Title 26—Internal Revenue--Volume 1
PART 1—INCOME TAXES
§ 1.48E-3   Rules relating to the increased credit for prevailing wage and apprenticeship.
(a) In general. If any qualified facility or EST satisfies the requirements in paragraph (b) of this section, the applicable percentage used for calculating the amount of the credit for a qualified investment determined under section 48E(a) for the taxable year equals 30 percent.
(b) Qualified facility or EST requirements. A qualified facility or EST satisfies the requirements of this paragraph (b) if it is a facility described in one of paragraphs (b)(1) through (6) of this section:
(1) A qualified facility with a maximum net output of less than one megawatt of electrical energy (as measured in alternating current) based on the nameplate capacity as provided in paragraph (c) of this section (One Megawatt Exception);
(2) A qualified facility the construction of which began prior to January 29, 2023;
(3) A qualified facility that meets the prevailing wage requirements of section 48E(d)(3) and §§ 1.45-7(a)(2) and (3) and (b) through (d) and 1.48-13(c), the apprenticeship requirements of section 45(b)(8) and § 1.45-8, and the recordkeeping and reporting requirements of § 1.45-12;
(4) An EST with a capacity of less than one megawatt based on the nameplate capacity as provided in paragraph (c) of this section (EST One Megawatt Exception);
(5) An EST the construction of which began prior to January 29, 2023; or
(6) An EST that satisfies the prevailing wage requirements of section 48E(d)(3) and §§ 1.45-7(a)(2) and (3) and (b) through (d) and 1.48-13(c), the apprenticeship requirements of section 45(b)(8) and § 1.45-8, and the recordkeeping and reporting requirements of § 1.45-12.
(c) Nameplate capacity for purposes of the One Megawatt Exception —(1) Qualified facilities. For purposes of paragraph (b)(1) of this section, whether a qualified facility has a maximum net output of less than 1 megawatt (MW) of electrical energy (as measured in alternating current) is determined based on the nameplate capacity of the facility. If a qualified facility has integrated operations (as defined in paragraph (c)(4)(i) of this section) with one or more other qualified facilities, then the aggregate nameplate capacity of the qualified facilities is used for the purposes of determining if the qualified facilities satisfy the One Megawatt Exception. If applicable, taxpayers should use the International Standard Organization (ISO) conditions to measure the maximum electrical generating output of a facility.
(2) Nameplate capacity for qualified facilities that generate in direct current for purposes of the One Megawatt Exception. For qualified facilities that generate electricity in direct current, the taxpayer determines the maximum net output (in alternating current) of each unit of qualified facility by using the lesser of:
(i) The sum of the nameplate generating capacities within the unit of qualified facility in direct current, which is deemed the nameplate generating capacity of the unit of qualified facility in alternating current; or
(ii) The nameplate capacity of the first component of property that inverts the direct current electricity into alternating current.
(3) EST —(i) In general. Paragraphs (c)(3)(ii) through (iv) of this section provide rules for applying the EST One Megawatt Exception described in paragraph (b)(4) of this section to different types of energy storage properties. If the EST has integrated operations (as defined in paragraph (c)(4)(ii) of this section) with one or more other ESTs, then the aggregate nameplate capacity of the ESTs is used for the purposes of the EST One Megawatt Exception. If applicable, taxpayers should use the ISO conditions to measure the maximum net output of an EST.
(ii) Electrical energy storage property. In the case of electrical energy storage property (as defined in § 1.48E-2(g)(6)(i)), the EST One Megawatt Exception is determined by using the storage device's maximum net output. If the output of electrical energy storage property is in direct current, taxpayer should apply the rules of paragraph (c)(2) of this section.
