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Treasury and IRS Issue Proposed Regulations Updating Section 48 Investment Tax Credit

On November 17, 2023, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued proposed regulations defining energy property and updating rules applicable to the investment tax credit (the “Energy credit”) under 26 U.S. Code Section 48. The rules regarding clean energy investments have been unchanged since 1987.

The IRS News Release states in part:

The proposed rules update the types of energy properties eligible for the section 48 ITC, reflecting changes in the energy industry, technological advances, and updates from the Inflation Reduction Act of 2022 (IRA).

Energy industry participants will appreciate that the proposed regulations provide definitions of energy properties for which the ITC was available before the IRA. These include, but are not limited to, solar process heat, fiber-optic solar property, combined heat and power system property, qualified fuel cell property, and qualified microturbine property.

These proposed regulations also address technologies that were added to the ITC as energy property by the IRA, including electrochromic glass, energy storage technology, microgrid controllers, and biogas property. Importantly, the IRA added new provisions to the ITC to allow smaller projects to include the cost of certain types of interconnection property in their credit amount.


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