February 11, 2018
Recent action on tax credits and incentives is worthy of attention
Those working with credits and incentives should note a busy week in Washington as President Trump signed the Bipartisan Budget Act of 2018 (the Act), setting spending levels for two years and extending multiple tax credits and incentives. Additionally, in Notice 2018-17, the IRS provided low-income housing credit disaster relief for Hurricane Maria damage in Puerto Rico through May 2019. Further, in Revenue Procedure 2018-16, the IRS provided information that state chief executive officers may use to determine which census tracks in their jurisdictions are eligible to be nominated as Qualified Opportunity Zones under Sections 1400Z-1 and -2.
Tax credits extended by Act
The Act generally harmonizes the energy credit expiration dates and phase-out schedules for different types of property. The 30% investment tax credit (ITC) for solar energy, fiber optic solar energy, qualified fuel cell, and qualified small wind energy property will be available for property whose construction begins before 2020. It phases out for property beginning construction in 2021 and is fully phased out in 2022. The 10% ITC for qualified microturbine, combined heat and power system, and thermal energy property is available for property whose construction begins before 2022. The Act also includes enhancement of the carbon dioxide sequestration credit.
The credit for residential energy is extended for property placed in service before 2022, subject to a reduced rate of 26% for property placed in service during 2020 and 22% for property placed in service during 2021.
The Act also includes modifications of the advanced nuclear power production credit, modifications of the cover over of rum excise taxes, and enhancement of the carbon dioxide sequestration credit.
Other provisions generally extended for one year, for 2017, include the following:
— Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico
The Act also extended the placed-in-service dates for certain property that may be eligible for various sustainability incentives, including the following:
— Section 179D energy-efficient commercial buildings deduction — extended to property placed in service before January 1, 2018
— Section 48 ITC
— Extended to fiber-optic solar and thermal energy property placed in service before January 1, 2022
— Section 30C alternative fuel refueling property credit — extended to alternative fuel refueling property placed in service before January 1, 2018
The clarity provided by Revenue Procedure 2018-16 around Opportunity Zones is likely to trigger activity in that space, as stakeholders have struggled until now to glean details around its implementation. Notice 2018-17 will likely enable some much-needed relief to problems in Puerto Rico introduced by Hurricane Maria. The enactment of the extenders legislation is somewhat surprising for the Republican-controlled House and Senate. Tax provisions in the Bipartisan Budget Act have a net total cost of $17.4 billion, with disaster tax relief totaling $456 million, tax extenders about $15 billion and other tax provisions nearly $2 billion, according to the Joint Committee on Taxation. A willingness to extend these programs may demonstrate a bipartisan desire to encourage the construction of various energy projects.