Title 26—Internal Revenue--Volume 1
PART 1—INCOME TAXES
§ 1.48D-3   Qualified property.
(a) In general. This section provides definitions and rules relating to qualified property for purposes of section 48D of the Code and the section 48D regulations.
(b) Qualified property. The term qualified property means tangible depreciable property that is part of, and integral to, the operation of an advanced manufacturing facility and that is either—
(1) Constructed, reconstructed, or erected by the taxpayer; or
(2) Acquired by the taxpayer if the original use of such property commences with the taxpayer.
(c) Tangible depreciable property —(1) In general. The term tangible depreciable property means tangible personal property (as defined in § 1.48-1(c)), other tangible property (as defined in § 1.48-1(d)), and building and structural components (as defined in § 1.48-1(e), except as provided in paragraphs (c)(2) and (3) of this section) with respect to which depreciation (or amortization in lieu of depreciation) is allowable. The law of a State or local jurisdiction is not controlling for purposes of determining whether property is tangible property for purposes of section 48D or the section 48D regulations.
(2) Exception. Pursuant to section 48D(b)(2)(B)(ii), except as provided in paragraph (c)(3) of this section, the term tangible depreciable property does not include a building and its structural components, or a portion thereof, used for—
(i) Offices;
(ii) Administrative services such as human resources or personnel services, payroll services, legal and accounting services, and procurement services;
(iii) Sales or distribution functions;
(iv) Security services (not including cybersecurity operations); or
(v) Any other functions unrelated to manufacturing of semiconductors or semiconductor manufacturing equipment.
(3) Buildings or portions of a building not excluded by section 48D(b)(2)(B)(ii). Buildings or portions of a building not treated as offices and that are considered related to manufacturing of semiconductors or semiconductor manufacturing equipment include buildings or portions of a building used for:
(i) Gowning to enter to and from a cleanroom environment;
(ii) Monitoring operations and remote access of equipment;
(iii) Functions performed by unit process engineers including developing, monitoring, updating and overseeing individual process recipes running on every tool in the facility to manufacture, measure and test wafers including access to relevant data, data analysis, modifications and updates to the process recipes on the tools;
(iv) Functions performed by equipment engineers including overseeing tools to ensure proper operation by accessing data about the tool health and performance remotely adjusting the tool at workstations, and issuing work orders to the equipment and maintenance technicians from the workstations;
(v) Functions performed by test engineers including monitoring the electrical test data being collected from the wafers at certain points in their processing;
(vi) Functions performed by yield and defect engineers including reviewing inspection data collected from wafers;
(vii) Functions performed by metrology engineers including reviewing physical measurement data collected from the wafers;
(viii) Functions performed by integration engineers that are responsible for the technology node and the end-to-end wafer process;
(ix) Functions performed by facilities engineers including monitoring and controlling facilities systems; and
(x) Functions related to central utilities buildings, material handling and ultrapure water generation facilities, and computing (data center).
(d) Constructed, reconstructed, or erected by the taxpayer. Property is considered constructed, reconstructed, or erected by the taxpayer if the work is done for the benefit of the taxpayer in accordance with the taxpayer's specifications.
(e) Original use —(1) In general. Except as provided in paragraph (e)(2) of this section, the term original use means with respect to any property the first use to which the property is put by any taxpayer in connection with a trade or business or for the production of income. Additional capital expenditures paid or incurred by a taxpayer to recondition or rebuild property acquired or owned by the taxpayer satisfy the original use requirement to the extent of the expenditures paid or incurred by a taxpayer. However, a taxpayer's cost to acquire property reconditioned or rebuilt by another taxpayer does not satisfy the original use requirement. Whether property is reconditioned or rebuilt property will be determined based on the facts and circumstances.
(2) Treatment of inventory. For purposes of paragraph (e)(1) of this section, if a taxpayer initially acquires new property and holds the property primarily for sale to customers in the ordinary course of the taxpayer's trade or business and subsequently withdraws the property from inventory and uses the property primarily in the taxpayer's trade or business or primarily for the taxpayer's production of income, the taxpayer is considered the original user of the property. If a person initially acquires new property and holds the property primarily for sale to customers in the ordinary course of the person's business and a taxpayer subsequently acquires the property from the person for use primarily in the taxpayer's trade or business or primarily for the taxpayer's production of income, the taxpayer is considered the original user of the property. For purposes of this paragraph (e), the original use of the property by the taxpayer commences on the date on which the taxpayer first uses the property primarily in the taxpayer's trade or business or primarily for the taxpayer's production of income.
(f) Part of an advanced manufacturing facility —(1) In general. To qualify for the section 48D credit, property must be part of the advanced manufacturing facility, as provided in this paragraph (f). Property is part of an advanced manufacturing facility if the property is physically located or co-located either at the advanced manufacturing facility, or on a contiguous piece of land to the advanced manufacturing facility. Parcels or tracts of land will be considered contiguous if they possess common boundaries, and would be contiguous but for the interposition of a road, street, railroad, public utility, stream or similar property.
(2) Property that is not located or co-located at an advanced manufacturing facility or on a contiguous piece of land to the advanced manufacturing facility. Property that is not located or co-located at an advanced manufacturing facility or on a contiguous piece of land to the advanced manufacturing facility may be considered part of the advanced manufacturing facility if the property is owned by the same taxpayer as the entire advanced manufacturing facility, connected to the advanced manufacturing facility ( e.g., via pipeline) and the sole purpose, function, and output of the property is dedicated to the operation of the advanced manufacturing facility.
(g) Integral to the operation of an advanced manufacturing facility —(1) In general. To qualify for the section 48D credit, property must be integral to the operation of manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment, both as provided in § 1.48D-2. Property is integral to the operation of manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment if such property is used directly in the manufacturing operation, is essential to the completeness of the manufacturing operation, and is not transformed in any material way as a result of the manufacturing operation. Materials, supplies, and other inventoriable items of property that are transformed during the manufacturing of semiconductors or into a unit of semiconductor manufacturing equipment are not considered property integral to the operation of an advanced manufacturing facility. For this purpose, the term transform does not include the normal degradation of components of semiconductor manufacturing equipment. In addition, property such as pavements, parking areas, inherently permanent advertising displays, or inherently permanent outdoor lighting facilities, although used in the operation of a business, ordinarily are not integral to the operation of an advanced manufacturing facility. Thus, for example, all property used by the taxpayer to acquire or transport materials or supplies to the point where the actual manufacturing activity commences (such as docks, railroad tracks, and bridges), or all property (other than materials or supplies) used by the taxpayer during the manufacturing of semiconductors or during the manufacturing of semiconductor manufacturing equipment within the meaning of § 1.48D-2, would be considered property integral to the operation of an advanced manufacturing facility of an eligible taxpayer. Property is considered integral to the operation of an advanced manufacturing facility of an eligible taxpayer if so used either by the owner of the property or by a lessee of the property.
(2) Vertically integrated manufacturers. If an advanced manufacturing facility that is engaged in the manufacturing of semiconductors within the meaning of § 1.48D-2 also conducts vertically integrated activities (for example, producing raw materials and manufacturing, ingots, wafers, and semiconductors), then property integral to the operation of such an advanced manufacturing facility includes only the property used in the manufacturing of semiconductors within the meaning of § 1.48D-2.
(3) Specific examples of integral property. Specific examples of property that normally would be integral to the operation of the advanced manufacturing facility of an eligible taxpayer are:
(i) Equipment and tools used in the processes of Chemical Vapor Deposition (CVD), and Physical Vapor Deposition (PVD), Atomic Layer deposition (ALD), oxidation, annealing, and epitaxy. Such equipment includes Deposition and thin-film growth equipment, etching equipment, and lithography equipment (including Extreme Ultraviolet Lithography (EUV));
(ii) Wet process tools, analytical tools, E-Beam operation tools (to repair masks), mask manufacturing equipment, chemical mechanical polishing equipment, reticle handlers, and stockers;
(iii) Inspection and metrology equipment, including scanning electron microscopes, atomic force microscopes, ion milling tools, optical inspection systems, wafer probes and optical scatterometer;
(iv) Clean room facilities, including locker and gowning rooms, specialized lighting systems, automated material systems for wafer handling, specialized recirculating air handlers, to maintain the cleanroom free from particles, control temperature and humidity levels, and specialized ceilings comprised of HEPA filters;
(v) Cleanroom equipment (including jogs, hand tools, calibration equipment, and temperature pollution monitoring tools) and specialty cleaning equipment;
(vi) Electrical power facilities, cooling facilities, chemical supply systems, and wastewater and wastewater treatment systems, including water management, water conservation, and water treatment equipment, materials and technologies;
(vii) Electricity distribution equipment including connectors, capacitors, meters and sockets, switchgear, surge arresters and transformers;
(viii) Sub-fab levels containing pumps, transformers, abatement systems, ultrapure water systems, uninterruptible power supply, and boilers, pipes, storage systems, wafer routing systems and databases, backup systems, quality assurance equipment, and computer data centers;
(ix) Utility level equipment including chillers, systems to handle nitrogen, argon, and other gases, compressor systems, and pipes;
(x) Industrial automation and control equipment (including, but not limited to, programmable logic controllers, process controllers, distributed control systems, human machine interface and motor controls and accessories);
(xi) Industrial automation communications devices, networks, and software for industrial automation control products and systems including automated material handling systems (AMHS) and advance wafer routing software systems and databases;
(xii) Tooling equipment;
(xiii) Back-end manufacturing equipment related to assembly, testing, and packaging;
(xiv) Photolithography tools;
(xv) Photomasks, reticles, pellicle, steppers, scanners, and photoresist related equipment;
(xvi) Emulation tools;
(xvii) Rapid thermal processing tools (annealing tubs and vacuum ovens), melting laser annealing (MLA) equipment, wafer bonding equipment, physical removal processing tools (flycutter DieSaw and backgrind), and edge seal dispense;
(xviii) Site infrastructure including but limited to energy, water, natural gas, backup power generators, transformers, stormwater management and fire protection;
(xix) Equipment and installation (wipe-film evaporators);
(xx) Chemical and gas delivery systems (piping, storage, and waste systems including hazardous waste);
(xxi) Bulk chemical purification systems (Liquid N2, Ar, H2, etc.);
(xxii) HVAC air conditioning and air handling systems, critical cooling water systems and heating systems;
(xxiii) Wafer stockers with temperature and air quality control;
(xxiv) Temperature control systems;
(xxv) Security and monitoring system and devices;
(xxvi) Failure analysis labs and equipment;
(xxvii) Quality assurance equipment including incoming goods, in-process inspection, and finished-good inspection;
(xxviii) Transportation, trolleys and carts that are used to transport wafers or overhead conveyer systems to move the carts;
(xxxix) Lighting products;
(xxx) Industrial gas generation and/or handling systems, such as air separation units, including any associated backup and storage equipment;
(xxxi) Input shaping tooling;
(xxxii) Crystal formation and coating equipment;
(xxxiii) Mechanical equipment; and
(xxxiv) Polishing equipment.
(4) Research or storage facilities. If property, including a building and its structural components, constitutes a research or storage facility and is used in connection with the manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment, the property may qualify as integral to the operation of the advanced manufacturing facility under section 48D(b)(2)(A)(iv). Specific examples of research facilities include research facilities that manufacture semiconductors in connection with research, such as pre-pilot production lines and prototypes, including semiconductor packaging. Specific examples of storage facilities are mineral or chemical storage equipment, gas storage tanks, including high pressure cylinders or specially designed tanks and drums, wastewater storage, and inventory and finished goods warehouses. A research facility that does not manufacture any type of semiconductor, as provided in § 1.48D-2(m), or semiconductor manufacturing equipment, as provided in § 1.48D-2(o), does not qualify.
(5) Examples. The following examples illustrate the rules of this paragraph (g):
(i) Example 1. X Corp, a calendar-year C corporation, is a manufacturer of air separation units that are designed to supply on demand nitrogen to an advanced manufacturing facility. In January 2025, X Corp places in service an air separation unit that is co-located at an advanced manufacturing facility on a contiguous piece of land to the advanced manufacturing facility. The air separation unit produces nitrogen on demand, and the nitrogen is used directly in the manufacturing of semiconductors. The air separation unit is part of the advanced manufacturing facility within the meaning of paragraph (f) of this section because the air separation unit is located on a contiguous piece of land to the advanced manufacturing facility. The air separation unit is property integral to the operation of an advanced manufacturing facility under this paragraph (g) because it is used directly in, and is essential to, the completeness of the semiconductor manufacturing operation, and is not transformed in any material way as a result of the semiconductor manufacturing operation.
(ii) Example 2. Y Corp, a calendar-year C corporation, is a manufacturer of specialty chemicals that are used in the manufacturing of semiconductors. In 2025, Y Corp places in service equipment at its facility that manufactures the specialty chemicals. The equipment is located five miles from the advanced manufacturing facility, but is not part of the advanced manufacturing facility within the meaning of paragraph (f) of this section because it is not located or co-located at the advanced manufacturing facility, or on a contiguous piece of land to the advanced manufacturing facility, and it is not connected to the advanced manufacturing facility. Also in 2025, Y Corp places in service chemical storage tanks that are part of the advanced manufacturing facility within the meaning of paragraph (f) of this section because the property is located on a contiguous piece of land to the advanced manufacturing facility. The chemical storage tanks are property integral to the operation of the advanced manufacturing facility pursuant to paragraph (g) of this section.
(h) Applicability date. This section applies to property that is placed in service after December 31, 2022, and during a taxable year ending on or after October 23, 2024.
§ 1.48D-4   Advanced manufacturing facility of an eligible taxpayer.
(a) In general. This section provides definitions and rules relating to advanced manufacturing facilities of eligible taxpayers for purposes of section 48D of the Code and the section 48D regulations.
(b) Advanced manufacturing facility. For purposes of section 48D(b)(3) and this section, the term advanced manufacturing facility means a facility of an eligible taxpayer for which the primary purpose, as determined under paragraph (c)(1) of this section, is the manufacturing of semiconductors or the manufacturing of semiconductor manufacturing equipment within the meaning of § 1.48D-2.
(c) Primary purpose —(1) In general. The determination of the primary purpose of a facility will be made based on all the facts and circumstances surrounding the construction, reconstruction, or erection of the advanced manufacturing facility of an eligible taxpayer. Facts that may indicate a facility has a primary purpose of manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment include plans or other documents for the facility that demonstrate that the facility is designed for the manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment within the meaning of § 1.48D-2. Facts may also include the possession of permits or licenses needed for the manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment; and executed contracts to a customer to supply such semiconductors or executed contracts to an advanced manufacturing facility as defined in paragraph (b) of this section to supply such semiconductor manufacturing equipment in place either before or within 6 months after the facility is placed in service. A facility has the primary purpose of manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment if more than 50 percent of its potential output, as measured by cost to produce, revenue received in an arm's length transaction, or units produced, constitutes manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment within the meaning of § 1.48D-2. However, property placed in service in a taxable year must still meet the definition of qualified property under section 48D(b)(2) and § 1.48D-3 for its basis to be included as part of the qualified investment in the advanced manufacturing facility eligible for the section 48D credit. For example, property that is not integral to the operation of an advanced manufacturing facility as provided in § 1.48D-3(g) may not be included as a qualified investment in an advanced manufacturing facility.
(2) No primary purpose. A facility for which the primary purpose is the manufacturing, producing, growing, or extracting of materials or chemicals that are supplied to an advanced manufacturing facility is not a facility for which the primary purpose is the manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment. Thus, for example, facilities that exclusively produce semiconductor-grade polysilicon, or produce gases, or that manufacture components or parts, to supply to an advanced manufacturing facility engaged in the manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment are not facilities for which the primary purpose is the manufacturing of semiconductors or the manufacturing of semiconductor manufacturing equipment.
(3) Examples. The following examples illustrate the rules of this paragraph (c):
(i) Example 1: Primary purpose; in general. In January 2025, X Corp, a calendar-year C corporation, begins construction of a facility that will manufacture semiconductor manufacturing equipment that could be used in a facility that will engage in semiconductor fabrication (semiconductor fabrication facility). A portion of the equipment produced, however, could be used for manufacturing operations of a facility that is not engaged in semiconductor manufacturing. X Corp enters into a contract with Y Corp, which is building a semiconductor fabrication facility to be placed in service in July 2026, to supply Y Corp with equipment that is integral to semiconductor fabrication. Such equipment represents more than 50 percent of the potential output of X Corp's facility (by cost to produce such equipment) of X Corp's facility for the first year of operations. X Corp's facility will be considered as having a primary purpose of manufacturing of semiconductor manufacturing equipment for the first year of its operations.
(ii) Example 2: Primary purpose; semiconductor wafer production. X Corp, a calendar-year C corporation, is engaged in the production of solar wafers (that is, X Corp is engaged in semiconductor wafer production). In January 2025, X Corp receives the necessary permits to begin construction of a facility designed for semiconductor wafer production within the meaning of § 1.48D-2. X Corp enters into a contract to supply such wafers to an unrelated person. Such contract represents more than 50 percent of X Corp's potential output (by revenue received) for the tax year that the facility is placed in service. Because the contract to sell wafers represents more than 50 percent of X Corp's potential output (by revenue received), X Corp's facility will be considered as having a primary purpose of semiconductor wafer production within the meaning of paragraph (c)(1) of this section.
(iii) Example 3: Primary purpose; vertically integrated manufacturer. Z Corp, a C corporation, is a vertically integrated manufacturer. In January 2025, Z Corp begins construction of a facility that will produce raw materials and other consumables for use in the manufacturing of semiconductors and such facility will also engage in semiconductor wafer production and semiconductor fabrication. Z Corp enters into separate sales contracts to sell units produced from the semiconductor fabrication with a variety of unrelated companies that are engaged in semiconductor packaging. Z Corp also enters into a sales contract with A Corp to sell raw materials that it produces at the facility to A Corp. Z Corp's production of units from its semiconductor fabrication sold to companies engaged in semiconductor packaging represents more than 50 percent of the potential output (by cost) of Z Corp's facility for the first year of operations; therefore, Z Corp's facility will be considered as having a primary purpose of manufacturing of semiconductors.
(iv) Example 4: No primary purpose; vertically integrated manufacturer. Assume the same facts as in paragraph (c)(3)(iii) of this section ( Example 3 ), except that Z Corp's production of such raw materials represents more than 50 percent of the potential output of Z Corp's facility for the first year of operations. Z Corp's facility will not be considered as having a primary purpose of manufacturing of semiconductors.