(iii) Thermal energy storage property. In the case of thermal energy storage property (as defined in § 1.48E-2(g)(6)(ii)), the EST One Megawatt Exception is determined by using the property's maximum net output. The maximum net output in MW is calculated by using a conversion whereby one MW is equal to 3.4 million British Thermal Units per hour (mmBtu/hour) for heating and 284 tons for cooling (Btu per hour/3,412,140 = MW). The maximum net output is the maximum instantaneous rate of discharge and is determined based on the nameplate capacity of the equipment that generates or distributes thermal energy for productive use (including distributing the thermal energy from the storage medium). For purposes of determining the maximum net output of thermal energy storage property, if the nameplate capacity of the thermal energy storage is not available, the nameplate capacity of the equipment delivering thermal energy to the thermal energy storage may be used. For thermal energy storage property distributing thermal energy to a building or buildings, the nameplate capacity can be assessed as either the aggregate maximum thermal capacity of all individual heating or cooling elements within the building or buildings, or as the maximum thermal output that the thermal energy storage property is capable of delivering to a building or buildings at any given moment. The maximum thermal capacity of an entire thermal energy storage property is capable of delivering at any given moment does not take into account the capacity of redundant equipment if such equipment is not operated when the system is at maximum output during normal operation. For thermal energy storage property and other energy property that generates or distributes thermal energy for a productive use, the maximum thermal capacity that the entire system is capable of delivering is considered to be the greater of the rate of cooling or the rate of heating of the aggregate of the nameplate capacity of the equipment distributing energy for productive use, including distributing the thermal energy from the thermal energy storage medium to the building or buildings. If such nameplate capacity is unavailable, in the case of thermal energy storage property only, the maximum thermal capacity may instead be considered to be the greater of the rate of cooling or the rate of heating of the aggregate of the nameplate capacity of all the equipment delivering energy to the thermal energy storage property in the project.
(iv) Hydrogen energy storage property. In the case of a hydrogen energy storage property (as defined in § 1.48E-2(g)(6)(iii)), the EST One Megawatt Exception is determined by using the property's maximum net output. The maximum net output in MW is calculated by using a conversion whereby one MW is equal to 3.4 mmBtu/hour of hydrogen or equivalently 10,500 standard cubic feet (scf) per hour of hydrogen.
(4) Integrated operations —(i) One Megawatt Exception. Solely for the purposes of the One Megawatt Exception described in paragraph (b)(1) of this section, a qualified facility is treated as having integrated operations with any other qualified facility of the same technology type if the facilities are:
(A) Owned by the same or related taxpayers;
(B) Placed in service in the same taxable year; and
(C) Transmit electricity generated by the facilities through the same point of interconnection or, if the facilities are not grid-connected or are delivering electricity directly to an end user behind a utility meter, are able to support the same end user.
(ii) EST One Megawatt Exception. Solely for the purposes of the EST One Megawatt Exception described in paragraph (b)(4) of this section, an EST is treated as having integrated operations with any other EST of the same technology type if the ESTs are:
(A) Owned by the same or related taxpayers;
(B) Placed in service in the same taxable year; and
(C) Transmit energy through the same point of interconnection or, if the ESTs are not grid-connected or are providing storage directly to an end user behind a utility meter, are able to support the same end user. In the case of EST described in paragraphs (c)(3)(iii) and (iv) of this section, which use the same piping and distribution systems for the respective type of EST.
(d) Transition waiver of penalty for prevailing wage requirements. For purposes of the transition waiver described in § 1.48-13(c)(2) (by reference to § 1.45-7(c)(6)(iii)), the penalty payment required by § 1.45-7(c)(1)(ii) to cure a failure to satisfy the prevailing wage requirements in paragraph (b)(3) or (6) of this section is waived with respect to a laborer or mechanic who performed work in the construction, alteration, or repair of an energy project on or after January 29, 2023, and prior to January 15, 2025, if the taxpayer relied upon Notice 2022-61, 2022-52 I.R.B. 560, or the PWA proposed regulations (REG-100908-23) (88 FR 60018), corrected in 88 FR 73807 (Oct. 27, 2023), corrected in 89 FR 25550 (April 11, 2024), to determine when the activities of any laborer or mechanic became subject to the prevailing wage requirements, and the taxpayer makes the correction payments required by § 1.45-7(c)(1)(i) with respect to such laborer and mechanics within 180 days of January 15, 2025.
(e) No alteration or repair during recapture period described in § 1.48-13(c)(3). If no alteration or repair work occurs during the five-year recapture period, the taxpayer is deemed to satisfy the prevailing wage requirements described in paragraph (b)(3) or (6) of this section with respect to such taxable year.
