June 13, 2021

Volume XI, Number 164

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Overview of Wind Tax Credits: Internal Revenue Code Sections 45 and 48

The United States Internal Revenue Code (IRC) allows production or investment tax credits for taxpayers using wind to produce electricity or for placing wind energy property into service. This outline summarizes the production tax credit (PTC) or the investment tax credit (ITC) available for taxpayers investing in wind power.

I. IRC Section 45, Production Tax Credit

  • Allows a PTC for electricity produced by a taxpayer at a “qualified facility” during the 10-year period beginning on the date such facility is originally placed into service[i]

  • Qualified facility — includes facilities using wind to produce electricity and the construction of which begins before January 1, 2022[ii]

  • PTC rate — 1.5 cents per kilowatt hour of electricity produced, adjusted for inflation.[iii]

  • Phasedowns

    • The amount of PTC is phased down as follows:

      • 20% for facilities for which construction begins after December 31, 2016, and before January 1, 2018

      • 40% for facilities for which construction begins after December 31, 2017, and before January 1, 2019

      • 60% for facilities for which construction begins after December 31, 2018, and before January 1, 2020

      • 40% for facilities for which construction begins after December 31, 2019, and before January 1, 2022[iv]

II. IRC Section 48, Investment Tax Credit

  • A taxpayer may elect to treat wind facilities as “energy property” and claim an ITC in lieu of the PTC, subject to a phasedown similar to the PTC phasedown.[v]

  • ITC rate — calculated as a percentage of the basis of energy property (30%) placed into service during the taxable year.[vi]

  • One hundred percent of the ITC is eligible to be claimed in the year the energy property is placed into service — a significant benefit in comparison to the PTC.

  • Phasedowns

    • Like the PTC, the ITC is phased down as follows:

      • 20% (or 24% of basis) for facilities for which construction begins after December 31, 2016, and before January 1, 2018

      • 40% (or 18% of basis) for facilities for which construction begins after December 31, 2017, and before January 1, 2019

      • 60% (or 12% of basis) for facilities for which construction begins after December 31, 2018, and before January 1, 2020

      • 40% (or 18% of basis) for facilities for which construction begins after December 31, 2019, and before January 1, 2022[vii]

III. Offshore Wind Facilities

  • Offshore wind facilities may elect either the PTC or the ITC.[viii] 

  • The full ITC (30% of basis) is allowed for offshore wind facilities for which construction begins before January 1, 2026.[ix] 

[i] IRC §45(a).

[ii] IRC §45(d)(1).

[iii] IRC §45(a), (b)(2).

[iv] IRC §45(b)(5).

[v] IRC §48(a)(5).

[vi] Id.

[vii] IRC §48(a)(5)(E).

[viii] IRC §48(a)(5); this section allows a taxpayer to elect to treat a qualified facility as a Section 48 energy property if the taxpayer does not claim the PTC.

[ix] IRC §48(a)(5)(F).

© 2021 Jones Walker LLPNational Law Review, Volume XI, Number 126
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About this Author

Jonathan Katz Federal Tax Attorney Jones Walker
Partner

Mr. Katz is a partner in the firm's Tax & Estates Practice Group. Mr. Katz' practice focuses predominately on federal taxation, with a particular focus in federal and state new markets tax credit and historic rehabilitation tax credit transactions. In addition to his tax credit practice, his federal tax practice includes estate planning and administration, federal alcohol excise tax compliance, nonprofit formation and compliance, S corporation compliance, and business organizations.  

In his tax credit practice, Mr. Katz represents...

504-582-8314
Shawn J. Daray Associate New Orleans Tax Practice Group
Associate

Prior to joining Jones Walker, Shawn served as an extern for the Litigation Division of the Louisiana Department of Revenue, where he published articles on effects of the Amazon Tax for online retailers and state retroactive tax laws.

Shawn was previously a summer associate where he researched contract, corporate, and tax law on transactional issues for a tax and maritime firm. Shawn also drafted memorandum on maritime lien priority and limitation of liability.

504-582-8488
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