(d) Applicability date. This section applies to property that is placed in service after December 31, 2022, and during a taxable year ending on or October 23, 2024.
§ 1.48D-5   Beginning of construction.
(a) Termination of credit —(1) In general. The credit allowed under section 48D of the Code and the section 48D regulations does not apply to property that is part of an advanced manufacturing facility of an eligible taxpayer if the beginning of construction of the property, as defined in paragraph (a)(2) of this section, begins after December 31, 2026 (the date specified in section 48D(e)).
(2) Property. For purposes of determining beginning of construction of property under this section, the unit of property is—
(i) A single advanced manufacturing facility project as described in paragraph (a)(3) of this section; or
(ii) An item of qualified property (as defined in § 1.48D-3(b)).
(3) Single advanced manufacturing facility project —(i) In general. Solely for purposes of determining whether construction of a qualified property has begun for purposes of section 48D and the section 48D regulations, multiple items of qualified property or advanced manufacturing facilities that are operated as part of a single advanced manufacturing facility project (along with any items of property, such as clean rooms, chemical delivery systems, chemical storage facilities, temperature control systems, robotic handling systems, semiconductor manufacturing equipment, and tooling equipment (such as for deposition and etching) that are integral to the operation of the single advanced manufacturing facility project) will be treated as a single item of qualified property. Multiple qualified properties or advanced manufacturing facilities will be treated as operated as part of a single advanced manufacturing facility project, if at any point during construction of the multiple qualified properties or advanced manufacturing facilities, they are owned by a single taxpayer (subject to the related taxpayer rule provided in paragraph (a)(3)(ii) of this section) and any two or more of the following factors are present—
(A) The properties or facilities are owned by a single legal entity;
(B) The properties or facilities are constructed on contiguous pieces of land;
(C) The properties or facilities are described in a common supply contract or other type of relevant contract;
(D) The properties or facilities share a common electricity and/or water supply;
(E) The properties or facilities are described in one or more common environmental or other regulatory permits;
(F) The properties or facilities were constructed pursuant to a single master construction contract; or
(G) The construction of the properties or facilities was financed pursuant to the same loan agreement or other financing arrangement.
(ii) Related taxpayers —(A) Definition. For purposes of this section, the term related taxpayers means members of a group of trades or businesses that are under common control (as defined in § 1.52-1(b)).
(B) Related taxpayer rule. For purposes of this section, related taxpayers are treated as one taxpayer in determining whether multiple qualified properties or advanced manufacturing facilities will be treated as operated as part of a single advanced manufacturing facility project.
(iii) Example. A single taxpayer is developing Project C, a project that will consist of 3 advanced manufacturing facilities constructed on the same campus. Project C will share a common electricity supply, and semiconductors manufactured by Project C will be sold to Buyer through a single supply contract. In 2023, for 1 of the 3 advanced manufacturing facilities, the taxpayer installs deposition equipment. Thereafter, the taxpayer completes the construction of all 3 advanced manufacturing facilities pursuant to a continuous program of construction. For purposes of the section 48D credit, Project C is a single advanced manufacturing facility project that will be treated as a single property, and the taxpayer performed physical work of a significant nature that constitutes the beginning of construction of Project C in 2023.
(iv) Timing of single advanced manufacturing facility project determination. Whether multiple properties or advanced manufacturing facilities are operated as part of a single advanced manufacturing facility project and are treated as a single item of property for purposes of the beginning of construction requirement of section 48D and the section 48D regulations is determined in the taxable year during which the last of the multiple properties or facilities is placed in service.
(v) Disaggregation. Multiple properties or advanced manufacturing facilities that are operated as part of a single advanced manufacturing facility project and treated as a single item of qualified property under this paragraph (a)(3) for purposes of determining whether construction of a qualified property or advanced manufacturing facility has begun may be disaggregated and treated as separate items of qualified property for purposes of determining whether a separate advanced manufacturing facility or item of qualified property satisfies the continuity safe harbor (as defined in paragraph (e) of this section). Those disaggregated separate advanced manufacturing facilities or items of qualified property that are placed in service prior to the continuity safe harbor deadline will be eligible for the continuity safe harbor. The remaining disaggregated separate items of property or facilities may satisfy the continuity requirement under a facts and circumstances determination.
(vi) Example. A single taxpayer is developing Project D, a project that will consist of 4 separate properties. Project D will use the same water supply and each property within Project D will be constructed pursuant to a single master construction contract. Under the single project rule provided in this paragraph (a)(3), Project D is a single project that will be treated as a single property. In 2024, for 3 of the 4 separate properties, the taxpayer installs property integral to the operation of the advanced manufacturing facility. Accordingly, the taxpayer has performed physical work of a significant nature that constitutes the beginning of construction of Project D for purposes of section 48D(e). Thereafter, on the last day of the 10-year continuity safe harbor period, the taxpayer places in service only 3 of the 4 separate properties within Project D. The taxpayer disaggregates Project D under paragraph (a)(3)(v) of this section and accordingly, only 3 of the 4 separate properties satisfy the continuity safe harbor. For the remaining 1 separate property, the taxpayer may demonstrate that it satisfies the continuity requirement provided in paragraph (e) of this section based on the facts and circumstances, to enable the taxpayer to claim the section 48D credit.
(b) Beginning of construction —(1) In general. For purposes of section 48D, the section 48D regulations, and section 107(f)(1) of the CHIPS Act of 2022, Public Law 117-167, div. A, 136 Stat. 1366, 1399 (August 9, 2022), a taxpayer may establish that construction of an item of property (as defined in paragraph (a)(2) of this section) of the taxpayer begins under either:
(i) The physical work test of paragraph (c) of this section; or
(ii) The five percent safe harbor of paragraph (d) of this section.
(2) Continuity requirement. See paragraph (e) of this section for the continuity requirement applicable for purposes of the physical work test and the five percent safe harbor, which must be demonstrated either by maintaining continuous construction (as defined in paragraph (e)(2) of this section) or continuous efforts (as defined in paragraph (e)(3) of this section).
(c) Physical work test —(1) In general. Under the physical work test, construction of an item of property begins when physical work of a significant nature begins, provided thereafter that the taxpayer maintains continuous construction or continuous efforts. This test focuses on the nature of the work performed, not the amount of the costs. Assuming the work performed is of a significant nature, there is no fixed minimum amount of work, monetary or percentage threshold required to satisfy the physical work test.
(2) Physical work of significant nature —(i) In general. Work performed by the taxpayer and work performed for the taxpayer by other persons under a binding written contract that is entered into prior to the manufacture, construction, or production of the property for use by the taxpayer in the taxpayer's trade or business of manufacturing semiconductors or semiconductor manufacturing equipment is taken into account in determining whether physical work of a significant nature has begun. Both on-site and off-site work (performed either by the taxpayer or by another person under a binding written contract) may be taken into account for purposes of demonstrating that physical work of a significant nature has begun. A written contract is binding only if it is enforceable under local law against the taxpayer or a predecessor and does not limit damages to a specified amount (for example, by use of a liquidated damages provision). For this purpose, a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. For additional guidance regarding the definition of a binding written contract, see § 1.168(k)-1(b)(4)(ii)(A) through (D). Specific examples of on-site physical work of a significant nature include the excavation for the foundation and the pouring of the concrete pads of the foundation. Specific examples of off-site physical work of a significant nature include the manufacture of semiconductor manufacturing equipment but only if the manufacturer's work is done pursuant to a binding written contract and the semiconductor manufacturing equipment is not held in the manufacturer's inventory.
(ii) Exceptions. Physical work of significant nature does not include preliminary activities, including but not limited to planning or designing, securing financing, exploring, researching, obtaining permits, licensing, conducting surveys, environmental and engineering studies, or clearing a site, even if the cost of those preliminary activities is properly included in the depreciable basis of the property. Physical work of a significant nature also does not include work (performed either by the taxpayer or by another person under a binding written contract) to produce property that is either in existing inventory or is normally held in inventory by a vendor.
(d) Five percent safe harbor —(1) In general. Construction of a property will be considered as having begun if:
(i) A taxpayer pays or incurs (within the meaning of § 1.461-1(a)(1) and (2)) five percent or more of the total cost of the property; and
(ii) Thereafter, the taxpayer maintains continuous construction or continuous efforts.
(2) Costs. All costs properly included in the basis of the property are taken into account to determine whether the five percent safe harbor has been met. For property that is manufactured, constructed, or produced for the taxpayer by another person under a binding written contract with the taxpayer, costs incurred with respect to the property by the other person before the property is provided to the taxpayer are deemed incurred by the taxpayer when the costs are incurred by the other person under the principles of section 461 of the Code.
(3) Cost overruns —(i) Single advanced manufacturing facility project. If the total cost of a property that is a single advanced manufacturing facility project comprised of multiple properties (as described in paragraph (a)(3) of this section) exceeds its anticipated total cost such that the amount the taxpayer actually paid or incurred with respect to the single advanced manufacturing facility project to establish the beginning of its construction under paragraph (b)(1)(ii) of this section is less than five percent of the total cost at the time it is placed in service, the five percent safe harbor is not fully satisfied. However, the five percent safe harbor will be satisfied with respect to some, but not all, of the separate properties or facilities (as described in paragraph (a)(3) of this section) comprising the single advanced manufacturing facility project, as long as the total aggregate cost of those properties is not more than twenty times greater than the amount the taxpayer paid or incurred.
(ii) Example. In 2023, taxpayer incurs $300,000 in costs to construct Project A, comprised of six advanced manufacturing facilities that will be operated as a single project. Taxpayer anticipates that each advanced manufacturing facility will cost $1,000,000 for a total cost for Project A of $6,000,000. Thereafter, the taxpayer makes continuous efforts to advance towards completion of Project A. The taxpayer timely places Project A in service in 2025. In 2025, the actual total cost of Project A amounts to $7,500,000, with each advanced manufacturing facility costing $1,250,000. Although the taxpayer did not pay or incur five percent of the actual total cost of Project A in 2023, the taxpayer will be treated as satisfying the Five Percent Safe Harbor in 2023 with respect to four of the advanced manufacturing facilities, as their actual total cost of $5,000,000 is not more than twenty times greater than the $300,000 in costs incurred by the taxpayer. The taxpayer will not be treated as satisfying the five percent safe harbor in 2023 with respect to two of the properties. Thus, the taxpayer may claim the section 48D credit based on $5,000,000, the cost of four of the properties.
(iii) Single property. If the total cost of a single property, which is not part of a single advanced manufacturing facility project comprised of multiple properties or facilities (as described in paragraph (a)(3) of this section) and cannot be separated into multiple properties or facilities, exceeds its anticipated total cost so that the amount a taxpayer actually paid or incurred with respect to the single property as of an earlier year is less than five percent of the total cost of the single property at the time it is placed in service, then the taxpayer will not satisfy the five percent safe harbor with respect to any portion of the single property in such earlier year.
(iv) Example. In 2023, a taxpayer incurs $250,000 in costs to construct Project B, a single property. The taxpayer anticipates that the total cost of Project B will be $5,000,000. Thereafter, the taxpayer makes continuous efforts to advance towards completion of Project B. The taxpayer places Project B in service in a later year. At that time, its actual total cost amounts to $6,000,000. Because Project B is a single property that is not a single project comprised of multiple properties, the taxpayer will not satisfy the five percent safe harbor as of 2023. However, if the construction of Project B satisfies the requirements of the physical work test by also beginning physical work of a significant nature in 2024, the taxpayer may be able to demonstrate that construction began in 2024.
(e) Continuity requirement —(1) In general. For purposes of the physical work test and five percent safe harbor, taxpayers must satisfy the continuity requirement by demonstrating either continuous construction or continuous efforts regardless of whether the physical work test or the five percent safe harbor was used to establish the beginning of construction. Whether a taxpayer meets the continuity requirement under either test is determined by the relevant facts and circumstances. The Commissioner will closely scrutinize a property and may determine that the beginning of construction is not satisfied with respect to a property if a taxpayer does not meet the continuity requirement.
(2) Continuous construction. The term continuous construction means a continuous program of construction that involves continuing physical work of a significant nature. Whether a taxpayer maintains a continuous program of construction to satisfy the continuity requirement will be determined based on all the relevant facts and circumstances.
(3) Continuous efforts. The term continuous efforts means continuous efforts to advance towards completion of a property to satisfy the continuity requirement. Whether a taxpayer makes continuous efforts to advance towards completion of a property will be determined by the relevant facts and circumstances. Facts and circumstances indicating continuous efforts to advance towards completion of a property may include:
(i) Paying or incurring additional amounts included in the total cost of the property. A taxpayer is considered to meet this factor for a taxable year in which it pays or incurs (within the meaning of § 1.461-1(a)(1) and (2)) five percent or more of the total cost of the property each calendar year after the calendar year during which construction of the property began for purposes of section 48D and the section 48D regulations;
(ii) Entering into binding written contracts for the manufacture, construction, or production of the property or for future work to construct the property;
(iii) Obtaining necessary permits; and
(iv) Performing physical work of a significant nature.
(4) Excusable disruptions to continuous construction and continuous efforts tests —(i) In general. Certain disruptions in a taxpayer's continuous construction or continuous efforts to advance towards completion of a property that are beyond the taxpayer's control will not be considered as indicating that a taxpayer has failed to satisfy the continuity requirement.
(ii) Effect of excusable disruptions on continuity safe harbor. The excusable disruptions provided in this paragraph (e)(4) will not extend the continuity safe harbor deadline that is provided in paragraph (e)(6) of this section.
(iii) Non-exclusive list of construction disruptions. This paragraph (e)(4)(iii) provides a non-exclusive list of construction disruptions that will not be considered as indicating that a taxpayer has failed to satisfy the continuity requirement:
(A) Delays due to severe weather conditions.
(B) Delays due to natural disasters.
(C) Delays in obtaining permits or licenses from Federal, Indian Tribal, State, territorial, or local governments. Such delays include delays in obtaining air emissions, water discharge, or hazardous waste management permits or chemical handling licenses from the Environmental Protection Agency (EPA) or another environmental protection authority. Such delays also include delays as a result of the review process under State, Tribal, local, or Federal environmental laws, for example, a review under the National Environmental Policy Act, as well as delays in obtaining construction permits.
(D) Delays at the written request of a Federal, State, local, or Indian Tribal government regarding matters of public health, public safety, security, or similar concerns, including hazardous chemical transport.
(E) Delays related to electrical or water supply, such as those relating to the completion of construction on a distribution line or water supply line that may be associated with a project's electrical and water needs, whether constructed by the eligible taxpayer that is the owner of the advanced manufacturing facility, a governmental entity, or another person.
(F) Delays in the manufacture of custom components or equipment.
(G) Delays due to the inability to obtain specialized equipment of limited availability.
(H) Delays due to supply shortages.
(I) Delays due to the presence of endangered species.
(J) Financing delays.
(K) Delays due to specialized labor shortages or labor stoppages.
(5) Timing of excusable disruption determination. In the case of a single advanced manufacturing facility project comprised of a single property, whether an excusable disruption has occurred for purposes of the beginning of construction requirement of section 48D and the section 48D regulations must be determined in the taxable year during which the property is placed in service. In the case of a single advanced manufacturing facility project comprised of multiple properties or facilities, whether an excusable disruption has occurred for purposes of the beginning of construction requirement of section 48D and the section 48D regulations must be determined in the taxable year during which the last of multiple properties or facilities is placed in service.
(6) Continuity safe harbor —(i) In general. A taxpayer will be deemed to satisfy the continuity requirement provided the property is placed in service no more than 10 calendar years after the calendar year during which construction of the property began for purposes of section 48D and the section 48D regulations.
(ii) Example. If construction begins on a property on January 15, 2023, and the property is placed in service by December 31, 2033, the property will be considered to satisfy the continuity safe harbor. If the property is not placed in service before January 1, 2034, whether the continuity requirement was satisfied will be determined based on all the relevant facts and circumstances.
(f) Applicability date. This section applies to property that is placed in service after December 31, 2022, and during a taxable year ending on or after October 23, 2024.
§ 1.48D-6   Elective payment election.
(a) Elective payment election —(1) In general. A taxpayer, after successfully completing the pre-filing registration requirements under paragraph (b) of this section, may make an elective payment election with respect to any section 48D credit determined with respect to such taxpayer in accordance with section 48D(d)(1) of the Internal Revenue Code (Code) and this section. A taxpayer, other than a partnership or S corporation, that makes an elective payment election in the manner provided in paragraph (c) of this section will be treated as making a payment against the Federal income taxes imposed by subtitle A of the Code (subtitle A) for the taxable year with respect to which a section 48D credit is determined equal to the amount of the section 48D credit with respect to any qualified property otherwise allowable to the taxpayer (determined without regard to section 38(c) of the Code). The payment described in section 48D(d)(1), and this paragraph (a)(1) will be treated as made on the later of the due date (determined without regard to extensions) of the return of tax imposed by subtitle A for the taxable year or the date on which such return is filed.
(2) Partnerships and S corporations. See paragraph (d) of this section for special rules regarding elective payment elections under section 48D(d) applicable to partnerships and S corporations.
(3) Irrevocable. Any election under section 48D(d)(1) and this section, once made, will be irrevocable and, except as otherwise provided, will apply with respect to any amount of section 48D credit for the taxable year for which the election is made.
(b) Pre-filing registration required —(1) In general. Pre-filing registration by any taxpayer (including a partnership or an S corporation) in accordance with this paragraph (b) is a condition that must be successfully completed prior to making an elective payment election under section 48D(d)(1) and this section with respect to qualified property placed in service by the taxpayer as part of an advanced manufacturing facility of an eligible taxpayer. An elective payment election will not be effective with respect to the section 48D credit determined with respect to any such qualified property placed in service by any taxpayer unless the taxpayer received a valid registration number for the taxpayer's qualified investment in the advanced manufacturing facility of an eligible taxpayer in accordance with this paragraph (b) and provided the registration number for each qualified investment in each advanced manufacturing facility on its Form 3800, General Business Credit (or its successor), and on any required completed source form(s) with respect to the qualified investment, attached to the tax return in accordance with guidance. For purposes of this section, the term guidance means guidance published in the Federal Register or Internal Revenue Bulletin, as well as administrative guidance such as forms, instructions, publications, or other guidance on the IRS.gov website. See §§ 601.601 and 601.602 of this chapter. However, completion of the pre-filing registration requirements and receipt of a registration number does not, by itself, mean the taxpayer is eligible to receive a payment with respect to any section 48D credit determined with respect to the qualified property.
(2) Manner of registration. Unless otherwise provided in guidance, a taxpayer must complete the pre-filing registration process electronically through the IRS electronic portal and in accordance with the instructions provided therein.