(f) Applicability date. This section applies to qualified facilities and qualified ESTs placed in service in taxable years ending after January 15, 2025, and the construction of which begins after March 17, 2025. Taxpayers may apply this section to qualified facilities and qualified ESTs placed in service in taxable years ending on or after January 15, 2025, the construction of which begins before January 15, 2025, provided that taxpayers follow this section in its entirety and in a consistent manner.
§ 1.48E-4   Rules of general application.
(a) Qualified interconnection costs included in certain lower-output qualified facilities —(1) In general. For purposes of determining the section 48E credit (as defined in § 1.48E-1(a)), the qualified investment with respect to a qualified facility (as defined in § 1.48E-2(a)) includes amounts paid or incurred by the taxpayer for qualified interconnection property (as defined in paragraph (a)(2) of this section), in connection with a qualified facility (as defined in § 1.48E-2(a)) that has a maximum net output of not greater than 5 MW (as measured in alternating current) as described in paragraph (a)(3) of this section (Five-Megawatt Limitation). The qualified interconnection property must provide for the transmission or distribution of the electricity produced by a qualified facility and must be properly chargeable to the capital account of the taxpayer as reduced by paragraph (a)(6) of this section. If the costs borne by the taxpayer are reduced by utility or non-utility payments, Federal income tax principles may require the taxpayer to reduce the amounts of costs treated as paid or incurred for qualified interconnection property to determine a section 48E credit.
(2) Qualified interconnection property. For purposes of this paragraph (a), the term qualified interconnection property means, with respect to a qualified facility, any tangible property that is part of an addition, modification, or upgrade to a transmission or distribution system that is required at or beyond the point at which the qualified facility interconnects to such transmission or distribution system in order to accommodate such interconnection; is either constructed, reconstructed, or erected by the taxpayer (as defined in § 1.48E-2(e)(4)), or for which the cost with respect to the construction, reconstruction, or erection of such property is paid or incurred by such taxpayer; and the original use (as defined in § 1.48E-2(e)(6)) of which, pursuant to an interconnection agreement (as defined in paragraph (a)(4) of this section), commences with a utility (as defined in paragraph (a)(5) of this section). For purposes of determining the original use of interconnection property in the context of a sale-leaseback or lease transaction, the principles of section 50(d)(4) of the Internal Revenue Code (Code) must be taken into account, as applicable, with such original use determined on the date of the sale-leaseback or lease. Qualified interconnection property is not part of a qualified facility. As a result, qualified interconnection property is not taken into account in determining whether a qualified facility satisfies the requirements for the increase in credit rate for energy communities provided in section 48E(a)(3)(A) of the Code, the increase in credit rate for domestic content referenced in section 48E(a)(3)(B) (by reference to the rules of section 48(a)(12)) or the increase in credit rate for prevailing wage requirements referenced in section 48E(d)(3) and apprenticeship requirements referenced in section 48E(d)(4).
(3) Five-Megawatt Limitation —(i) In general. For purposes of this paragraph (a), the Five-Megawatt Limitation is measured at the level of the qualified facility in accordance with section 48E(b)(1)(B). The maximum net output of a qualified facility is measured only by nameplate generating capacity (in alternating current) of the unit of qualified facility, which does not include the nameplate capacity of any integral property, at the time the qualified facility is placed in service. The nameplate generating capacity of the unit of qualified facility is measured independently from any other qualified facilities that share the same integral property.
(ii) Nameplate capacity for purposes of the Five-Megawatt Limitation. For purposes of paragraph (a)(1) of this section, the determination of whether a qualified facility has a maximum net output of not greater than 5 MW (as measured in alternating current) is based on the nameplate capacity. The nameplate capacity for purposes of the Five-Megawatt Limitation is the maximum electrical generating output in megawatts that the unit of qualified facility 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 of nameplate capacity provided in 40 CFR 96.202. If applicable, taxpayers should use the International Standard Organization (ISO) conditions to measure the maximum electrical generating output of a unit of qualified facility.
