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Winds of Change: The American Taxpayer Relief Act of 2012

The end of 2012 was looking dismal for the wind industry. The Production Tax Credit (PTC) and Investment Tax Credit (ITC) had been set to expire at the end of the year for wind projects that were larger than 100kw, creating an uncertain future for the industry. However, the passage of the American Taxpayer Relief Act of 2012 (ATRA) on January 2, 2013, extended the PTC for one year. This, among other changes, affords new possibilities within the renewable energy arena.

Sunset Provisions Now Focus on When a Facility Begins Construction

The ATRA made a significant change to the PTC and ITC for wind, geothermal that generates electricity, biomass, landfill gas, municipal solid waste, hydroelectric production, and marine and hydrokinetic energy. Prior to the ATRA, sunset provisions for the PTC and the ITC depended upon when these facilities were placed in service. With long construction periods and extensive approval requirements, some developers and tax credit investors questioned pursuing these products because the credit could be obsolete before a project was completed.

The ATRA has not only extended the PTC and ITC for one year but it’s also changed the sunset provision to depend upon when the facility begins construction versus when it’s placed in service. That means that if a facility begins construction by December 31, 2013, it’s still eligible for the PTC or the 30 percent ITC. This is a significant change that should bolster the renewables industry. The IRS plans to issue additional guidance on this new change to help define the concept of “beginning construction.”

Window of opportunity: Facilities that begin construction by December 31, 2013, are eligible for the PTC or the 30 percent ITC.

Other Renewables Must Still Abide by Former Rules

Solar, fuel cells, small wind, geothermal, microturbines, and combined heat and power technology will still need to be placed in service prior to December 31, 2016 to qualify for federal incentives.  

No Changes to 1603 Grants or ITC for Various Technologies

No changes were made to the Section 1603 grant program.  The only companies that will be eligible for the 1603 grants are those that had already started their projects prior to 2012 and filed an initial application with the Treasury Department prior to September 30, 2012.

The same deadlines remain in effect for projects to qualify for the ITC-eligible technologies, including solar, fuel cells, small wind, microturbines, geothermal that generates heat, geothermal that generates electricity, and combined heat and power. All must be placed in service before January 1, 2017.  

Bonus Depreciation Extended

ATRA also extends bonus depreciation, which had been set to expire in 2012, for one year. Taxpayers may take bonus depreciation for qualifying property placed in service before January 1, 2014 (or before January 1, 2015 for certain property).  The bonus depreciation allowance is the same for 2013 as it was for 2012 — a first-year deduction equal to 50 percent of the tax basis of the qualifying property.

Window of opportunity: Taxpayers may take bonus depreciation for qualifying property placed in service before January 1, 2014 (or before January 1, 2015 for certain property).

Homeowner’s Grant Extended

The ATRA also extended the homeowner’s credit for energy-efficient homes, which applies to individuals who install specific energy-efficient home improvements. The credit is 10 percent of the cost of building envelope improvements. There is a cap of $500 for fiscal years 2006 through 2013 combined. (If you claimed $200 in 2008, you can only claim $300 in 2013.) The credit applies to a variety of improvements, including exterior windows, insulation, exterior doors, roofs, central air, a furnace, or a water heater.

Window of opportunity: Homeowners who haven’t utilized credits for specific energy-efficient home improvements should consider doing it now.

Tax Credit for Individuals Extended

No changes have been made to the 30 percent tax credit for individuals that install such items as geothermal heat pumps, photovoltaics, or wind systems for use in their residences.

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Jim Manning

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