(3) Members of a consolidated group. A member of a consolidated group is required to complete pre-filing registration as a condition of, and prior to, making an elective payment election. See § 1.1502-77 (providing rules regarding the status of the common parent as agent for its members).
(4) Timing of pre-filing registration. A taxpayer must satisfy the pre-filing registration requirements of this paragraph (b) and receive a registration number under paragraph (b)(7) of this section prior to making any elective payment election under this section on the taxpayer's tax return for the taxable year at issue.
(5) Each qualified investment in an advanced manufacturing facility must have its own registration number. A taxpayer must obtain a registration number for each qualified investment in an advanced manufacturing facility of an eligible taxpayer with respect to which an elective payment election is made.
(6) Information required to complete the pre-filing registration process. Unless modified in future guidance, a taxpayer must provide the following information to the IRS to complete the pre-filing registration process:
(i) The taxpayer's general information, including its name, address, taxpayer identification number, and type of legal entity;
(ii) Any additional information required by the IRS electronic portal;
(iii) The taxpayer's taxable year, as determined under section 441 of the Code;
(iv) The type of annual return(s) normally filed by the taxpayer with the IRS;
(v) A list of each qualified investment in an advanced manufacturing facility that the taxpayer intends to use to determine a section 48D credit for which the taxpayer intends to make an elective payment election;
(vi) For each qualified investment in an advanced manufacturing facility listed in paragraph (b)(6)(v) of this section, any further information required by the IRS electronic portal, such as:
(A) The type of qualified investment in the advanced manufacturing facility;
(B) Physical location (that is, address and coordinates (longitude and latitude) of the advanced manufacturing facility);
(C) Supporting documentation relating to the construction, reconstruction or acquisition of the advanced manufacturing facility (such as, State and local government permits to operate the advanced manufacturing facility, certifications, and evidence of ownership that ties to the land deed, lease, or other documented right to use and access any land upon which the advanced manufacturing facility is constructed or housed);
(D) The beginning of construction date and the placed in service date of any qualified property that is part of the advanced manufacturing facility, or the date of the last progress expenditure made during the taxable year;
(E) The source of funds the taxpayer used to acquire the qualified property with respect to which the qualified investment was made; and
(F) Any other information that the taxpayer or entity believes will help the IRS evaluate the registration request;
(vii) The name of a contact person for the taxpayer. The contact person is the person whom the IRS may contact if there is an issue with the registration. The contact person must either:
(A) Possess legal authority to bind the taxpayer; or
(B) Must provide a properly executed power of attorney on Form 2848, Power of Attorney and Declaration of Representative;
(viii) A penalties of perjury statement, effective for all information submitted as a complete application, and signed by a person with personal knowledge of the relevant facts that is authorized to bind the registrant; and
(ix) Any other information the IRS deems necessary for purposes of preventing duplication, fraud, improper payments, or excessive payments under this section that is provided in guidance.
(7) Registration number —(i) In general. The IRS will review the information provided and will issue a separate registration number for each qualified investment in an advanced manufacturing facility of an eligible taxpayer for which the taxpayer making the registration provided sufficient verifiable information.
(ii) Registration number is only valid for one year. A registration number is valid only with respect to the taxpayer that obtained the registration number under this section and only for the taxable year for which it is obtained.
(iii) Renewing registration numbers. If an elective payment election will be made with respect to any section 48D credit determined with respect to a qualified investment in an advanced manufacturing facility for a taxable year after a registration number under this section has been obtained, the taxpayer must renew the registration for that subsequent year in accordance with applicable guidance, including attesting that all the facts previously provided are still correct or updating any facts.
(iv) Amendment of previously submitted registration information if a change occurs before the registration number is used. As provided in instructions to the pre-filing registration portal, if specified changes occur with respect to a qualified investment in an advanced manufacturing facility for which a registration number has been previously obtained, a taxpayer must amend the registration (or may need to submit a new registration) to reflect these new facts. For example, if an eligible taxpayer that is the owner of an advanced manufacturing facility previously registered qualified investments in the advanced manufacturing facility or the advanced manufacturing facility, and the advanced manufacturing facility undergoes a change of ownership (incident to a corporate reorganization or an asset sale) such that the new owner has a different employer identification number (EIN) than the owner who obtained the original registration, the original owner of the advanced manufacturing facility must amend the original registration to disassociate its EIN from the advanced manufacturing facility and the new owner must submit separately an original registration (or if the new owner previously registered other qualified investments or advanced manufacturing facilities, must amend its original registration) to associate the new owner's EIN with the previously registered advanced manufacturing facility.
(v) Registration number is required to be reported on the return for the taxable year of the elective payment election. The taxpayer must include the registration number of the qualified investment in the advanced manufacturing facility on the taxpayer's return as provided in this paragraph (b) for the taxable year. The IRS will treat an elective payment election as ineffective with respect to a section 48D credit determined with respect to a qualified investment in an advanced manufacturing facility for which the taxpayer does not include a valid registration number that was assigned to that particular taxpayer during the pre-registration process on the annual return.
(c) Time and manner of election —(1) In general. Any elective payment election under section 48D(d)(1) and this section with respect to any section 48D credit determined with respect to a taxpayer's qualified investment must—
(i) Be made on the taxpayer's original return of tax (including a superseding return) filed not later than the due date (including extensions of time) for the taxable year for which the section 48D credit is determined and the election is made in the manner prescribed by the IRS in guidance;
(ii) Include any required completed source credit form(s), a completed Form 3800, and any additional information required in instructions, including supporting calculations;
(iii) Provide on the completed Form 3800 and on any required source credit form(s) a valid registration number for the qualified investment that is placed in service as part of an advanced manufacturing facility of an eligible taxpayer;
(iv) Include a statement attesting under the penalties of perjury that—
(A) The taxpayer claiming to be an eligible taxpayer is not a foreign entity of concern within the meaning of regulations under section 48D and has not made an applicable transaction as defined under regulations under section 50 during the taxable year that the qualified property is placed in service; andThe taxpayer claiming to be an eligible taxpayer is not a foreign entity of concern within the meaning of regulations under section 48D and has not made an applicable transaction as defined under regulations under section 50 during the taxable year that the qualified property is placed in service; and
(B) The taxpayer will not claim a double benefit (within the meaning of section 48D(d)(3) and paragraphs (d)(2)(ii)(B) and (C) and (e) of this section) with respect to any elective payment election made by the taxpayer; and
(v) Be made not later than the due date (including extensions of time) for the taxable year for which the election is made, but in no event earlier than May 8, 2023.
(2) Limitations. No elective payment election may be made for the first time on an amended return, withdrawn on an amended return, or made or withdrawn by filing an administrative adjustment request under section 6227 of the Code, although a numerical error with respect to a properly claimed elective payment election may be corrected on an amended return or by filing an administrative adjustment request under section 6227 if necessary. There is no relief available under § 301.9100-1 or § 301.9100-3 of this chapter for an elective payment election that is not timely filed; however, relief under § 301.9100-2(b) may apply.
(d) Special rules for partnerships and S corporations —(1) In general. If a partnership or S corporation directly holds any property for which an advanced manufacturing investment credit is determined, any election under this section must be made by the partnership or S corporation. No election under section 48D(d) and this section by any partner or shareholder is allowed.
(2) Election —(i) Time and manner of election. An elective payment election by a partnership or S corporation is made at the same time and in the same manner, and subject to the pre-filing registration and other requirements for the election to be effective, as provided in paragraphs (b) and (c) of this section.
(ii) Effect of election. If a partnership or S corporation makes an elective payment election with respect to a section 48D credit, the following rules will apply:
(A) The Internal Revenue Service will make a payment to such partnership or S corporation equal to the amount of such credit, determined in accordance with paragraph (d)(6) of this section (unless the partnership or S corporation owes a Federal tax liability, in which case the payment may be reduced by such tax liability);
(B) Before determining any partner's distributive share, or S corporation shareholder's pro rata share, of such credit, such credit is reduced to zero and is, for any other purposes under the Code, deemed to have been allowed solely to such entity (and not allocated or otherwise allowed to its partners or shareholders) for such taxable year; and
(C) Any partner's or S corporation shareholder's share of any qualified investment in an advanced manufacturing facility for which an elective payment election has been made for the taxable year, is reduced to zero for such taxable year.
(iii) Coordination with sections 705 and 1366. Any amount with respect to which the election is made is treated as tax exempt income for purposes of sections 705 and 1366 of the Code.
(iv) Partner's distributive share —(A) In general. Except as provided in paragraphs (d)(2)(iv)(B) and (C) of this section, a partner's distributive share of such tax exempt income is equal to such partner's distributive share of its otherwise allocable basis in qualified property under regulations under section 48D that apply for purposes of allocating a partner's share of its basis in qualified property placed in service by the partnership for such taxable year.
(B) Interim rule. If a partnership meets the requirements of paragraph (d)(2)(iv)(C) of this section, a partner's distributive share of the tax exempt income resulting from a section 48D(d) elective payment election made by the partnership with respect to property held directly by the partnership, may be determined in accordance with the basic principles for partnership income allocations as described in § 1.704-1(b)(1)(i) instead of in accordance with the partner's distributive share of the otherwise applicable section 48D credits as determined under §§ 1.704-1(b)(4)(ii) and 1.46-3(f).
(C) Partnership requirements. A partnership meets the requirements of this paragraph (d)(2)(iv)(C) if its partnership agreement is a written binding contract that was entered into after December 31, 2021, and before June 22, 2023, and it was formed for the purpose of owning and operating an advanced manufacturing facility or qualified property.
(v) S corporation shareholder's pro-rata share. An S corporation shareholder's pro rata share (as determined under section 1377(a) of the Code) of such tax exempt income is taken into account by the S corporation shareholder in the taxable year (as determined under sections 444 and 1378(b) of the Code) in which the section 48D credit is determined and is based on the shareholder's otherwise apportioned basis in qualified property under regulations under section 48D that apply for purposes of allocating an S corporation shareholder's pro-rata share of basis in qualified property placed in service by the S corporation for the taxable year.
(vi) Timing of tax exempt income. Such tax exempt income resulting from such election is treated as received or accrued, including for purposes of sections 705 and 1366 of the Code, as of the date the qualified property is placed in service with respect to the partnership or S corporation.
(3) Disregarded entity ownership. In the case of a qualified property held directly by an entity disregarded as separate from a partnership or S corporation for Federal income tax purposes, such qualified property will be treated as held directly by the partnership or S corporation for purposes of making an elective payment election.
(4) Electing partnerships in tiered structures —(i) In general. If a partnership (upper-tier partnership) is a direct or indirect partner of a partnership that makes an elective payment election (lower-tier partnership) and directly or indirectly receives an allocation of tax exempt income resulting from the elective payment election made by the lower-tier partnership, the upper-tier partnership must determine its partners' distributive shares of such tax exempt income in proportion to each partner's distributive share of its otherwise allocable basis in qualified property under regulations under section 48D that apply for purposes of allocating a partner's share of its basis in qualified property placed in service by a partnership for such taxable year.
(ii) Electing partnerships in tiered structures; interim rule. If a lower-tier partnership determined its partners' distributive shares of the tax exempt income described in paragraph (d)(2)(iii) of this section using the interim rule described in paragraph (d)(2)(iv)(B) of this section, an upper-tier partnership that is a direct or indirect partner in such lower-tier partnership may determine its partners' distributive shares of the tax exempt income in accordance with the basic principles for partnership income allocations as described in § 1.704-1(b)(1)(i).
(5) Character of tax exempt income. Tax exempt income resulting from an elective payment election by an S corporation or a partnership is treated as arising from an investment activity and not from the conduct of a trade or business within the meaning of section 469(c)(1)(A). As such, the tax exempt income is not treated as passive income to any partners or shareholders who do not materially participate within the meaning of section 469(c)(1)(B).
(6) Determination of amount of the section 48D credit —(i) In general. In determining the amount of the section 48D credit that will result in a payment under paragraph (d)(2)(ii)(A) of this section, the partnership or S corporation must compute the amount of the credit allowable (without regard to section 38(c)) as if an elective payment election were not made. Because a partnership or S corporation is not subject to sections 38(b) and (c) and 469 (that is, those sections apply at the partner or shareholder level), the amount of the credit determined by a partnership or S corporation is not subject to limitation by those sections. Because the section 48D credit is an investment credit under section 46, sections 49 and 50 apply to limit the amount of the credit.
(ii) Application of section 49 at-risk rules to determination of section 48D credit for partnerships and S corporations. Any amount of section 48D credit determined with respect to qualified property held directly by a partnership or S corporation must be determined by the partnership or S corporation taking into account the section 49 at-risk rules at the partner or shareholder level as of the close of the taxable year in which the qualified property is placed in service. Thus, if the credit base of a qualified property is limited to a partner or S corporation shareholder by section 49, then the amount of the section 48D credit determined by the partnership or S corporation is also limited. A partnership or S corporation that directly holds qualified property must request from each of its partners or shareholders, respectively, that is subject to section 49, the amount of such partner's or shareholder's nonqualified nonrecourse financing with respect to the qualified property as of the close of the taxable year in which the property is placed in service. Additionally, the partnership or S corporation must attach to its tax return for the taxable year in which the qualified property is placed in service, the amount of each partner's or shareholder's section 49 limitation with respect to any qualified property. Changes to at-risk amounts under section 49 for partners or S corporation shareholders after the close of the taxable year in which the qualified property is placed in service do not impact the section 48D credit determined by the partnership or S corporation, but do impact the partner(s) or S corporation shareholder(s) as provided in paragraph (d)(6)(iii) of this section.
(iii) Changes in at-risk amounts under section 49 at partner or shareholder level. A partner or shareholder in a partnership or S corporation, respectively, must apply the rules under section 49 at the partner or shareholder level if there is a change in nonqualified nonrecourse financing with respect to the partner or shareholder after the close of the taxable year in which the qualified property is placed in service and the section 48D credit is determined. If there is an increase in nonqualified nonrecourse financing to a partner, any adjustment under the rules of section 49(b) is calculated based on the partner's share of the basis (or cost) of the qualified property to which the section 48D credit was determined in accordance with regulations under section 48D that apply for purposes of allocating a partner's share of its basis in qualified property placed in service by the partnership. If there is an increase in nonqualified nonrecourse financing to a shareholder, any adjustment under the rules of section 49(b) is calculated based on the shareholder's pro rata share of the basis (or cost) of the qualified property to which the section 48D credit was determined in accordance with regulations under section 48D that apply for purposes of allocating an S corporation shareholder's pro-rata share of basis in qualified property placed in service by the S corporation. If there is a decrease in nonqualified nonrecourse financing, any increase in the credit base is taken into account by the partner or shareholder as provided under section 49, and any resulting credit is not eligible for an elective payment election under section 48D(d).
(7) Partnerships subject to subchapter C of chapter 63 of the Code. See § 301.6241-7(j) of this chapter for rules applicable to payments made to partnerships subject to subchapter C of chapter 63 of the Code for a partnership taxable year.
(8) Example. P is a calendar-year partnership consisting of partners A and B, each 50 percent owners. P constructs Facility A, an advanced manufacturing facility, at V. P completes the pre-filing registration with respect to Facility A at V for 2024 in accordance with paragraph (b) of this section. In 2024, P places in service qualified property that is part of Facility A at V. P timely files its 2024 Form 1065 and properly makes the elective payment election in accordance with paragraph (c) of this section. On its Form 1065, P properly determines that the amount of section 48D credit with respect to the qualified property placed in service at Facility A for 2024 is $100,000. The IRS processes P's return and makes a $100,000 payment to P. Before determining A's and B's distributive shares, P reduces the section 48D credit to zero. However, for other purposes of the Code, the $100,000 section 48D credit is deemed to have been allowed to P for 2024. P does not qualify for the interim rule described in paragraph (d)(2)(iv)(B) of this section. The $100,000 is treated as tax exempt income for purposes of section 705, and A's and B's distributive shares of such tax exempt income is based on each partner's otherwise allocable basis in qualified property under regulations under section 48D that apply for purposes of allocating a partner's share of its basis in qualified property placed in service by the partnership for the 2024 taxable year ($50,000 each). A's and B's basis in their partnership interests and capital accounts will be appropriately adjusted to take into account basis adjustments made to the qualified property under section 50(c)(5) and § 1.704-1(b)(2)(iv)( j ). See paragraph (g)(2) of this section. The tax exempt income received or accrued by P as a result of the elective payment election is treated as received or accrued, including for purposes of section 705, as of date P placed in service the qualified property in 2024.
(e) Denial of double benefit —(1) In general. In the case of a taxpayer making an election under section 48D(d) and this section with respect to any section 48D credit determined under section 48D(a) and regulations under section 48D that apply for purposes of determining the section 48D credit, such credit is reduced to zero and is, for any other purposes under the Code, deemed to have been allowed to the taxpayer for such taxable year. Paragraphs (e)(2) and (3) of this section explain the application of the section 48D(d)(3) denial of a double benefit rule to a taxpayer (other than a partnership or S corporation). The application of section 48D(d)(3) to a partnership or S corporation is provided in paragraphs (d)(2)(ii)(B) and (C) of this section.
(2) Application of the denial of double benefit rule. A taxpayer (other than a partnership or S corporation) making an elective payment election applies section 48D(d)(3) by taking the following steps:
(i) Compute the amount of the Federal income tax liability (if any) for the taxable year, without regard to the general business credit under section 38 of the Code (GBC), that is payable on the due date of the tax return (without regard to extensions), and the amount of the Federal income tax liability that may be offset by GBCs pursuant to the limitation based on the amount of tax under section 38.
(ii) Compute the allowed amount of the GBC carryforwards carried to the taxable year under section 38(a)(1) plus the amount of the current year GBCs (including the current section 48D credit) for the taxable year under section 38(a)(2) and (b). Because the election is made on an original return for the taxable year for which the section 48D credit is determined, any business credit carrybacks are not considered when determining the elective payment amount for the taxable year.
(iii) Calculate the net elective payment amount for the section 48D credit, which equals the lesser of the section 48D credit for which an elective payment election is made or the excess (if any, otherwise the excess is zero) of the total GBC credits described in paragraph (e)(2)(ii) of this section over the amount of the Federal income tax liability that may be offset by GBCs pursuant to the limitation based on amount of tax under section 38 computed in paragraph (e)(2)(i) of this section. Treat the net elective payment amount of the section 48D credit for which an elective payment election is made as a payment against the tax imposed by subtitle A for the taxable year with respect to which such credit is determined.