(iii) Nameplate capacity for qualified facilities that generate in direct current for purposes of the Five-Megawatt Limitation. For qualified facilities that generate electricity in direct current, a taxpayer determines whether a qualified facility has a maximum net output of not greater than five MW (in alternating current) by using the lesser of:
(A) The sum of the nameplate generating capacities within the unit of qualified facility property in direct current, which is deemed the nameplate generating capacity of the unit of qualified facility property in alternating current; or
(B) The nameplate capacity of the first component of the qualified facility that inverts the direct current electricity into alternating current.
(4) Interconnection agreement. For purposes of this paragraph (a), the term interconnection agreement means an agreement with a utility for the purposes of interconnecting the qualified facility owned by such taxpayer to the transmission or distribution system of the utility. In the case of the election provided under section 50(d)(5) (relating to certain leased property), the term includes an agreement regarding a qualified facility leased by such taxpayer.
(5) Utility. For purposes of this paragraph (a), the term utility means the owner or operator of an electrical transmission or distribution system that is subject to the regulatory authority of a State or political subdivision thereof, any agency or instrumentality of the United States, a public service or public utility commission or other similar body of any State or political subdivision thereof, or the governing or ratemaking body of an electric cooperative.
(6) Reduction to amounts chargeable to capital account. In the case of costs paid or incurred for qualified interconnection property as defined in paragraph (a)(2) of this section, amounts otherwise chargeable to capital account with respect to such costs must be reduced under rules of section 50(c) (including section 50(c)(3)).
(7) Examples. This paragraph (a)(7) provides examples illustrating the application of the general rules provided in paragraph (a)(1) of this section and Five-Megawatt Limitation provided in this paragraph (a).
(i) Example 1. Application of Five-Megawatt Limitation to an interconnection agreement for qualified facilities owned by taxpayer. X places in service two solar qualified facilities (48E Facilities) each with a maximum net output of 5 MW (as measured in alternating current by using the nameplate capacity of an inverter, which is the first component of property attached to each of the 48E Facilities that inverts the direct current electricity into alternating current). The two 48E Facilities each have their own inverter, which is integral property to each facility, and share a step-up transformer, which is integral property to both facilities. As part of the development of the 48E Facilities, interconnection costs are required by the utility to modify and upgrade the transmission system at or beyond the common intertie to the utility's transmission system to accommodate the interconnection. X has an interconnection agreement with the utility that allows for a maximum output of 10 MW (as measured in alternating current). The interconnection agreement provides the total cost to X of the qualified interconnection property. X may include the costs paid or incurred by X, respectively, for qualified interconnection property subject to the terms of the interconnection agreement, to calculate X's section 48E credit for each of the 48E Facilities because each qualified facility has a maximum net output of not greater than 5 MW (alternating current).
(ii) Example 2. Application of Five-Megawatt Limitation to an interconnection agreement for qualified facilities owned by separate taxpayers. X places in service a solar farm that is a qualified facility (as defined in § 1.48E-2(a)) (Solar Qualified Facility) with a maximum net output of 5 MW (as measured in alternating current by using the nameplate capacity of the first component of property attached to the Solar Qualified Facility that inverts the direct current electricity into alternating current). The Solar Qualified Facility includes an inverter, which is integral property. Y places in service a wind facility (as defined in § 1.48E-2(a)) (Wind Qualified Facility), with a maximum net output of 5 MW (as measured in alternating current by using the nameplate capacity of the first component of property attached to the Wind Qualified Facility that inverts the direct current electricity into alternating current). The Solar Qualified Facility and the Wind Qualified Facility share a step-up transformer, which is integral to both facilities. As part of the development of the Solar Qualified Facility and Wind Qualified Facility, interconnection costs are required by the utility to modify and upgrade the transmission system at or beyond the common intertie to the utility's transmission system to accommodate the interconnection. X and Y are party to the same interconnection agreement with the utility that allows for a maximum output of 10 MW (as measured in alternating current). The interconnection agreement provides the total cost of the qualified interconnection property to X and Y. X and Y may include the costs paid or incurred by X and Y, respectively, for qualified interconnection property subject to the terms of the interconnection agreement, to calculate their respective section 48E credits for the Solar Qualified Facility and the Wind Qualified Facility because each has a maximum net output of not greater than 5 MW (alternating current).
