Article
IRS modifies elective safe harbor
Feb. 6, 2025 · Authored by Gabriel Sermeno, Craig Lammlin, Adam DeZego, Kalyn Chacon
On Jan. 16, 2025, the Internal Revenue Service (IRS) issued Notice 2025-08, modifying the elective safe harbor first introduced for the domestic content bonus credit for clean energy projects in Notice 2024-41 in May 2024. The changes include revised definitions and classifications for project components, updated safe harbor tables, and new cost percentages.
Who is affected by safe harbor modifications
This change applies to all taxpayers claiming the domestic content bonus credit amount for clean energy tax credits.
Background
The domestic content bonus credit was enacted under the Inflation Reduction Act of 2022, applicable under the following Internal Revenue Code (IRC) Sections:
- IRC Section 45, Renewable Electricity Production Tax Credit
- IRC Section 45Y, Clean Energy Production Tax Credit
- IRC Section 48, Energy Investment Tax Credit
- IRC Section 48E, Clean Energy Investment Tax Credit
For projects placed in service after Dec. 31, 2024, Section 45 (PTC) and Section 48 (ITC) will be replaced by Technology-Neutral Sections 45Y and 48E, respectively.
The domestic content bonus credit amount allows taxpayers claiming clean energy tax credits to earn an additional 10% credit for qualified projects using enough U.S.-made steel, iron, and manufactured products that meet domestic content requirements as follows:
- Steel and iron must be 100% produced in the United States
- Manufactured products must meet the Adjusted Percentage Rule
The Adjusted Percentage Rule provides that the domestic cost percentage for an applicable project must equal or exceed the adjusted percentage that applies to the project. The adjusted percentage begins at 40% for applicable projects that begin construction before 2024, increasing to 55% over time, with offshore wind starting at 20%.
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