(iv) Excluding the net elective payment amount determined under paragraph (e)(2)(iii) of this section, but including any portion of the section 48D credit that is not part of the net elective payment amount, compute the allowed amount of GBC carryforwards carried to the taxable year plus the amount of current year GBCs allowed for the taxable year under section 38 (including, for clarity purposes, the ordering rules in section 38(d)). Apply these GBCs against the tax liability computed in paragraph (e)(2)(i) of this section.
(v) Reduce the section 48D credit for which an elective payment election is made by the net elective payment amount, as provided in paragraph (e)(2)(iii) of this section, and by the amount (if any) allowed as a GBC under section 38 for the taxable year, as provided in paragraph (e)(2)(iv) of this section, which results in the section 48D credit being reduced to zero.
(3) Use of the section 48D credit for other purposes. The full amount of the section 48D credit for which an elective payment election is made is deemed to have been allowed for all other purposes of the Code, including, but not limited to, the basis reduction and recapture rules imposed by section 50 and the calculation of tax, calculation of the amount of any underpayment of estimated tax under sections 6654 and 6655 of the Code, and the addition to tax for the failure to pay under section 6651(a)(2) of the Code (if any).
(4) Examples. The following examples illustrate the rules of this paragraph (e).
(i) Example 1. Z Corp is a calendar-year C corporation. Z Corp places in service qualified property that is part of an advanced manufacturing facility in June of 2024. Z Corp completes the pre-filing registration in accordance with this section and receives a registration number for the qualified property. Z Corp timely files (with extension) its 2024 Form 1120 on October 15, 2025, properly making the elective payment election with respect to the section 48D credit earned with respect to the qualified property in accordance with this section. On its return, Z Corp properly determines that it has $500,000 of tax imposed by subtitle A of the Code (see paragraph (e)(2)(i) of this section). For simplicity, assume the maximum amount of GBCs that can be claimed for the taxable year is $375,000. Z Corp properly determines that the amount of the section 48D credit determined with respect to the qualified property (its GBC for the taxable year) is $100,000 (see paragraph (e)(2)(ii) of this section). Under paragraph (e)(2)(iii) of this section, the net elective payment amount is $0, so the section 48D credit is considered a credit that reduces Z Corp's tax liability to $400,000 under paragraph (e)(2)(iv) of this section. Z Corp pays its $400,000 tax liability on October 15, 2025. Under paragraph (e)(2)(v) of this section, the $100,000 of section 48D credit is reduced by the $100,000 of section 48D credit claimed as GBCs for the taxable year, which results in the section 48D credit being reduced to zero. However, the $100,000 of the current year section 48D credit is deemed to have been allowed to Z Corp for 2024 for all other purposes of the Code (paragraph (e)(3) of this section). Because Z Corp paid its tax liability after the original due date for the filing of its Form 1120, Z Corp will owe a failure to pay penalty under section 6651(a)(2) and interest. Z Corp may also owe a penalty for failure to pay estimated income tax under section 6655.
(ii) Example 2. Assume the same facts as in paragraph (e)(4)(i) of this section ( Example 1 ), except that Z Corp has $80,000 of tax imposed by subtitle A (paragraph (e)(2)(i) of this section) and calculates its limitation of GBC under section 38(c) (simplified) is $60,000 (paragraph (e)(2)(i) of this section), and Z Corp timely files its Form 1120 on April 15 instead of October 15. Under paragraph (e)(2)(iii) of this section, the net elective payment amount is $40,000 (lesser of $100,000 section 48D credit or $100,000 of total GBC credits described in paragraph (e)(2)(ii) of this section minus $60,000 of section 38(c) limitation). Under paragraph (e)(2)(iv) of this section, Z Corp uses $60,000 of its $100,000 of section 48D credit against its tax liability. Z Corp reduces the section 48D credit by the $40,000 net elective payment amount determined in paragraph (e)(2)(iii) of this section and by the $60,000 section 48D credit claimed against tax in paragraph (e)(2)(iv) of this section, resulting in the credit being reduced to zero (paragraph (e)(2)(v) of this section). When the IRS processes Z Corp's 2024 Form 1120, the net elective payment amount results in a $20,000 refund to Z Corp (after applying $20,000 of the $40,000 net elective payment amount to cover Z Corp's tax shown on the return). However, for other purposes of the Code, the $100,000 section 48D credit is deemed to have been allowed to Z Corp for 2024 (paragraph (e)(3) of this section). Even though Z Corp did not owe tax after applying the net elective payment amount against its net tax liability, Z Corp may be subject to the section 6655 penalty for failure to pay estimated income tax. The net elective payment is not an estimated tax installment, rather, it is treated as a payment made at the filing of the return.
(iii) Example 3. X Corp is a calendar-year C corporation. X Corp places in service qualified property that is part of an advanced manufacturing facility in June of 2025. X Corp completes the pre-filing registration in accordance with this section and receives a registration number for the qualified property. In 2026, X Corp timely files its 2025 return (without extension), calculating its federal income tax before GBCs of $125,000 and that its limitation of GBC under section 38(c) (simplified) is $100,000 (paragraph (e)(2)(i) of this section). X Corp attaches Form 3468 to claim a current section 48D credit of $50,000. X Corp also attaches Form 5884 to claim a current work opportunity tax credit (WOTC) of $50,000. X Corp also has business credit carryforwards of $25,000, which together with the 48D credit and WOTC results in a total of $125,000 of GBC for the taxable year (paragraph (e)(2)(ii) of this section). Under paragraph (e)(2)(iii) of this section, the net elective payment amount is $25,000. Under paragraph (e)(2)(iv) of this section, including using the ordering rules in section 38(d), X Corp is allowed $25,000 of the carryforwards, $25,000 of section 48D credit (as its section 46 investment credit) plus $50,000 of WOTC against net income tax, as defined under section 38(c)(1)(B). The $25,000 of unused section 48D credit is the net elective payment amount that results in a $25,000 payment against tax by X Corp (paragraph (e)(2)(iii) of this section). On its return, X Corp shows net tax liability of $25,000 ($125,000−$100,000 allowed GBC) and the net elective payment of $25,000 which X Corp applied to net tax liability, resulting in zero tax owed on the return. Under paragraph (e)(2)(v) of this section, X Corp's section 48D credit is reduced by the $25,000 of the net elective payment amount, as well as by the $25,000 of section 48D credit claimed as a GBC for the taxable year, resulting in the $50,000 of section 48D credit being reduced to zero. However, for all other purposes of the Code, the $50,000 of section 48D credit is deemed to have been allowed to X Corp for 2025 (paragraph (e)(3) of this section). Even though X Corp did not owe tax after applying the net elective payment amount against its net tax liability, X Corp may be subject to the section 6655 penalty for failure to pay estimated income tax. The net elective payment is not an estimated tax installment, rather, it is treated as a payment made at the filing of the return.
(iv) Example 4. Assume the same facts as in paragraph (e)(4)(iii) of this section ( Example 3 ), except X Corp filed the return on a timely filed extension after the due date of the return (without extensions). Even though X Corp did not owe tax after applying the net elective payment amount against its net tax liability, X Corp may be subject to the section 6651(a)(2) penalty for failure to pay tax.
(f) Excessive payment —(1) In general. Except as provided in paragraph (f)(2) of this section, in the case of any amount treated as a payment which is made by the taxpayer under section 48D(d)(1) and paragraph (a) of this section, or any payment made pursuant to section 48D(d)(2)(A)(i)(I) and paragraph (d) of this section, with respect to any property, which amount the Commissioner determines constitutes an excessive payment as defined in paragraph (f)(3) of this section, the tax imposed on such taxpayer by chapter 1 of the Code for the taxable year in which such determination is made is increased by an amount equal to the sum of—
(i) The amount of such excessive payment; plus
(ii) An amount equal to 20 percent of such excessive payment.
(2) Reasonable cause. Paragraph (f)(1)(ii) of this section will not apply if the taxpayer demonstrates to the satisfaction of the Commissioner that the excessive payment resulted from reasonable cause.
(3) Excessive payment defined. For purposes of section 48D(d) and this paragraph (f), the term excessive payment means, with respect to any property for which an election is made under section 48D(d) and this section for any taxable year, an amount equal to the excess of—
(i) The amount treated as a payment which is made by the taxpayer pursuant to section 48D(d)(2)(A)(i)(I) and paragraph (d) of this section, or any payment made by the Commissioner pursuant to section 48D(d)(2)(A)(i)(l) and paragraph (d) of this section, with respect to such property for such taxable year; over
(ii) The amount of the section 48D credit which, without application of section 48D(d) and this section, would be otherwise allowable (determined without regard to section 38(c)) under section 48D(a) and the section 48D regulations with respect to such property for such taxable year.
(4) Example. A Corp is a calendar-year C corporation. A Corp places in service qualified property that is part of Facility A, an advanced manufacturing facility in 2023. A Corp properly completes the pre-filing registration in accordance with paragraph (b) of this section and receives a registration number for the advanced manufacturing facility. A Corp timely files its 2023 Form 1120, properly providing the registration number for Facility A on Form 3800 and the relevant source credit form and otherwise complying with paragraph (c) of this section. On its return, A Corp calculates that the amount of the section 48D credit with respect to the qualified property is $100,000 and that the net elective payment amount is $100,000. A Corp receives a refund in the amount of $100,000. In 2025, the IRS determines that the amount of the section 48D credit properly allowable to A Corp in 2023 with respect to Facility A (as determined under regulations under section 48D that apply for purposes of determining the amount of the section 48D credit and without regard to the limitation based on tax in section 38(c)) was $60,000. A Corp is not able to show reasonable cause for the difference. The excessive payment amount is $40,000 ($100,000 treated as a payment−$60,000 allowable amount). In 2025, the tax imposed under chapter 1 on A Corp is increased in the amount of $48,000 ($40,000 + (20% * $40,000 = $8,000)).
(g) Basis reduction and recapture —(1) In general. The rules in section 50(a) and (c) of the Code apply with respect to elective payments under paragraphs (a) and (d) of this section.
(2) Basis adjustment —(i) In general. If a section 48D credit is determined with respect to property for which a taxpayer makes an election under section 48D(d)(1), then the adjusted basis of the property must be reduced by the amount of the section 48D credit determined for which the taxpayer made an election under section 48D(d)(1).
(ii) Basis adjustment by partnership or S corporation. If an advanced manufacturing investment credit is determined with respect to property for which a partnership or S corporation makes an election under section 48D(d)(1), then the adjusted basis of the property must be reduced by the amount of the advanced manufacturing investment credit determined with respect to the property held by the partnership or S corporation, for which the IRS made a payment to the partnership or S corporation pursuant to section 48D(d)(2)(A)(i)(I).
(iii) Basis adjustment of partners and S corporation shareholders. The adjusted basis of a partner's interest in a partnership, and stock in an S corporation, must be appropriately adjusted pursuant to section 50(c)(5) to take into account adjustments made under paragraph (g)(2)(ii) of this section in the basis of property held by the partnership or S corporation, as the case may be.
(3) Recapture reporting. Any reporting of recapture is made on the taxpayer's annual return in the manner prescribed by the IRS in any guidance.
(h) Applicability dates —(1) In general. Except as provided in paragraph (h)(2) of this section, this section applies to taxable years ending on or after March 11, 2024.
(2) Prior taxable years. For taxable years ending before March 11, 2024 taxpayers may choose to apply the rules of this section to property that is placed in service after December 31, 2022, provided the taxpayers apply the rules in their entirety and in a consistent manner.
§ 1.48(e)-0   Table of contents.
This section lists the captions contained in § 1.48(e)-1.
(a) In general.
(b) Qualified solar or wind facility defined.
(1) In general.
(2) Facility categories.
(i) Category 1 Facility.
(ii) Category 2 Facility.
(iii) Category 3 Facility.
(iv) Category 4 Facility.
(3) Single project treated as single facility.
(c) Eligible property.
(1) In general.
(2) Energy storage technology installed in connection with qualified solar or wind facility.
(3) Safe harbor for requirement of paragraph (c)(2)(ii) of this section.
(d) Location.
(1) In general.
(2) Nameplate Capacity Test.
(i) Nameplate capacity for purpose of Nameplate Capacity Test.
(ii) Exclusion of energy storage technology.
(e) Financial benefits for a Category 3 Facility.
(1) In general.
(2) Threshold requirement.
(3) Financial value of the energy produced by the facility.
(4) Gross financial value.
(5) Net financial value defined.
(i) Common ownership.
(ii) Third-party ownership.
(iii) Equitable allocation of financial benefits.
(A) If financial value distributed via utility bill savings.
(B) If financial value is not distributed via utility bill savings.
(6) Benefits Sharing Statement.
(i) In general.
(ii) Notification requirement.
(f) Financial benefits for a Category 4 Facility.
(1) In general.
(2) Bill credit discount rate.
(i) In general.
(ii) No or nominal cost of participation.
(iii) Calculation on annual basis.
(iv) Examples.
(A) Example 1.
(B) Example 2.
(3) Low-income verification.
(i) In general.
(ii) Methods of verification.
(A) Categorical eligibility.
(B) Other income verification methods.
(C) Impermissible verification method.
(g) Annual Capacity Limitation.
(h) Reservations of Capacity Limitation allocation for facilities that meet certain additional selection criteria.
(1) In general.
(2) Ownership criteria.
(i) In general.
(ii) Indirect ownership.
(A) Disregarded entities.
(B) Partnership.
(iii) Tribal enterprise.
(iv) Alaska native corporation.
(v) Renewable energy cooperative.
(vi) Qualified renewable energy company.
(vii) Qualified tax-exempt entity.
(3) Geographic criteria.
(i) In general.
(A) Persistent Poverty County.
(B) Certain census tracts.
(ii) Applicable terms for certain census tracts.
(A) Energy burden or cost.
(B) Exposure.
(C) Energy cost.
(D) PM 2.5 .
(E) Low-income.
(i) Sub-reservations of allocation for Category 1 facilities.
(1) In general.
(2) Definitions.
(i) Behind the meter (BTM) facility.
(ii) Eligible residential BTM facility.
(iii) Eligible FTM facility.
(j) Process of application evaluation.
(1) In general.
(2) Information required as part of application.
(3) No administrative appeal of capacity limitation allocation decisions.
(k) Placed in service.
(1) Requirement to report date placed in service.
(2) Requirement to submit final eligibility information at placed in service time.
(3) DOE confirmation.
(4) Definition of placed in service.
(l) Facilities placed in service prior to an allocation award.
(1) In general.
(2) Rejection or rescission.
(m) Disqualification.
(n) Recapture of section 48(e) increase to the section 48(a) credit.
(1) In general.
(2) Exception to application of recapture.
(3) Recapture events.
(4) Section 50(a) Recapture.
(o) Applicability date.
§ 1.48(e)-1   Low-Income Communities Bonus Credit Program.
(a) In general. For purposes of section 48 of the Internal Revenue Code (Code), the energy percentage used to calculate the amount of the energy investment credit determined under section 48(a) (section 48 credit) is increased under section 48(e)(1) in the case of eligible property (as defined in paragraph (c) of this section) that is part of any qualified solar or wind facility (as defined in paragraph (b) of this section) placed in service in connection with low-income communities with respect to which an allocation of the environmental justice solar and wind capacity limitation (Capacity Limitation) is made under the Low-Income Communities Bonus Credit Program (Program) established under section 48(e)(4) of the Code on February 13, 2023. See Notice 2023-17, 2023-10 I.R.B. 505. In this section, the terms applicant and taxpayer are used interchangeably as the context may require.
(b) Qualified solar or wind facility defined —(1) In general. A qualified solar or wind facility means any facility that—
(i) Generates electricity solely from a wind facility (described in section 45(d)(1) of the Code) for which an election to treat the facility as energy property was made under section 48(a)(5) (wind facility), solar energy property (described in section 48(a)(3)(A)(i)) (solar energy property), or small wind energy property (described in section 48(a)(3)(A)(vi)) (small wind energy property);
(ii) Has a maximum net output of less than 5 megawatts (MW) (as measured in alternating current (AC)); and
(iii) Is described in at least one of the four categories described in section 48(e)(2)(A)(iii) and paragraph (b)(2) of this section.
(2) Facility categories —(i) Category 1 Facility. A facility is a Category 1 Facility if it is located in a low-income community. The term low-income community is generally defined under section 45D(e)(1) of the Code as any population census tract if the poverty rate for such tract is at least 20 percent based on the 2011-2015 American Community Survey (ACS) low-income community data currently used for the New Markets Tax Credit (NMTC) under section 45D, or, in the case of a tract not located within a metropolitan area, the median family income for such tract does not exceed 80 percent of statewide median family income, or, in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family income or the metropolitan area median family income. The term low-income community also includes the modifications in section 45D(e)(4) and (5) for tracts with low population and modification of the income requirement for census tracts with high migration rural counties. Low-income community information for NMTC can be found at https://www.cdfifund.gov/cims3. For purposes of this paragraph (b)(2)(i), if updated ACS low-income community data is released for the NMTC program, a taxpayer can choose to base the poverty rate for any population census tract on either the 2011-2015 ACS low-income community data for the NMTC program or the updated ACS low-income community data for the NMTC program for a period of 1 year following the date of the release of the updated data. After the 1-year transition period, the updated ACS low-income community data for the NMTC program must be used to determine the poverty rate for any population census tract. Populations census tracts that satisfy the definition of low-income community at the time of application are considered to continue to meet the definition of low-income community for the duration of the recapture period described in paragraph (n)(1) of this section unless the location of the facility changes.
(ii) Category 2 Facility. A facility is a Category 2 Facility if it is located on Indian land. The term Indian land is defined in section 2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)).
(iii) Category 3 Facility. A facility is a Category 3 Facility if it is part of a qualified low-income residential building project. A facility will be treated as part of a qualified low-income residential building project if such facility is installed on a residential rental building that participates in a covered housing program or other affordable housing program described in section 48(e)(2)(B)(i) (Qualified Residential Property) and the financial benefits of the electricity produced by such facility are allocated equitably among the occupants of the dwelling units of such building as provided in paragraph (e) of this section. A facility is considered installed on a Qualified Residential Property even if not on the building if the facility is installed on the same or an adjacent parcel of land as the Qualified Residential Property, and the other requirements to be a Category 3 Facility are satisfied.
(iv) Category 4 Facility. A facility is a Category 4 Facility if it is part of a qualified low-income economic benefit project. A facility will be treated as part of a qualified low-income economic benefit project if, as provided in paragraph (f) of this section, at least 50 percent of the financial benefits of the electricity produced by such facility are provided to households with income of less than—
(A) Two-hundred percent of the poverty line (as defined in section 36B(d)(3)(A) of the Code) applicable to a family of the size involved, or
(B) Eighty percent of area median gross income (as determined under section 142(d)(2)(B) of the Code).
