Final regulations released for the section 48 tax credit

On Dec. 4, 2024, the Department of Treasury and the IRS released final regulations for the Internal Revenue Code section 48 tax credit, which are scheduled to be published on Dec. 12 [1]. Section 48 is also commonly known as the investment tax credit (ITC).

The final regulations retained the framework from the statute and proposed regulations published earlier but also clarified the definition of energy property and energy project. Explore some of the updates or reiterations addressed in the final regulations.

Defining the "energy project"

An energy project is a project consisting of one or more energy properties that are part of a single project. Multiple energy properties will be considered as one energy project if a single taxpayer or related taxpayers own them and meet four or more of the following seven factors.

• The energy properties are constructed on contiguous pieces of land;
• The energy properties are described in a common power purchase, thermal energy, or other off-take agreement or agreements;
• The energy properties have a common intertie;
• The energy properties share a common substation, or thermal energy offtake point;
• The energy properties are described in one or more common environmental or other regulatory permits;
• The energy properties are constructed pursuant to a single master construction contract; or
• The construction of the energy properties is financed pursuant to the same loan agreement [1].

Under proposed regulations, multiple energy properties were considered as a single energy project if they are owned by a single taxpayer or related taxpayers and meet two of the seven factors.

Providing the definition and quality standards to energy properties

• Biogas: The final regulations confirmed that systems such as feedstock collection, gas upgrading equipment and ancillary systems critical to biogas production qualify as integral property if they function independently with the biogas system. Also, the IRS confirmed that normal flaring and complying with proper state, federal or other permits do not disqualify a biogas property from eligibility.
• Geothermal: The final regulations clarified that for a geothermal system to be eligible for section 48 property, a taxpayer needs ownership of geothermal systems that produce and distribute or use energy derived from a geothermal deposit. For example, owners of underground coils can claim the ITC only if they own at least one heat pump used in conjunction with the coils.
• Hydrogen storage: The final regulations clarified that the hydrogen energy storage property does not need to store hydrogen solely used as energy and not for other purposes.

These final regulations provide taxpayers with the necessary clarity and certainty to support the growth and compliance of eligible projects. Check back soon for additional information related to the final regulations.

Resource

1. Definition of Energy Property and Rules Applicable to the Energy Credit, Department of Treasury, 2024

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.