercial building. It does not include property that transforms other forms of energy into heat in the first instance. Property that “removes heat from, or adds heat to, a storage medium for subsequent use” is property that is designed with the particular purpose of substantially altering the time profile of when heat added to or removed from the thermal storage medium can be used for heating or cooling of the interior of a residential or commercial building. Paragraph (g)(6)(ii)(B) of this section provides a safe harbor for determining whether a thermal energy storage property has such a purpose. Thermal energy storage property does not include a swimming pool, combined heat and power system property (as defined in section 45Y(g)(2)), or a building or its structural components. For example, thermal energy storage property includes, but is not limited to, a system that adds heat to bricks heated to high temperatures that later use this stored energy to heat a building through the HVAC system; thermal ice storage systems that use electricity to run a refrigeration cycle to produce ice that is later connected to the HVAC system as an exchange medium for air conditioning a building, heat pump systems that store thermal energy in an underground tank, an artificial pit, an aqueous solution, a borehole field, or a solid-liquid phase change material to be extracted for later use for heating and/or cooling; and air-to-water heat pump systems with a water storage tank. However, consistent with § 1.48-14(d), if thermal energy storage property, such as a heat pump system, includes equipment, such as a heat pump, that also serves a purpose in an HVAC system that is installed in connection with the thermal energy storage property, the taxpayer's qualified investment with respect to the thermal energy storage property includes the total cost of the thermal energy storage property and HVAC system less the cost of an HVAC system without thermal storage capacity that would meet the same functional heating or cooling needs as the heat pump system with a storage medium, other than time shifting of heating or cooling. See § 1.48-14(h) for application of the Incremental Cost Rule.
(B) Safe harbor. A thermal energy storage property will be deemed to have the purpose of substantially altering the time profile of when heat added to or removed from the thermal storage medium can be used to heat or cool the interior of a residential or commercial building if that thermal energy storage property is capable of storing energy that is sufficient to provide heating or cooling of the interior of a residential or commercial building for a minimum of one hour.
(iii) Hydrogen energy storage property. Hydrogen energy storage property is property (other than property primarily used in the transportation of goods or individuals and not for the production of electricity) that stores hydrogen and has a nameplate capacity of not less than 5 kWh, equivalent to 0.127 kg of hydrogen or 52.7 standard cubic feet (scf) of hydrogen. Hydrogen energy storage property includes, but is not limited to, above ground storage tanks, underground storage facilities, and associated compressors. Property that is an integral part of hydrogen energy storage property includes, but is not limited to, hydrogen liquefaction equipment and gathering and distribution lines within a hydrogen energy storage property.
(7) Modification of EST. With respect to an electrical energy storage property or a hydrogen energy storage property, modified as set forth in this paragraph (g)(7), such property will be treated as an electrical energy storage property (as described in paragraph (g)(6)(i) of this section) or a hydrogen energy storage property (as described in paragraph (g)(6)(iii) of this section), except that the basis of any existing electrical energy storage property or hydrogen energy storage property prior to such modification is not taken into account for purposes of this paragraph (g)(7) and section 48E. This paragraph (g)(7) applies to any electrical energy storage property and hydrogen energy storage property that either:
(i) Was placed in service before August 16, 2022, and would be described in section 48(c)(6)(A)(i), except that such property had a nameplate capacity of less than 5 kWh and is modified in a manner that such property (after such modification) has a nameplate capacity of not less than 5 kWh; or
(ii) Is described in section 48(c)(6)(A)(i) and is modified in a manner that such property (after such modification) has an increase in nameplate capacity of not less than 5 kWh. The increase in nameplate capacity is equal to the difference between nameplate capacity immediately after the modification and nameplate capacity immediately prior to the modification.
(h) Applicability date. This section applies to qualified facilities and EST placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025.
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Treas. Reg. §1.48E-2(a)Qualified investment with respect to a qualified facility—(1) In general.
Qualified investment with respect to a qualified facility—(1) In general. A qualified investment of a taxpayer for a taxable year with respect to a qualified facility is the total basis amount for the taxable year with respect to the qualified facility.
(2) Total basis amount. The total basis amount is the sum of:
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Treas. Reg. §1.48E-2(b)Qualified facility—(1) In general.
Qualified facility—(1) In general. A qualified facility is a facility that:
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Treas. Reg. §1.48E-2(c)Qualified property—(1) In general.
Qualified property—(1) In general. For purposes of this paragraph (c), the term qualified property means all property owned by the taxpayer that meets all of the requirements of paragraphs (c)(1)(i) through (iii) of this section:
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