(3) Single project treated as single facility. Multiple solar or wind facilities or energy properties that are operated as part of a single project are aggregated and treated as a single facility or energy property for purposes of determining if it is a qualified solar or wind facility under paragraph (b)(1) of this section. Any facility or energy property treated as part of a single facility under this paragraph (b)(3) will also be treated as a single facility for all other purposes under this section and all other guidance applicable to section 48(e) published in the Internal Revenue Bulletin. See § 601.601 of this chapter. Whether multiple facilities or energy properties are operated as part of a single project will depend on the relevant facts and circumstances and a single factor may not be dispositive. Factors indicating that multiple facilities or energy properties are operated as part of a single project may include—
(i) The facilities or energy properties are owned by a single legal entity;
(ii) The facilities or energy properties are constructed on contiguous pieces of land;
(iii) The facilities or energy properties are described in a common power purchase agreement (PPA) or more than one common power purchase agreements (PPAs);
(iv) The facilities or energy properties have a common interconnection;
(v) The facilities or energy properties share a common substation;
(vi) The facilities or energy properties are described in one or more common environmental or other regulatory permits;
(vii) The facilities or energy properties were constructed pursuant to a single master construction contract; or
(viii) The facilities or construction of the energy properties was financed pursuant to the same loan agreement.
(c) Eligible property —(1) In general. Eligible property is energy property that is part of a qualified solar or wind facility described in paragraph (b) of this section. Eligible property also includes energy storage technology (as described in section 48(a)(3)(A)(ix)) installed in connection with such qualifying energy property.
(2) Energy storage technology installed in connection with qualified solar or wind facility. Energy storage technology is installed in connection with other eligible property if the requirements of both paragraph (c)(2)(i) of this section and paragraph (c)(2)(ii) of this section (including by reason of paragraph (c)(3) of this section) are satisfied.
(i) The requirements of this paragraph (c)(2)(i) are satisfied if the energy storage technology and other eligible property are considered part of a single qualified solar or wind facility based on the energy storage technology and other eligible property being:
(A) Owned by a single legal entity,
(B) Located on the same or contiguous pieces of land,
(C) Having a common interconnection point, and
(D) Described in one or more common environmental or other regulatory permits.
(ii) The requirement of this paragraph (c)(2)(ii) is satisfied if the energy storage technology is charged no less than an annual average of 50 percent by the other eligible property.
(3) Safe harbor for requirement of paragraph (c)(2)(ii) of this section. For purposes of paragraph (c)(2)(ii) of this section, energy storage technology is deemed to be charged at least 50 percent by the facility if the power rating of the energy storage technology (in kW) is less than 2 times the capacity rating of the connected wind facility (in kW AC) or solar facility (in kW direct current (DC)).
(d) Location —(1) In general. A qualified solar or wind facility is treated as located in a low-income community or located on Indian land under section 48(e)(2)(A)(iii)(I) if the qualified solar or wind facility satisfies the Nameplate Capacity Test of paragraph (d)(2) of this section. Similarly, a qualified solar or wind facility is treated as located in a geographic area under the additional selection criteria described in paragraph (h) of this section if it satisfies the Nameplate Capacity Test.
(2) Nameplate Capacity Test. A qualified solar or wind facility is considered located in or on the relevant geographic area described in paragraph (d)(1) of this section if 50 percent or more of the facility's nameplate capacity is in a qualifying area. The percentage of a facility's nameplate capacity (as defined in paragraph (d)(2)(i) of this section) that is in a qualifying area is determined by dividing the nameplate capacity of the facility's energy-generating units that are located in the qualifying area by the total nameplate capacity of all the energy-generating units of the facility.
(i) Nameplate capacity for purpose of Nameplate Capacity Test. Nameplate capacity for an electricity generating unit means the maximum electricity generating output that the unit is capable of producing on a steady state basis and during continuous operation under standard conditions, as measured by the manufacturer and consistent with the definition provided in 40 CFR 96.202. Where applicable, the International Standard Organization conditions are used to measure the maximum electricity generating output or usable energy capacity. For purposes of assessing the Nameplate Capacity Test, qualified solar facilities use the nameplate capacity in DC and qualified wind facilities use the nameplate capacity in AC.
(ii) Exclusion of energy storage technology. The nameplate capacity of any energy storage technology installed in connection with the qualified solar or wind facility is disregarded in applying the Nameplate Capacity Test.
(e) Financial benefits for a Category 3 Facility —(1) In general. To satisfy the requirements of a Category 3 Facility as provided in paragraph (b)(2)(iii) of this section, the financial benefits of the electricity produced by the facility must be allocated equitably among the occupants of the dwelling units of the Qualified Residential Property. A Qualified Residential Property could either be a multifamily rental property or single-family rental property. The same rules for financial benefits for Category 3 Facilities apply to both types of Qualified Residential Property.
(2) Threshold requirement. At least 50 percent of the financial value of the energy produced by the facility (as defined in paragraph (e)(3) of this section) must be equitably allocated to the Qualified Residential Property's occupants that are designated as low-income occupants under the covered housing program or other affordable housing program.
(3) Financial value of the energy produced by the facility. For purposes of this paragraph (e), the financial value of the energy produced by the facility is defined as the greater of:
(i) Twenty-five percent of the gross financial value (as defined in paragraph (e)(4) of this section) of the annual energy produced by the energy property, or
(ii) The net financial value (as defined in paragraph (e)(5) of this section) of the annual energy produced by the energy property.
(4) Gross financial value. For purposes of this paragraph (e), gross financial value of the annual energy produced by the facility is calculated as the sum of:
(i) The total self-consumed kilowatt-hours produced by the qualified solar or wind facility multiplied by the applicable building's metered volumetric price of electricity,
(ii) The total exported kilowatt-hours produced by the qualified solar or wind facility multiplied by the applicable building's volumetric export compensation rate for solar or wind kilowatt-hours, and
(iii) The sale of any attributes associated with the facility's production (including, for example, any Federal, State, or Tribal renewable energy tax credits or incentives), if separate from the metered price of electricity or export compensation rate.
(5) Net financial value defined —(i) Common ownership. For purposes of this paragraph (e), if the facility and Qualified Residential Property are commonly owned, net financial value is defined as the gross financial value of the annual energy produced minus the annual average (or levelized) cost of the qualified solar or wind facility over the useful life of the facility (including debt service, maintenance, replacement reserve, capital expenditures, and any other costs associated with constructing, maintaining, and operating the facility).
(ii) Third-party ownership. For purposes of this paragraph (e), if the facility and the Qualified Residential Property are not commonly owned and the facility owner enters into a PPA or other contract for energy services with the Qualified Residential Property owner and/or building occupants, net financial value is defined as the gross financial value of the annual energy produced minus any payments made by the building owner and/or building occupants to the facility owner for energy services associated with the facility in a given year.
(iii) Equitable allocation of financial benefits. There are different rules to ensure an equitable allocation of financial benefits depending on whether or not financial value is distributed to building occupants via utility bill savings or through different means.
(A) If financial value distributed via utility bill savings. If financial value is distributed via utility bill savings, financial benefits will be considered to be equitably allocated if at least 50 percent of the financial value of the energy produced by the facility is distributed as utility bill savings in equal shares to each building dwelling unit among the Qualified Residential Property's occupants that are designated as low-income under the covered housing program or other affordable housing program (described in section 48(e)(2)(B)(i)) or alternatively distributed in proportional shares based on each low-income dwelling unit's square footage, or each low-income dwelling unit's number of occupants. For any occupant(s) who choose to not receive utility bill savings (for example, exercise their right to not participate in or to opt out of a community solar subscription in applicable jurisdictions), the portion of the financial value that would otherwise be distributed to non-participating occupants must be instead distributed to all participating occupants. No less than 50 percent of the Qualified Residential Property's occupants that are designated as low-income must participate and receive utility bill savings for the facility to utilize this method of benefit distribution. In the case of a solar facility, applicants must follow the Department of Housing and Urban Development (HUD) guidance on the Treatment of Community Solar Credits on Tenant Utility Bills (July 2022), located at https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf, Community Solar Credits in PIH Programs (August 2022), located at https://www.hud.gov/sites/dfiles/documents/Solar%20Credits_PH_HCV.pdf, or future HUD guidance, or other guidance or notices from the Federal agency that oversees the applicable housing program identified in section 48(e)(2)(B) to ensure that tenants' utility allowances and annual income for rent calculations are not negatively impacted. Applicants should apply similar principles in the case of a wind facility.
(B) If financial value is not distributed via utility bill savings. If financial value is not distributed via utility bill savings, financial benefits will be considered to be equitably allocated if at least 50 percent of the financial value of the energy produced by the facility is distributed to occupants using one of the methods described in HUD guidance on the Treatment of Solar Benefits in Master-metered Building (May 2023) located at https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf, or future HUD guidance, or other guidance or notices from the Federal agency that oversees the applicable housing program identified in section 48(e)(2)(B). In the case of a solar facility, applicants must comply with HUD guidance, or future HUD guidance, for how residents of master-metered HUD-assisted housing can benefit from owners' sharing of financial benefits accrued from an investment in solar energy generation to ensure that tenants' utility allowances and annual income for rent calculations are not negatively impacted. Applicants should apply similar principles in the case of a wind facility.
(6) Benefits Sharing Statement —(i) In general. The facility owner must prepare a Benefits Sharing Statement, which must include:
(A) A calculation of the facility's gross financial value using the method described paragraph (e)(4) of this section,
(B) A calculation of the facility's net financial value using the method described in paragraph (e)(5) of this section,
(C) A calculation of the financial value required to be distributed to building occupants using the method described in paragraph (e)(3) of this section,
(D) A description of the means through which the required financial value will be distributed to building occupants, and
(E) If the facility and Qualified Residential Property are separately owned, indication of which entity will be responsible for the distribution of benefits to the occupants.
(ii) Notification requirement. The Qualified Residential Property owner must formally notify the occupants of units in the Qualified Residential Property of the development of the facility and planned distribution of benefits.
(f) Financial benefits for a Category 4 Facility —(1) In general. To satisfy the requirements of a Category 4 Facility as provided in paragraph (b)(2)(iv) of this section:
(i) The facility must serve multiple qualifying low-income households under section 48(e)(2)(C)(i) or (ii) (Qualifying Household),
(ii) At least 50 percent of the facility's total output in kW must be assigned to Qualifying Households, and
(iii) Each Qualifying Household must be provided a bill credit discount rate (as defined in paragraph (f)(2) of this section) of at least 20 percent.
(2) Bill credit discount rate —(i) In general. A bill credit discount rate is the difference between the financial benefit provided to a Qualifying Household (including utility bill credits, reductions in a Qualifying Household's electricity rate, or other monetary benefits accrued by the Qualifying Household on their utility bill) and the cost of participating in the community program (including subscription payments for renewable energy and any other fees or charges), expressed as a percentage of the financial benefit distributed to the Qualifying Household. The bill credit discount rate can be calculated by starting with the financial benefit provided to the Qualifying Household, subtracting all payments made by the Qualifying Household to the facility owner and any related third parties as a condition of receiving that financial benefit, then dividing that difference by the financial benefit distributed to the Qualifying Household.
(ii) No or nominal cost of participation. In cases where the Qualifying Household has no or only a nominal cost of participation, the bill credit discount rate should be calculated as the financial benefit provided to a Qualifying Household (including utility bill credits, reductions in a Qualifying Household's electricity rate, or other monetary benefits accrued by a Qualifying Household on their utility bill) divided by the total value of the electricity produced by the facility and assigned to the Qualifying Household (including any electricity services, products, and credits provided in conjunction with the electricity produced by such facility), as measured by the utility, independent system operator (ISO), or other off-taker procuring electricity (and related services, products, and credits) from the facility.
(iii) Calculation on annual basis. In all instances, the bill credit discount rate is calculated on an annual basis.
(iv) Examples. The provisions of this paragraph (f)(2) may be illustrated by the following examples:
(A) Example 1. A Qualifying Household signs a community solar subscription agreement with the facility owner that (1) requires the facility owner to cause a portion of the electricity generated (or its value) to be assigned to the utility bill of the Qualifying Household on a monthly basis, and (2) requires the Qualifying Household to pay the facility owner the equivalent of 80 percent of the monetary value of the assigned generation (that is, 80 percent of the value of bill credits provided to the Qualifying Household's utility bill) on a monthly basis. In this example, over the course of the first year the facility owner or their agent cause $200 in utility bill credits to be placed on the Qualifying Household's bill, and the Qualifying Household pays $160, inclusive of any upfront fees. The subsequent year, due to variation in solar generation and/or the compensation paid by the utility for solar generation, the facility owner, in accordance with the community solar subscription agreement, cause $220 in bill credits to be provided to the Qualifying Household's bill and the household pays $176. In each year of facility operation described within this example, a bill credit discount rate of 20 percent is maintained.
(B) Example 2. Due to the regulatory structure of the applicable jurisdiction or program, the terms of the community solar subscription, the use of a “net-crediting” mechanism, or other reason, the Qualifying Household does not make a direct payment to the facility owner. Assume that the total value of the electricity produced by the facility and assigned to the household, as measured by the utility, ISO, or other off-taker procuring the electricity, is $500 in the first year and $600 in the second year. Assume further that the Qualifying Household receives a “net” bill credit of $100 in the first year and $120 in the second year. In this case, the bill credit discount rate is 20 percent in each year ($500 × .2 = $100) and ($600 × .2 = $120), respectively.
(3) Low-income verification —(i) In general. To establish that financial benefits are provided to Qualifying Households as provided in paragraph (f)(1) of this section, applicants must, in accordance with guidance published in the Internal Revenue Bulletin ( see § 601.601 of this chapter), submit documentation upon placing the qualified solar or wind facility in service that identifies each Qualifying Household, the output from the facility allocated to each Qualifying Household in kW, and the method of income verification utilized for each Qualifying Household. A Qualifying Household's low-income status is determined at the time the household enrolls in the subscription program and does not need to be re-verified.
(ii) Methods of verification. Applicants may use categorical eligibility or other income verification methods to establish that a household is a Qualifying Household.
(A) Categorical eligibility. Categorical eligibility consists of obtaining proof of the household's participation in a needs-based Federal, State, Tribal, or utility program with income limits at or below the qualifying income level required to be a Qualifying Household. Federal programs may include, but are not limited to: Medicaid, Low-Income Home Energy Assistance Program (LIHEAP) administered by the Department of Health and Human Services, Weatherization Assistance Program (WAP) administered by the Department of Energy (DOE), Supplemental Nutrition Assistance Program (SNAP) administered by the Department of Agriculture (USDA), Section 8 Project-Based Rental Assistance, the Housing Choice Voucher Program administered by HUD, the Federal Communication Commission's Lifeline Support for Affordable Communications, the National School Lunch Program administered by the USDA, the Supplemental Security Income Program administered by the Social Security Administration, and any verified government or non-profit program serving Asset Limited Income Constrained Employed (ALICE) persons or households. With respect to the Federal programs listed previously an individual in the household must currently be approved for assistance from or participation in the program with an award letter or other written documentation within the last 12 months for enrollment in that program to establish categorical eligibility of the household. State agencies can also provide verification that a household is a Qualifying Household if the household participates in a State's solar or other program and income limits for such program are at or below the qualifying income level required to be a Qualifying Household. The qualifying income level for a Qualifying Household is based on where such household is located.
(B) Other income verification methods. Paystubs, Federal or State tax returns, or income verification through crediting agencies and commercial data sources can be used to establish that a household is a Qualifying Household.
(C) Impermissible verification method. A self-attestation from a household is not a permissible method to establish a household is a Qualifying Household. This prohibition on direct self-attestation from a household does not extend to categorical eligibility for needs-based Federal, State, Tribal, or utility programs with income limits that rely on self-attestation for verification of income.
(g) Annual Capacity Limitation. Under section 48(e)(4)(C), the total annual capacity limitation is 1.8 gigawatts of DC capacity for the calendar year 2023 and 2024 Program. The annual Capacity Limitation for each Program year is divided across the four facility categories described in section 48(e)(2)(A)(iii) and paragraph (b)(2) of this section as provided in guidance published in the Internal Revenue Bulletin. See § 601.601 of this chapter. The Capacity Limitation for each Program year is divided across the four facility categories based on factors such as the anticipated number of applications that are expected for each category and the amount of Capacity Limitation that needs to be reserved for each category to encourage market participation in each category consistent with statutory intent and the goals of the Program. After the Capacity Limitation for each facility category is established in guidance published in the Internal Revenue Bulletin, it may later be re-allocated across facility categories and sub-reservation in the event one category or sub-reservation is oversubscribed and another has excess capacity. A facility category or sub-reservation is oversubscribed if it receives applications in excess of Capacity Limitation reserved for the facility category or sub-reservation.
(h) Reservations of Capacity Limitation allocation for facilities that meet certain additional selection criteria —(1) In general. At least 50 percent of the total Capacity Limitation in each facility category described in paragraph (b)(2) of this section will be reserved for qualified facilities meeting the additional selection criteria described in paragraph (h)(2) of this section (relating to ownership criteria) and paragraph (h)(3) of this section (relating to geographic criteria) as provided in guidance published in the Internal Revenue Bulletin. See § 601.601 of this chapter. Revenue Procedure 2023-27, 2023-35 I.R.B. provides the specific amounts reserved for 2023 and future guidance published in the Internal Revenue Bulletin will provide the amounts reserved for future years. The procedure for utilizing these additional selection criteria is provided in guidance published in the Internal Revenue Bulletin. After the reservation of Capacity Limitation for qualified facilities meeting the additional selection criteria described in paragraphs (h)(2) and (3) of this section is established in guidance published in the Internal Revenue Bulletin, it may later be re-allocated across facility categories and sub-reservations in the event one category or sub-reservation within a category is oversubscribed and another has excess capacity.
(2) Ownership criteria —(i) In general. The ownership criteria is based on characteristics of the applicant that owns the qualified solar or wind facility. A qualified solar or wind facility will meet the ownership criteria if it is owned by one of the following:
(A) A Tribal enterprise (as defined in paragraph (h)(2)(iii) of this section),
(B) An Alaska native corporation (as defined in paragraph (h)(2)(iv) of this section),
(C) A renewable energy cooperative (as defined in paragraph (h)(2)(v) of this section),
(D) A qualified renewable energy company meeting certain characteristics (as defined in paragraph (h)(2)(vi) of this section), or
(E) A qualified tax-exempt entity (as defined in paragraph (h)(2)(vii) of this section).
(ii) Indirect ownership —(A) Disregarded entities. If an applicant wholly owns an entity that is the owner of a qualified solar or wind facility, and the entity is disregarded as separate from its owner for Federal income tax purposes (disregarded entity), the applicant, and not the disregarded entity, is treated as the owner of the qualified solar or wind facility for purposes of the ownership criteria.
(B) Partnership. If an applicant is an entity treated as a partnership for Federal income tax purposes, and an entity described in paragraphs (h)(2)(i)(A) through (E) of this section owns at least a one percent interest (either directly or indirectly) in each material item of partnership income, gain, loss, deduction, and credit and is a managing member or general partner (or similar title) under State law of the partnership (or directly owns 100 percent of the equity interests in the managing member or general partner) at all times during the existence of the partnership, the qualified solar or wind facility will be deemed to meet the ownership criteria. If the partnership becomes the owner of the facility after an allocation is made to an entity described in paragraphs (h)(2)(i)(A) through (E) of this section, the transfer of the facility to the partnership is not a disqualification event for purposes of paragraph (m)(5) of this section, so long as the requirements of paragraph (m)(5) of this section are satisfied. The original applicant and the successor partnership should refer to guidance published in the Internal Revenue Bulletin for the procedures to request a transfer of the Capacity Limitation allocation to the successor partnership.
(iii) Tribal enterprise. A Tribal enterprise for purposes of the ownership criteria is an entity that is:
(A) Owned at least 51 percent directly by an Indian Tribal government (as defined in section 30D(g)(9) of the Internal Revenue Code (Code)), or owned at least 51 percent indirectly through a corporation that is wholly owned by the Indian Tribal government and is created under either the Tribal laws of the Indian Tribal government or through a corporation incorporated under the authority of either section 17 of the Indian Reorganization Act of 1934, 25 U.S.C. 5124 or section 3 of the Oklahoma Indian Welfare Act, 25 U.S.C. 5203), and
(B) Subject to Tribal government rules, regulations, and/or codes that regulate the operations of the entity.
(iv) Alaska native corporation. An Alaska Native corporation for purposes of the ownership criteria is defined in section 3 of the Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m).
(v) Renewable energy cooperative. A renewable energy cooperative for purposes of the ownership criteria is an entity that develops qualified solar and/or wind facilities and is either:
(A) A consumer or purchasing cooperative controlled by its members with each member having an equal voting right and with each member having rights to profit distributions based on patronage as defined by proportion of volume of energy or energy credits purchased (kWh), volume of financial benefits delivered ($), or volume of financial payments made ($); and in which at least 50 percent of the patronage in the qualified facility is by cooperative members who are low-income households (as defined in section 48(e)(2)(C)), or
(B) A worker cooperative controlled by its worker-members with each member having an equal voting right.
(vi) Qualified renewable energy company. A qualified renewable energy company for purposes of the ownership criteria is an entity that serves low-income communities and provides pathways for the adoption of clean energy by low-income households. In addition to its general business purpose, a qualified renewable energy company must satisfy the ownership requirements described in one of paragraphs (h)(2)(vi)(A) through (F) of this section and each of the requirements in paragraphs (h)(2)(vi)(G), (H), and (I) of this section.
(A) At least 51 percent of the entity's equity interests are owned and controlled by one or more individuals.
(B) At least 51 percent of the entity's equity interests are owned and controlled by a Community Development Corporation (as defined in 13 CFR 124.3).
(C) At least 51 percent of the entity's equity interests are owned and controlled by an agricultural or horticultural cooperative (as defined in section 199A(g)(4)(A)).
(D) At least 51 percent of the entity's equity interests are owned and controlled by an Indian Tribal government (as defined in section 30D(g)(9)).
(E) At least 51 percent of the entity's equity interests are owned and controlled by an Alaska Native corporation (as defined in section 3 of the Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m)).
(F) At least 51 percent of the entity's equity interests are owned and controlled by a Native Hawaiian organization (as defined in 13 CFR 124.3).
(G) Has less than 10 full-time equivalent employees (as determined under section 4980H(c)(2)(E) and (c)(4)) and less than $20 million in annual gross receipts in the previous calendar year; this must include the employees or receipts of all affiliates when determining the size of a business. Affiliation with another business is based on the power to control, whether exercised or not. The power to control exists when an external party has 50 percent or more ownership. It may also exist with considerably less than 50 percent ownership by contractual arrangement, or when one or more parties own a large share compared to other parties.
(H) First installed and/or operated a qualified solar or wind facility as defined in section 48(e)(2)(A) two or more years prior to the date of application; or
(I) Has provided solar services as a contractor or subcontractor to qualified solar or wind facilities as defined in section 48(e)(2)(A) with at least 100 kW of cumulative nameplate capacity located in one or more low-income communities as defined in section 48(e)(2)(A)(iii)(I).
(vii) Qualified tax-exempt entity. A qualified tax-exempt entity for purposes of the ownership criteria is:
(A) An organization exempt from the tax imposed by subtitle A by reason of being described in section 501(c)(3) or section 501(d);
(B) Any State, the District of Columbia, or political subdivision thereof, or any agency or instrumentality of any of the foregoing;
(C) An Indian Tribal government (as defined in section 30D(g)(9)), a political subdivision thereof, or any agency or instrumentality of any of the foregoing; or
(D) Any corporation described in section 501(c)(12) operating on a cooperative basis that is engaged in furnishing electric energy to persons in rural areas.
(3) Geographic criteria —(i) In general. Geographic criteria does not apply to Category 2 Facilities. To meet the geographic criteria, a facility must be located in a county or census tract that is described in paragraph (h)(3)(i)(A) or (B) of this section. Applicants who meet the geographic criteria at the time of application are considered to continue to meet the geographic criteria for the duration of the recapture period, unless the location of the facility changes.
(A) Persistent Poverty County. A Persistent Poverty County (PPC for which information can be found at https://www.ers.usda.gov/data-products/poverty-area-measures/ ), which is generally defined as any county where 20 percent or more of residents have experienced high rates of poverty over the past 30 years. For the purposes of the Program, the PPC measure is that adopted by the USDA to make this determination. The most recent measure, which would apply for the 2023 Program year, incorporates poverty estimates from the 1980, 1990, and 2000 censuses, and 2007-11 ACS 5-year average. If updated data is released by USDA, a taxpayer will have a 1-year period following the date of the release of the updated data to be eligible under the previous data. After the 1-year transition period, the updated data must be used to determine eligibility. Applicants who satisfy the definition of PPC community at the time of application are considered to continue to meet the definition of PPC for the duration of the recapture period described in paragraph (n)(1) of this section, unless the location of the facility changes.
(B) Certain census tracts. A census tract that is designated in the Climate and Economic Justice Screening Tool (CEJST), which can be found at https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5, as disadvantaged based on whether the tract is described in paragraph (h)(3)(ii)(A) or (B) of this section. The CEJST website provides further detail on the terms described in paragraphs (h)(3)(ii)(C) through (E) of this section, which are used in identifying census tracts described in paragraphs (h)(3)(ii)(A) and (B) of this section. See CEJST, Methodology & data, https://screeningtool.geoplatform.gov/en/methodology.
(ii) Applicable terms for certain census tracts. The following terms are applicable to this paragraph (h)(3):
(A) Energy burden or cost. The census tract is greater than or equal to the 90th percentile for energy burden (or energy cost) and is greater than or equal to the 65th percentile for low income.
(B) Exposure. The census tract is greater than or equal to the 90th percentile for PM 2.5 exposure and is greater than or equal to the 65th percentile for low income.
(C) Energy cost. Energy cost is defined as average household annual energy cost in dollars divided by the average household income.
(D) PM 2.5. PM 2.5 is defined as fine inhalable particles with 2.5 or smaller micrometer diameters. The percentile is the weight of the particles per cubic meter.
(E) Low-income. Low income is defined as the percent of a census tract's population in households where household income is at or below 200 percent of the Federal poverty level, not including students enrolled in higher education.
(i) Sub-reservations of allocation for Category 1 Facilities —(1) In general. Capacity Limitation reserved for Category 1 Facilities will be subdivided each Program year for facilities seeking a Category 1 allocation with Capacity Limitation reserved specifically for eligible residential behind the meter (BTM) facilities, including rooftop solar. The remaining Capacity Limitation is available for applicants with front of the meter (FTM) facilities as well as non-residential BTM facilities. The specific sub-reservation for eligible residential BTM facilities in Category 1 is provided in guidance published in the Internal Revenue Bulletin and is established based on factors such as promoting efficient allocation of Capacity Limitation and allowing like-projects to compete for an allocation. After the sub-reservation is established in guidance published in the Internal Revenue Bulletin, it may later be re-allocated in the event it has excess capacity.
(2) Definitions —(i) Behind the meter (BTM) facility. For purposes of the Program, a qualified wind or solar facility is BTM if:
(A) It is connected with an electrical connection between the facility and the panelboard or sub-panelboard of the site where the facility is located,
(B) It is to be connected on the customer side of a utility service meter before it connects to a distribution or transmission system (that is, before it connects to the electricity grid), and
(C) Its primary purpose is to provide electricity to the utility customer of the site where the facility is located. This also includes systems not connected to a grid and that may not have a utility service meter, and whose primary purpose is to serve the electricity demand of the owner of the site where the system is located.
(ii) Eligible residential BTM facility. For purposes of paragraph (i)(1) of this section, an eligible residential BTM facility is defined as a single-family or multi-family residential qualified solar or wind facility that does not meet the requirements for a Category 3 Facility and is BTM. A qualified solar or wind facility is residential if it is uses solar or wind energy to generate electricity for use in a dwelling unit that is used as a residence.
(iii) Eligible FTM facility. For purposes of the Program, a qualified solar or wind facility is FTM if it is directly connected to a grid and its primary purpose is to provide electricity to one or more offsite locations via such grid or utility meters with which it does not have an electrical connection; alternatively, FTM is defined as a facility that is not BTM. For the purposes of Category 4 Facilities, a qualified solar or wind facility is also FTM if 50 percent or more of its electricity generation on an annual basis is physically exported to the broader electricity grid.
(j) Process of application evaluation —(1) In general. Applications for a Capacity Limitation allocation will be evaluated according to the procedures specified in guidance published in the Internal Revenue Bulletin. See § 601.601 of this chapter. If a facility category is oversubscribed, a lottery system may be used to allocate Capacity Limitation to similarly situated applicants.
(2) Information required as part of application. Applicants are required to submit with each application for a Capacity Limitation allocation information, documentation, and attestations to demonstrate eligibility for an allocation and project viability as specified in guidance published in the Internal Revenue Bulletin. See § 601.601 of this chapter.
(3) No administrative appeal of capacity limitation allocation decisions. An applicant may not administratively appeal decisions regarding Capacity Limitation allocations.
(k) Placed in service —(1) Requirement to report date placed in service. For any facility that received an allocation of Capacity Limitation the owner of the facility must report to DOE the date the eligible property was placed in service. This report is done through the same portal by which the original application for allocation was submitted.
(2) Requirement to submit final eligibility information at placed in service time. At the time that the owner reports that eligible property has been placed in service the owner also must confirm information about the facility and submit additional documentation to prove the facility is still eligible to maintain the allocation and the increased energy percentage under section 48(e)(1) as specified in guidance published in the Internal Revenue Bulletin. See § 601.601 of this chapter.
(3) DOE confirmation. DOE will review the placed in service documentation and attestations to determine if the facility meets the eligibility criteria for the owner to claim an increased energy percentage. DOE then provides a recommendation to the IRS regarding whether the facility continues to meet the eligibility requirements for the facility to retain its allocation or if the facility should be disqualified (as provided in paragraph (m) of this section). Based on DOE's recommendation, the IRS will decide whether the facility should retain its allocation or if the facility should be disqualified and will notify DOE of its decision. Each applicant must receive confirmation from the IRS that DOE has reviewed the placed in service submissions, and that eligibility is confirmed, prior to the owner (or a partner or shareholder in the case of a partnership or S corporation) claiming the increased credit amount on Form 3468, Investment Credit (or Form 3800, General Business Credit ), or successor form, if eligible, making a transfer election under section 6418 of the Code, or, if eligible, making an elective payment election under section 6417 of the Code.
(4) Definition of placed in service. For purposes of this section, eligible property is considered placed in service in the earlier of the following taxable years:
(i) The taxable year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to such eligible property begins; or
(ii) The taxable year in which the eligible property is placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business or in the production of income.
(l) Facilities placed in service prior to an allocation award —(1) In general. Qualified solar or wind facilities must be placed in service after being awarded an allocation of Capacity Limitation.
(2) Rejection or rescission. An application for a qualified solar or wind facility that is placed in service prior to submission of the application will be rejected. If a facility is placed in service after the application is submitted, but prior to the allocation of Capacity Limitation, and the facility is awarded an allocation, the allocation will be rescinded.
(m) Disqualification. A facility will be disqualified and lose its allocation if prior to or upon the facility being placed in service an occurrence described in one of paragraphs (m)(1) through (5) of this section takes place.
(1) The location where the facility will be placed in service changes.
(2) The net output of the facility increases such that it exceeds the less than 5 MW AC output limitation provided in section 48(e)(2)(A)(ii) or the nameplate capacity decreases by the greater of 2 kW or 25 percent of the Capacity Limitation awarded in the allocation (AC for a wind facility; DC for a solar facility).
(3) The facility cannot satisfy the financial benefits requirements under section 48(e)(2)(B)(ii) and paragraph (e) of this section as planned, if applicable, or cannot satisfy the financial benefits requirements under section 48(e)(2)(C) or paragraph (f) of this section as planned, if applicable.
(4) The eligible property that is part of the facility that received the Capacity Limitation allocation is not placed in service within four years after the date the applicant was notified of the allocation of Capacity Limitation to the facility.
(5) The facility received a Capacity Limitation allocation based, in part, on meeting the ownership criteria and ownership of the facility changes prior to the facility being placed in service, unless the original applicant transfers the facility to an entity treated as a partnership for Federal income tax purposes and retains at least a one percent interest (either directly or indirectly) in each material item of partnership income, gain, loss, deduction, and credit of such partnership and is a managing member or general partner (or similar title) under State law of the partnership (or directly owns 100 percent of the equity interests in the managing member or general partner) at all times during the existence of the partnership.
(n) Recapture of section 48(e) Increase to the section 48(a) credit —(1) In general. Section 48(e)(5) provides for recapturing the benefit of any increase in the credit allowed under section 48(a) by reason of section 48(e) with respect to any property that ceases to be property eligible for such increase (but that does not cease to be investment credit property within the meaning of section 50(a)). Section 48(e) provides that the period and percentage of such recapture must be determined under rules similar to the rules of section 50(a). Therefore, if, at any time during the five year recapture period beginning on the date that a qualified solar or wind facility property under section 48(e) is placed in service, there is a recapture event under paragraph (n)(3) of this section with respect to such property, then the Federal income tax imposed on the taxpayer by chapter 1 of the Code for the taxable year in which the recapture event occurs is increased by the recapture percentage of the benefit of the increase in the section 48 credit. The recapture percentage is determined according to the table provided in section 50(a)(1)(B).
(2) Exception to application of recapture. Such recapture may not apply with respect to any property if, within 12 months after the date the applicant becomes aware (or reasonably should have become aware) of such property ceasing to be property eligible for such increase in the credit allowed under section 48(a), the eligibility of such property for such increase pursuant to section 48(e) is restored. Such restoration of an increase pursuant to section 48(e) is not available more than once with respect to any facility.
(3) Recapture events. Any of the following circumstances result in a recapture event if the property ceases to be eligible for the increased credit under section 48(e):
(i) Property described in section 48(e)(2)(A)(iii)(II) fails to provide financial benefits.
(ii) Property described under section 48(e)(2)(B) ceases to allocate the financial benefits equitably among the occupants of the dwelling units, such as not allocating to residents the required net energy savings of the electricity, as required by paragraph (e) of this section.
(iii) Property described under section 48(e)(2)(C) ceases to provide at least 50 percent of the financial benefits of the electricity produced to qualifying households as described under section 48(e)(2)(C)(i) or (ii), or fails to provide those households the required minimum 20 percent bill credit discount rate, as required by paragraph (f) of this section.
(iv) For property described under section 48(e)(2)(B), the residential rental building the facility is a part of ceases to participate in a covered housing program or any other affordable housing program described in section 48(e)(2)(B)(i), as applicable.
(v) A facility increases its output such that the facility's output is 5 MW AC or greater, unless the applicant can prove that the output increase is not attributable to the original facility but rather is output associated with a new facility under the 80/20 Rule (the cost of the new property plus the value of the used property).
(4) Section 50(a) Recapture. Any event that results in recapture under section 50(a) will also result in recapture of the benefit of the increase in the section 48 credit by reason of section 48(e). The exception to the application of recapture provided in paragraph (n)(2) of this section does not apply in the case of a recapture event under section 50(a).
(o) Applicability date. The rules of this section will apply to taxable years ending on or after October 16, 2023.
§ 1.48E-0   Table of contents.
This section lists the captions contained in §§ 1.48E-1 through 1.48E-5.
(a) Overview.
(1) In general.
(2) Claim.
(3) Code.
(4) EST.
(5) kWh.
(6) Qualified facility.
(7) Qualified investment with respect to a qualified facility.
(8) Qualified investment with respect to EST.
(9) Secretary.
(10) Section 48E credit.
(11) Section 48E regulations.
(12) Waste energy recovery property (WERP).
(b) Credit amount.
(1) In general.
(2) Applicable percentage.
(3) Base rate.
(4) Alternative rate.
(5) Energy communities increase in credit rate.
(i) In general.
(ii) Applicable credit rate increase.
(6) Domestic content increase in credit rate.
(i) In general.
(ii) Applicable credit rate increase.
(c) Credit phase-out.
(1) In general.
(2) Phase-out percentage.
(3) Applicable year.
(d) Related taxpayers.
(1) Definition.
(2) Related taxpayer rule.
(e) Applicability date.
(a) Qualified investment with respect to a qualified facility.
(1) In general.
(2) Total basis amount.
(b) Qualified facility.
(1) In general.
(2) Placed in service.
(i) In general.
(ii) Qualified facility subject to § 1.48-4 election to treat lessee as purchaser.
(c) Qualified property.
(1) In general.
(2) Location of property.
(d) Property included in qualified facility.
(1) In general.
(2) Unit of a qualified facility.
(i) In general.
(ii) Functionally interdependent.
(3) Integral part.
(i) In general.
(ii) Power conditioning and transfer equipment.
(iii) Roads.
(iv) Fences.
(v) Buildings.
(vi) Shared integral property.
(vii) Examples.
(e) Definitions related to requirements for qualified property.
(1) Tangible personal property.
(2) Other tangible property.
(3) Depreciation allowable.
(i) In general.
(ii) Exclusions from allowable.
(4) Construction, reconstruction, or erection of the property.
(5) Acquisition of qualified property.
(6) Original use of the property.
(7) Retrofitted qualified facility.
(f) Coordination with other credits.
(1) In general.
(2) Allowed.
(3) Examples.
(g) EST.
(1) Property included in EST.
(2) Unit of EST.
(i) In general.
(ii) Functionally interdependent.
(3) Integral part.
(4) Qualified investment with respect to EST.
(5) Placed in service.
(i) In general.
(ii) EST subject to § 1.48-4 election to treat lessee as purchaser.
(6) Types of EST.
(i) Electrical energy storage property.
(ii) Thermal energy storage property.
(iii) Hydrogen energy storage property.
(7) Modification of EST.
(h) Applicability date.
(a) In general.
(b) Qualified facility or EST requirements.
(c) Nameplate capacity for purposes of the One Megawatt Exception.
(1) Qualified facilities.
(2) Nameplate capacity for qualified facilities that generate in direct current for purposes of the One Megawatt Exception.
(3) EST.
(i) In general.
(ii) Electrical energy storage property.
(iii) Thermal energy storage property.
(iv) Hydrogen energy storage property.
(4) Integrated operations.
(i) One Megawatt Exception.
(ii) EST One Megawatt Exception.
(d) Transition waiver of penalty for prevailing wage requirements.
(e) No alteration or repair during recapture period described in § 1.48-13(c)(3).
(f) Applicability date.
(a) Qualified interconnection costs included in certain lower-output qualified facilities.
(1) In general.
(2) Qualified interconnection property.
(3) Five-Megawatt Limitation.
(i) In general.
(ii) Nameplate capacity for purposes of the Five-Megawatt Limitation.
(iii) Nameplate capacity for qualified facilities that generate in direct current for purposes of the Five-Megawatt Limitation.
(4) Interconnection agreement.
(5) Utility.
(6) Reduction to amounts chargeable to capital account.
(7) Examples.
(b) Expansion of facility; Incremental production (Incremental Production Rule).
(1) In general.
(2) Measurement standard.
(3) Special rule for restarted facilities.
(4) Computation of qualified investment for a new unit or an addition of capacity.
(i) New unit.
(ii) Addition of capacity.
(5) Examples.
(c) Retrofit of an existing facility (80/20 Rule).
(1) In general.
(2) Expenditures taken into account.
(3) Cost of new components.
(4) New costs.
(5) Excluded costs.
(6) Examples.
(d) Special rules regarding ownership.
(1) Qualified investment with respect to a qualified facility or EST.
(2) Multiple owners.
(3) Section 761(a) election.
(4) Examples.
(e) Coordination rule for section 42 credits and section 48E credits.
(f) Recapture.
(1) In general.
(2) Recapture event.
(i) In general.
(ii) Changes to the Annual Table.
(iii) Yearly determination.
(iv) Carryback and carryforward adjustments.
(3) Recapture amount.
(i) In general.
(ii) Applicable recapture percentage.
(4) Recapture period.
(5) Increase in tax for recapture.
(g) Qualified progress expenditure election.
(h) Incremental cost.
(i) Cross references.
(j) Applicability date.
(a) In general.
(b) Definitions.
(c) Non-C&G Facilities.
(d) C&G Facilities.
(e) Use of methane from certain sources to produce electricity.
(f) Carbon capture and sequestration.
(g) Annual publication of emissions rates.
(h) Provisional emissions rates.
(1) In general.
(2) Rate not established.
(3) Process for filing a PER petition.
(4) PER determination.
(5) Emissions value request process.
(6) LCA model for determining an emissions value for C&G Facilities.
(7) Effect of PER.
(i) Determining anticipated greenhouse gas emissions rate.
(1) In general.
(2) Examples of objective indicia.
(j) Reliance on Annual Table or Provisional Emissions Rate.
(k) Substantiation.
(1) In general.
(2) Sufficient substantiation.
(l) Applicability date.
§ 1.48E-1   Clean electricity investment credit.
(a) Overview —(1) In general. For purposes of section 46 of the Internal Revenue Code (Code), the section 48E credit (defined in paragraph (a)(10) of this section) is determined under section 48E of the Code and the section 48E regulations (defined in paragraph (a)(11) of this section). This paragraph (a) provides definitions of terms that, unless otherwise specified, apply for purposes of section 48E, the section 48E regulations, and any provision of the Code or this chapter that expressly refers to any provision of section 48E or the section 48E regulations. Paragraph (b) of this section provides rules for determining the amount of the section 48E credit for any taxable year. Paragraph (c) of this section provides rules regarding the phase-out of the section 48E credit. See § 1.48E-2 for rules relating to qualified investments in qualified facilities and energy storage technology (EST) for purposes of the section 48E credit. See § 1.48E-4 for rules of general application for the section 48E credit. See § 1.48E-5 for rules to determine greenhouse gas emissions rates for qualified facilities under section 48E.
(2) Claim. For purposes of determining a taxpayer's section 48E credit with respect to a qualified facility or EST or a credit described in section 48E(b)(3)(C), the term claim means filing a completed Form 3468, Investment Credit, or any successor form(s), or other relevant form as it relates to the credits described in section 48E(b)(3)(C), with the taxpayer's timely filed (including extensions) Federal income tax return or Federal return, as appropriate, for the taxable year in which the qualified facility or EST is placed in service, and for the taxable year in which the facility for which the credit described in section 48E(b)(3)(C) is placed in service. It includes making an election under section 6417 or 6418 of the Code and 26 CFR 1.6417-1 and 1.6418-1, respectfully, with respect to such section 48E credit on the taxpayer's filed return.
(3) Code. The term Code means the Internal Revenue Code.
(4) EST. The term EST for purposes of the section 48E credit means energy storage technology as defined in § 1.48E-2(g).
(5) kWh. The term kWh means kilowatt hours.
(6) Qualified facility. The term qualified facility for purposes of the section 48E credit has the meaning provided in § 1.48E-2(b).
(7) Qualified investment with respect to a qualified facility. The term qualified investment with respect to a qualified facility for purposes of the section 48E credit has the meaning provided in § 1.48E-2(a).
(8) Qualified investment with respect to EST. The term qualified investment with respect to EST for purposes of the section 48E credit has the meaning provided in § 1.48E-2(g)(4).
(9) Secretary. The term Secretary means the Secretary of the Treasury or their delegate.
(10) Section 48E credit. The term section 48E credit means the clean electricity investment credit determined under section 48E of the Code and the section 48E regulations.
(11) Section 48E regulations. The term section 48E regulations means this section and §§ 1.48E-2 through 1.48E-5.
(12) Waste energy recovery property (WERP). WERP is property that generates electricity solely from heat from buildings or equipment if the primary purpose of such building or equipment is not the generation of electricity. Examples of buildings or equipment the primary purpose of which is not the generation of electricity include, but are not limited to, manufacturing plants, medical care facilities, facilities on school campuses, and associated equipment.
(b) Credit amount —(1) In general. For purposes of section 46 of the Code, the section 48E credit for any taxable year is an amount equal to the applicable percentage of the qualified investment for such taxable year with respect to any qualified facility and any EST.
(2) Applicable percentage. The term applicable percentage means the base rate described in paragraph (b)(3) of this section or the alternative rate described in paragraph (b)(4) of this section. The applicable percentage may be increased as provided in section 48E(a)(3)(A) and paragraph (b)(5) of this section in the case of a qualified facility that is located in an energy community. Similarly, the applicable percentage may be increased as provided in section 48E(a)(3)(B) and paragraph (b)(6) of this section in the case of a qualified facility that satisfies the domestic content requirements.
(3) Base rate. Under section 48E(a)(2)(A)(i) and (B)(i), in the case of any qualified facility or EST that does not satisfy the requirements provided in section 48E(a)(2)(A)(ii) or (B)(ii), the applicable percentage is the base rate, which is 6 percent.
(4) Alternative rate. In the case of any qualified facility or EST that satisfies the prevailing wage and apprenticeship requirements provided in section 48E(a)(2)(A)(ii) or (B)(ii), the applicable percentage is the alternative rate, which is 30 percent.
(5) Energy communities increase in credit rate —(i) In general. In the case of any qualified facility or EST that is placed in service within an energy community (as defined in section 45(b)(11)(B)), the applicable percentage under section 48E(a)(2) and paragraph (b)(2) of this section will be increased by the applicable credit rate increase described in section 48E(a)(3)(A)(ii) and paragraph (b)(5)(ii) of this section.
(ii) Applicable credit rate increase. In the case of any qualified investment with respect to a qualified facility or EST to which the base rate is applicable, the applicable credit rate increase is 2 percentage points, and with respect to any qualified investment with respect to a qualified facility or EST to which the alternative rate is applicable, the applicable credit rate increase is 10 percentage points.
(6) Domestic content increase in credit rate —(i) In general. In the case of any qualified facility or EST that satisfies the requirements of section 45(b)(9)(B) (domestic content requirement), the applicable percentage under section 48E(a)(2) and paragraph (b)(2) of this section will be increased by the applicable credit rate increase described in paragraph (b)(6)(ii) of this section.
(ii) Applicable credit rate increase. In the case of any qualified investment with respect to a qualified facility or EST to which the base rate is applicable, 2 percentage points, and with respect to any qualified investment with respect to a qualified facility or EST to which the alternative rate is applicable, 10 percentage points.
(c) Credit phase-out —(1) In general. The amount of the credit as determined under section 48E(a) and paragraph (b) of this section for any qualified facility or EST, the construction of which begins during a calendar year described in section 48E(e)(2) and paragraph (c)(2) of this section is equal to the product of—
(i) The amount of the credit determined under section 48E(a) and paragraph (b) of this section without regard to section 48E(e) and paragraph (c) of this section; multiplied by
(ii) The phase-out percentage under section 48E(e)(2) and paragraph (c)(2) of this section.
(2) Phase-out percentage. The phase-out percentage under this paragraph (c)(2) is equal to—
(i) For any qualified investment with respect to any qualified facility or EST the construction of which begins during the first calendar year following the applicable year, 100 percent;
(ii) For any qualified investment with respect to any qualified facility or EST the construction of which begins during the second calendar year following the applicable year, 75 percent;
(iii) For any qualified investment with respect to any qualified facility or EST the construction of which begins during the third calendar year following the applicable year, 50 percent; and
(iv) For any qualified investment with respect to any qualified facility or EST the construction of which begins during any calendar year subsequent to the calendar year described in paragraph (c)(2)(iii) of this section, 0 percent.
(3) Applicable year. For purposes of this paragraph (c), the term applicable year has the same meaning provided under § 1.45Y-1(c)(3).
(d) Related taxpayers —(1) Definition. For purposes of the section 48E credit, the term related taxpayers means members of a group of trades or businesses that are under common control (as defined in § 1.52-1(b)).
(2) Related taxpayer rule. For purposes of the section 48E credit, related taxpayers are treated as one taxpayer in determining whether a taxpayer has made an investment in a qualified facility or EST with respect to which a section 48E credit may be determined.
(e) Applicability date. This section applies to qualified facilities and ESTs placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025.
§ 1.48E-2   Qualified investments in qualified facilities and EST for purposes of section 48E.
(a) Qualified investment with respect to a qualified facility —(1) In general. A qualified investment of a taxpayer for a taxable year with respect to a qualified facility is the total basis amount for the taxable year with respect to the qualified facility.
(2) Total basis amount. The total basis amount is the sum of:
(i) The basis of any qualified property that is a part of the qualified facility and that is placed in service by the taxpayer during the taxable year; plus
(ii) The amount of any expenditures paid or incurred by the taxpayer for qualified interconnection property (as defined in section § 1.48E-4(a)(2)) in connection with a qualified facility which has a maximum net output of not greater than five megawatts (as measured in alternating current), that was placed in service during the taxable year of the taxpayer, and that are properly chargeable to the capital account.
(b) Qualified facility —(1) In general. A qualified facility is a facility that:
(i) Is used for the generation of electricity, meaning that it is a net generator of electricity taking into account any electricity consumed by the facility;
(ii) Is placed in service by the taxpayer after December 31, 2024; and
(iii) Has an anticipated greenhouse gas emissions rate of not greater than zero (as determined under the rules provided in § 1.48E-5).
(2) Placed in service —(i) In general. A qualified facility is considered placed in service in the earlier of:
(A) The taxable year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to such qualified facility begins; or
(B) The taxable year in which the qualified facility is placed in a condition or state of readiness and availability to produce electricity, whether in a trade or business or in the production of income. A qualified facility in a condition or state of readiness and availability to produce electricity includes, but is not limited to, components of property that are acquired and set aside during the taxable year for use as replacements for a particular qualified facility (or facilities) in order to avoid operational time loss and equipment that is acquired for a specifically assigned function and is operational but is undergoing testing to eliminate any defects. However, components of property acquired to be used in the construction of a qualified facility are not considered in a condition or state of readiness and availability for a specifically assigned function.
(ii) Qualified facility subject to § 1.48-4 election to treat lessee as purchaser. Notwithstanding paragraph (b)(2)(i) of this section, a qualified facility with respect to which an election is made under section 50(d)(5) of the Code and § 1.48-4 to treat the lessee as having purchased such qualified facility is considered placed in service by the lessor in the taxable year in which possession is transferred to such lessee.
(c) Qualified property —(1) In general. For purposes of this paragraph (c), the term qualified property means all property owned by the taxpayer that meets all of the requirements of paragraphs (c)(1)(i) through (iii) of this section:
(i) The property is tangible personal property (as defined in paragraph (e)(1) of this section) or other tangible property (as defined in paragraph (e)(2) of this section) but only if such other tangible property is used as an integral part of the qualified facility;
(ii) Depreciation (or amortization in lieu of depreciation) is allowable (as defined in paragraph (e)(3) of this section) with respect to the property; and
(iii) Either—
(A) The construction, reconstruction, or erection of the property is completed by the taxpayer (as defined in paragraph (e)(4) of this section) with respect to the property; or
(B) The taxpayer acquires the property (as defined in paragraph (e)(5) of this section) and the original use of the property (as defined in paragraph (e)(6) of this section) commences with the taxpayer.
(2) Location of property. Any component of qualified property that otherwise satisfies the requirements of this paragraph (c) is part of a qualified facility regardless of where such component is located.
(d) Property included in qualified facility —(1) In general. A qualified facility includes a unit of a qualified facility (as defined in paragraph (d)(2) of this section) owned by the taxpayer. A qualified facility also includes components of qualified property owned by the taxpayer that are an integral part (as defined in paragraph (d)(3) of this section) of the qualified facility. Any component of qualified property that meets the requirements of this paragraph (d) is part of a qualified facility regardless of where such component of qualified property is located. A qualified facility does not include any electrical transmission equipment, such as electrical transmission lines and towers, or any equipment beyond the electrical transmission stage. See § 1.48E-4(b) regarding the Incremental Production Rule and § 1.48E-4(c) for rules regarding a retrofitted qualified facility (80/20 rule).
(2) Unit of a qualified facility —(i) In general. For purposes of the section 48E credit, a unit of a qualified facility includes all functionally interdependent components of property (as defined in paragraph (d)(2)(ii) of this section) owned by the taxpayer that are operated together and that can operate apart from other property to produce electricity. No provision of this section, § 1.48E-1, or §§ 1.48E-3 through 1.48E-5 uses the term unit in respect of a qualified facility with any meaning other than that provided in this paragraph (d)(2)(i).
(ii) Functionally interdependent. Components of property are functionally interdependent if the placing in service of each of the components is dependent upon the placing in service of the other components to generate electricity.
(3) Integral part —(i) In general. For purposes of the section 48E credit, a component of property owned by a taxpayer is an integral part of a qualified facility if it is used directly in the intended function of the qualified facility and is essential to the completeness of such function. Property that is an integral part of a qualified facility is part of the qualified facility. A taxpayer may not claim the section 48E credit for any property not owned by the taxpayer that is an integral part of the qualified facility owned by the taxpayer.
(ii) Power conditioning and transfer equipment. Power conditioning equipment and transfer equipment are integral parts of a qualified facility. Power conditioning equipment includes, but is not limited to, transformers, inverters and converters, which modify the characteristics of electricity into a form suitable for use, transmission, or distribution. Parts related to the functioning or protection of power conditioning equipment are also treated as power conditioning equipment and include, but are not limited to, switches, circuit breakers, arrestors, and hardware used to monitor, operate, and protect power conditioning equipment. Transfer equipment includes components of property that allow for the aggregation of electricity generated by a qualified facility and components of property that alter voltage to permit electricity to be transferred to a transmission or distribution line. Transfer equipment does not include transmission or distribution lines. Examples of transfer equipment include, but are not limited to, wires, cables, and combiner boxes that conduct electricity. Parts related to the functioning or protection of transfer equipment are also treated as transfer equipment and may include items such as current transformers used for metering, electrical interrupters (such as circuit breakers fuses, and other switches) and hardware used to monitor, operate, and protect transfer equipment.
(iii) Roads. Roads that are integral to the intended function of the qualified facility such as onsite roads that are used to operate and maintain the qualified facility are an integral part of a qualified facility. Roads used primarily to access the site, or roads used primarily for employee or visitor vehicles, are not integral to the intended function of the qualified facility, and thus are not an integral part of a qualified facility.
(iv) Fences. Fencing is not an integral part of a qualified facility because it is not integral to the intended function of the qualified facility.
(v) Buildings. Generally, buildings are not integral parts of a qualified facility because they are not integral to the intended function of the qualified facility. For purposes of section 48E, a structure that is essentially an item of machinery or equipment is not considered a building. In addition, a structure is not a building if it houses components of property that are integral to the intended function of the qualified facility and if the use of the structure is so closely related to the use of the housed components of property therein that the structure clearly can be expected to be replaced if the components of property it initially houses are replaced.
(vi) Shared integral property. Multiple qualified facilities (whether owned by one or more taxpayers), including qualified facilities with respect to which a taxpayer has claimed a credit under section 48E or another Federal income tax credit, may include shared property that may be considered an integral part of each qualified facility so long as the cost basis for the shared property is properly allocated to each qualified facility and the taxpayer only claims a section 48E credit with respect to the portion of the cost basis properly allocable to a qualified facility for which the taxpayer is claiming a section 48E credit. The total cost basis of such shared property divided among the qualified facilities may not exceed 100 percent of the cost of such shared property. In addition, a component of property that is shared by a qualified facility as defined by section 48E(b)(3) (48E Qualified Facility) and a qualified facility as defined in section 45Y(b) (45Y Qualified Facility) that is an integral part of both qualified facilities will not affect the eligibility of the 48E Qualified Facility for the section 48E credit or the 45Y Qualified Facility for the section 45Y credit.
(vii) Examples. This paragraph (d)(3)(vii) provides examples illustrating the rules of this paragraph (d).
(A) Example 1. Co-located qualified facilities owned by the same taxpayer that share integral property. X constructs and owns a solar facility (Solar Facility) and nearby also constructs and owns a wind facility (Wind Facility) that are each a qualified facility. The Solar Facility and Wind Facility each connect to a shared transformer that steps up the electricity produced by each qualified facilities to electrical grid voltage before it is transmitted to the electrical grid through an intertie. X assigns 50% of the cost of the shared transformer to the Solar Facility and the Wind Facility, respectively. The fact that the Solar Facility and Wind Facility share property that is integral to both does not impact the ability of X to claim a section 48E credit for both qualified facilities. When X places the qualified facilities in service, 50% of the cost of the transformer is included in X's basis in each of the qualified facilities for purposes of computing the section 48E credit.
(B) Example 2. Co-located qualified facilities owned by different taxpayers that share integral property. X constructs and owns a solar facility (Solar Facility), and nearby Y constructs and owns a wind facility (Wind Facility) that are each a qualified facility. The Solar Facility and the Wind Facility both connect to a shared transformer that steps up the electricity produced by both qualified facilities to electrical grid voltage before it is transmitted to the electrical grid through an intertie. X and Y each pay 50% of the cost of the shared transformer. The fact that the Solar Facility and Wind Facility share property that is integral to both does not impact the ability of X or Y to claim a section 48E credit for their respective qualified facilities. When X and Y place their respective qualified facilities in service, 50% of the cost of the transformer is included in X's and Y's basis in their respective qualified facilities for purposes of computing the section 48E credit.
(C) Example 3. Co-located qualified facility and Energy Storage Technology (EST) owned by the same taxpayer. X constructs and owns a wind facility (Wind Facility) that is co-located with an EST that X also constructs and owns. The Wind Facility and EST share transfer equipment that is integral to both. X assigns 50% of the cost of the shared transfer equipment to the Wind Facility and 50% of the cost to the EST. The fact that the Wind Facility and EST share property that is integral to both does not impact the ability of X to claim a section 48E credit for the Wind Facility and the EST. X may include 50% of the cost of the transfer equipment in its basis to determine a section 48E credit for the Wind Facility and the EST.
(D) Example 4. Co-located qualified facility and Energy Storage Technology owned by different taxpayers. X constructs and owns a solar facility that is a qualified facility (Solar Facility) and is co-located with an EST constructed and owned by Y. The Solar Facility and EST share transfer equipment that is integral to both. X and Y each incur 50% of the cost of the transfer equipment. The fact that the Solar Facility and EST share property that is integral to both does not impact the ability of X to claim a section 48E credit for the Solar Facility or Y to claim a section 48E credit for the EST. When X and Y place in service the Solar Facility and EST, for purposes of computing the section 48E credit, 50% of the cost of the transfer equipment is included in X's basis in the Solar Facility and 50% of the cost is included in Y's basis in the EST.
(E) Example 5. Qualified facility with integral property owned by a different taxpayer. X constructs and owns a hydropower production facility that is a qualified facility (Hydropower Facility). The Hydropower Facility connects to a dam owned by Y, a government entity, that is an integral part of the Hydropower Facility. X pays for upkeep of the dam. The fact that X does not own the dam does not impact the ability of X to claim a section 48E credit for the Hydropower Facility. When X places in service the Hydropower Facility, for purposes of computing the section 48E credit, the cost incurred by X related to the dam would not be included in X's basis in the Qualified Facility because X does not own the dam.
(e) Definitions related to requirements for qualified property —(1) Tangible personal property. The term tangible personal property means any tangible property except land or improvements thereto, such as buildings or other inherently permanent structures (including items that are structural components of such buildings or structures. Tangible personal property includes all property (other than structural components) that is contained in or attached to a building. Further, all property that is in the nature of machinery (other than structural components of a building or other inherently permanent structure) is considered tangible personal property even though located outside a building. Machinery located outside of a building is qualified property if it is used for the generation of electricity and the components of machinery are functionally interdependent. Local law does not control whether property is tangible property or is tangible personal property for purposes of the section 48E credit. Thus, tangible property may be tangible personal property for purposes of the section 48E credit even though under local law the property is considered a fixture and therefore is real property under local law.
(2) Other tangible property. The term other tangible property means tangible property other than tangible personal property (not including a building and its structural components) that is used as an integral part of furnishing electricity by a person engaged in a trade or business of furnishing any such service. Other tangible property may be tangible property for purposes of the section 48E credit even though under local law the property is considered a fixture and is therefore real property under local law.
(3) Depreciation allowable —(i) In general. For purposes of applying paragraph (c) of this section, depreciation (or amortization in lieu of depreciation) (collectively, depreciation ) is allowable with respect to the property if such property is of a character subject to the allowance for depreciation under section 167 of the Code and the basis or cost of such property is recovered using a method of depreciation (for example, the straight line method), which includes any additional first year depreciation deduction method of depreciation (for example, under section 168(k) of the Code). Further, if an adjustment with respect to the Federal income tax or Federal return, as appropriate, for such taxable year requires the basis or cost of such qualified property to be recovered using a method of depreciation, depreciation is allowable to the taxpayer with respect to the qualified property.
(ii) Exclusions from allowable. For purposes of paragraph (c) of this section, depreciation is not allowable with respect to a qualified facility if the basis or cost of such qualified facility is not recovered through a method of depreciation but, instead, such basis or cost is recovered through a deduction of the full basis or cost of the qualified facility in one taxable year (for example, under section 179 of the Code).
(4) Construction, reconstruction, or erection of the property. The term construction, reconstruction, or erection of the property means work performed to construct, reconstruct, or erect property either by the taxpayer or for the taxpayer in accordance with the taxpayer's specifications.
(5) Acquisition of qualified property. The term acquisition of qualified property means a transaction by which a taxpayer acquires the rights and obligations to establish tax ownership of the property for Federal tax purposes.
(6) Original use of the property. The term original use of the property means the first use to which the unit of property is put, whether or not such use is by the taxpayer.
(7) Retrofitted qualified facility. A retrofitted qualified facility acquired by the taxpayer will not be treated as being put to original use by the taxpayer unless the rules in § 1.48E-4(c) regarding retrofitted qualified facilities (80/20 Rule) apply. The question of whether a qualified facility meets the 80/20 Rule is a facts and circumstances determination.
(f) Coordination with other credits —(1) In general. The term qualified facility (as defined in section 48E(b)(3)) and paragraph (b) of this section does not include any facility for which a credit determined under section 45, 45J, 45Q, 45U, 45Y, 48, or 48A is allowed under section 38 of the Code for the taxable year or any prior taxable year. A taxpayer that directly owns a qualified facility (as defined in section 48E(b)(3)) for which the taxpayer is eligible for both a section 48E credit and another Federal income tax credit is eligible for the section 48E credit only if the other Federal income tax credit was not allowed to the taxpayer with respect to the qualified facility. Nothing in this paragraph (f) precludes a taxpayer from claiming a section 48E credit with respect to a qualified facility (as defined in section 48E(b)(3)) that is co-located with another facility for which a credit determined under section 45, 45J, 45Q, 45U, 45Y, 48, or 48A is allowed under section 38 of the Code for the taxable year or any prior taxable year.
(2) Allowed. For purposes of this paragraph (f), the term allowed only includes credits that taxpayers have claimed on a Federal income tax return or Federal return, as appropriate, and that the Internal Revenue Service (IRS) has not challenged in terms of the taxpayer's eligibility.
(3) Examples. This paragraph (f)(3) provides examples illustrating the rules provided in this paragraph (f).
(i) Example 1. Taxpayer claims a section 45Y credit on a solar farm and section 48E credit on co-located Energy Storage Technology. X owns a solar farm that is a qualifying facility (as defined in § 1.45Y-2(a)) (Solar Qualified Facility), and a co-located EST (Energy Storage). The Energy Storage is not part of the Solar Qualified Facility, and therefore X may claim the section 45Y credit based on the kWh of electricity produced by the Solar Qualified Facility, and X may also claim the section 48E credit based on its qualified investment in the Energy Storage.
(ii) Example 2. Different taxpayers claim a section 45Y credit for a solar farm and a co-located Energy Storage Technology. X owns a solar farm that is a qualifying facility (as defined in § 1.45Y-2(a)) (Solar Qualified Facility), and Y owns a co-located EST (Energy Storage). The Energy Storage is not part of the Solar Qualified Facility, and therefore, X may claim the section 45Y credit based on the kWh of electricity produced by the Solar Qualified Facility, and Y may claim the section 48E credit based on its qualified investment in the Energy Storage.
(iii) Example 3. Taxpayer claiming a section 48E credit; another credit is not allowed. X owns a wind facility that satisfies the requirements of a qualified facility under section 48E as well as the requirements of a qualified facility as defined in § 1.45Y-2(a) under section 45Y. X claims a section 45Y credit with respect to the wind facility. While a credit may be available with regard to the wind facility under section 48E, because X has already claimed a section 45Y credit with respect to the wind facility, a section 48E credit is not allowed. Local law is not controlling for purposes of determining whether property is or is not tangible property or tangible personal property. Thus, tangible property may be personal property for purposes of the energy credit even though under local law the property is considered a fixture and therefore real property.
(iv) Example 4. Interaction of section 48E and section 45Q credits for single qualified facility. X owns a qualified facility (Facility A) that includes carbon capture equipment, which is needed for the facility to meet the zero greenhouse gas requirement, so it is functionally interdependent to the production of electricity by the Facility A. X uses the carbon capture equipment to capture and utilize (as described in section 45Q(f)(5)) qualified carbon dioxide and claimed a section 45Q credit in the current taxable year. As a result, X cannot claim a section 48E credit for its 48E Facility A because a qualified facility does not include a facility for which a credit determined under section 45Q is allowed.
(v) Example 5. Interaction of section 48E and section 45Q credits for co-located qualified facilities. Assume the same facts as in paragraph (f)(3)(iv) of this section (Example 4), except that X owns a co-located qualified facility (Facility B) that also includes carbon capture equipment, which is needed for the facility to meet the zero greenhouse gas requirement, so it is functionally interdependent to the production of electricity by the Facility B. X uses the carbon capture equipment to capture and utilize (as described in section 45Q(f)(5)) qualified carbon dioxide, but does not claim a section 45Q credit with respect to the Facility B. While X claimed a section 45Q credit in the current taxable year for the Facility A (see Example 4), the Facility B is not part of the Facility A, and, therefore, X may claim the section 48E credit for its Facility B.
(g) EST —(1) Property included in EST. An EST includes a unit of energy storage technology (unit of EST) (as defined in paragraph (g)(2) of this section) that meets the requirements of paragraph (g)(2)(ii) of this section. An EST also includes property owned by the taxpayer that is an integral part (as defined in paragraph (g)(3) of this section) of the EST. An EST does not include equipment that is an addition or modification to an existing EST. For purposes of the section 48E credit, EST includes electrical energy storage property (as described in paragraph (g)(6)(i) of this section), thermal energy storage property (as described in paragraph (g)(6)(ii) of this section), and hydrogen energy storage property (as described in paragraph (g)(6)(iii) of this section).
(2) Unit of EST —(i) In general. For purposes of the section 48E credit, a unit of EST includes all functionally interdependent components of property (as defined in paragraph (g)(2)(ii) of this section) owned by the taxpayer that are operated together and that can operate apart from other property to perform the intended function of the EST. No provision of this section, § 1.48E-1, or §§ 1.48E-3 through 1.48E-5 uses the term unit in respect of an EST with any meaning other than that provided in this paragraph (g)(2)(i).
(ii) Functionally interdependent. Components of property are functionally interdependent if the placing in service of each of the components is dependent upon the placing in service of each of the other components to perform the intended function of the EST.
(3) Integral part. For purposes of the section 48 E credit, property owned by a taxpayer is an integral part of an EST owned by the same taxpayer if it is used directly in the intended function of the EST and is essential to the completeness of such function. Property that is an integral part of an EST is part of that EST. A taxpayer may not claim the section 48E credit for any property not owned by the taxpayer that is an integral part of EST owned by the taxpayer.
(4) Qualified investment with respect to EST. The qualified investment with respect to any EST for any taxable year is the basis of any EST placed in service by the taxpayer during such taxable year.
(5) Placed in service —(i) In general. An EST is considered placed in service in the earlier of:
(A) The taxable year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to such EST begins; or
(B) The taxable year in which the EST is placed in a condition or state of readiness and availability for the intended function of the EST, whether in a trade or business or in the production of income. An EST in a condition or state of readiness and availability for its intended function includes, but is not limited to, components of property that are acquired and set aside during the taxable year for use as replacements for a particular EST (or ESTs) in order to avoid operational time loss and equipment that is acquired for a specifically assigned function and is operational but is undergoing testing to eliminate any defects. However, components of property acquired to be used in the construction of an EST are not considered in a condition or state of readiness and availability for a specifically assigned function.
(ii) EST subject to § 1.48-4 election to treat lessee as purchaser. Notwithstanding paragraph (g)(5)(i) of this section, EST with respect to which an election is made under section 50(d)(5) of the Code and § 1.48-4 to treat the lessee as having purchased such EST is considered placed in service by the lessor in the taxable year in which possession is transferred to such lessee.
(6) Types of EST —(i) Electrical energy storage property. Electrical energy storage property is property (other than property primarily used in the transportation of goods or individuals and not for the production of electricity) that receives, stores, and delivers energy for conversion to electricity, and has a nameplate capacity of not less than 5 kWh. For example, subject to the exclusion for property primarily used in the transportation of goods or individuals, electrical energy storage property includes but is not limited to rechargeable electrochemical batteries of all types (such as lithium-ion, vanadium redox flow, sodium sulfur, and lead-acid); ultracapacitors; physical storage such as pumped storage hydropower, compressed air storage, flywheels; and reversible fuel cells.
(ii) Thermal energy storage property —(A) In general. Thermal energy storage property is property comprising a system that is directly connected to a heating, ventilation, or air conditioning (HVAC) system; removes heat from, or adds heat to, a storage medium for subsequent use; and provides energy for the heating or cooling of the interior of a residential or commercial building. Thermal energy storage property includes equipment and materials, and parts related to the functioning of such equipment, to store thermal energy for later use to heat or cool, or to provide hot water for use in heating a residential or commercial building. It does not include property that transforms other forms of energy into heat in the first instance. Property that “removes heat from, or adds heat to, a storage medium for subsequent use” is property that is designed with the particular purpose of substantially altering the time profile of when heat added to or removed from the thermal storage medium can be used for heating or cooling of the interior of a residential or commercial building. Paragraph (g)(6)(ii)(B) of this section provides a safe harbor for determining whether a thermal energy storage property has such a purpose. Thermal energy storage property does not include a swimming pool, combined heat and power system property (as defined in section 45Y(g)(2)), or a building or its structural components. For example, thermal energy storage property includes, but is not limited to, a system that adds heat to bricks heated to high temperatures that later use this stored energy to heat a building through the HVAC system; thermal ice storage systems that use electricity to run a refrigeration cycle to produce ice that is later connected to the HVAC system as an exchange medium for air conditioning a building, heat pump systems that store thermal energy in an underground tank, an artificial pit, an aqueous solution, a borehole field, or a solid-liquid phase change material to be extracted for later use for heating and/or cooling; and air-to-water heat pump systems with a water storage tank. However, consistent with § 1.48-14(d), if thermal energy storage property, such as a heat pump system, includes equipment, such as a heat pump, that also serves a purpose in an HVAC system that is installed in connection with the thermal energy storage property, the taxpayer's qualified investment with respect to the thermal energy storage property includes the total cost of the thermal energy storage property and HVAC system less the cost of an HVAC system without thermal storage capacity that would meet the same functional heating or cooling needs as the heat pump system with a storage medium, other than time shifting of heating or cooling. See § 1.48-14(h) for application of the Incremental Cost Rule.
(B) Safe harbor. A thermal energy storage property will be deemed to have the purpose of substantially altering the time profile of when heat added to or removed from the thermal storage medium can be used to heat or cool the interior of a residential or commercial building if that thermal energy storage property is capable of storing energy that is sufficient to provide heating or cooling of the interior of a residential or commercial building for a minimum of one hour.
(iii) Hydrogen energy storage property. Hydrogen energy storage property is property (other than property primarily used in the transportation of goods or individuals and not for the production of electricity) that stores hydrogen and has a nameplate capacity of not less than 5 kWh, equivalent to 0.127 kg of hydrogen or 52.7 standard cubic feet (scf) of hydrogen. Hydrogen energy storage property includes, but is not limited to, above ground storage tanks, underground storage facilities, and associated compressors. Property that is an integral part of hydrogen energy storage property includes, but is not limited to, hydrogen liquefaction equipment and gathering and distribution lines within a hydrogen energy storage property.
(7) Modification of EST. With respect to an electrical energy storage property or a hydrogen energy storage property, modified as set forth in this paragraph (g)(7), such property will be treated as an electrical energy storage property (as described in paragraph (g)(6)(i) of this section) or a hydrogen energy storage property (as described in paragraph (g)(6)(iii) of this section), except that the basis of any existing electrical energy storage property or hydrogen energy storage property prior to such modification is not taken into account for purposes of this paragraph (g)(7) and section 48E. This paragraph (g)(7) applies to any electrical energy storage property and hydrogen energy storage property that either:
(i) Was placed in service before August 16, 2022, and would be described in section 48(c)(6)(A)(i), except that such property had a nameplate capacity of less than 5 kWh and is modified in a manner that such property (after such modification) has a nameplate capacity of not less than 5 kWh; or
(ii) Is described in section 48(c)(6)(A)(i) and is modified in a manner that such property (after such modification) has an increase in nameplate capacity of not less than 5 kWh. The increase in nameplate capacity is equal to the difference between nameplate capacity immediately after the modification and nameplate capacity immediately prior to the modification.
(h) Applicability date. This section applies to qualified facilities and EST placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025.