(iii) Example 3. Application of Five-Megawatt Limitation to an interconnection agreement for a single qualified facility. X develops three solar farms (Solar Qualified Facilities) located in close proximity. Each of the Solar Qualified Facilities is a unit of qualified facility that has a maximum net output of 4 MW. The nameplate capacity of each Solar Qualified Facility is determined by using the sum of the nameplate generating capacities within the unit of each Solar Qualified Facility in direct current, which is deemed the nameplate generating capacity of each Solar Qualified Facility in alternating current. Electricity from the three Solar Qualified Facilities feeds into a single gen-tie line and a common point of interconnection with the transmission system. X is party to a separate interconnection agreement with the utility for each of the Solar Qualified Facilities and each interconnection agreement allows for a maximum output of 10 MW (as measured in alternating current). X may include the costs it paid or incurred for qualified interconnection property for each of the Solar Qualified Facilities to calculate its section 48E credit for each of the Solar Qualified Facilities, subject to the terms of each interconnection agreement, because each of the Solar Qualified Facilities has a maximum net output of not greater than 5 MW (in alternating current). X cannot include more than the total costs X paid or incurred for the qualified interconnection property in calculating the aggregate section 48E credit amount for the Solar Qualified Facilities.
(iv) Example 4. Utility payment reducing costs borne by taxpayer. In year 1, X places in service a solar facility (Solar Qualified Facility) with a maximum net output of 3 MW (as measured in alternating current) by using the nameplate capacity of the inverter attached to the solar facility, which is the first component of the qualified facility that inverts the direct current electricity into alternating current. X is party to an interconnection agreement with a utility for the purpose of connecting the Solar Qualified Facility to the transmission or distribution system of the utility. Pursuant to the interconnection agreement, X pays $1 million to the utility, and the utility places in service qualified interconnection property. In year 1, X had no reasonable expectation of any payment from the utility or other parties with respect to the qualified interconnection property. The $1 million is properly chargeable to the capital account of X, subject to paragraph (a)(6) of this section. X properly includes the $1 million paid to the utility in determining its credit under section 48E for Year 1. In Year 4, taxpayer Y enters into an agreement with the utility under which Y pays the utility $100,000 for the use of qualified interconnection property placed in service by the utility pursuant to the interconnection agreement between X and the utility. The utility pays $100,000 to X. Under these circumstances, the payment from the utility in year 4 would not require X to reduce the amount treated as paid or incurred for the qualified interconnection property for the purpose of determining the section 48E credit in year 1; instead X would treat the payment as income.
(v) Example 5. Non-utility payment reducing costs borne by taxpayer. The facts in year 1 are the same as in paragraph (a)(7)(iii) of this section ( Example 3 ). In Year 4, taxpayer Y enters into an agreement with the utility under which Y pays X $100,000 for the use of qualified interconnection property placed in service by the utility pursuant to the interconnection agreement between X and the utility. Y pays $100,000 to X. In year 1, X had no reasonable expectation of any payment from Y for subsequent agreements with Y or other parties with respect to the qualified interconnection property. Under these circumstances, the payment from Y in year 4 would not require X to reduce the amount treated as paid or incurred for the qualified interconnection property for the purpose of determining the section 48E credit in year 1; instead X would treat the payment as income.
(b) Expansion of facility; Incremental production (Incremental Production Rule) —(1) In general. Solely for purposes of this paragraph (b), the term qualified facility includes either a new unit or an addition of capacity placed in service after December 31, 2024, in connection with a facility described in section 48E(b)(3)(A) (without regard to section 48E(b)(3)(A)(ii)), which was placed in service before January 1, 2025, but only to the extent of the increased amount of electricity produced at the facility by reason of such new unit or addition of capacity. This paragraph (b) is only applicable to an addition of capacity or new unit that would not otherwise qualify as a separate qualified facility as defined in section 48E(b)(3). A new unit or an addition of capacity that meets the requirements of this paragraph (b) will be treated as a separate qualified facility. For purposes of this paragraph (b), a new unit or an addition of capacity requires the addition or replacement of qualified property (as defined in § 1.48E-2(e)), including any new or replacement integral property, added to a facility necessary to increase capacity. For purposes of assessing the One Megawatt Exception provided in section 48E(a)(2)(A)(ii)(I), the maximum net output for a new unit or an addition of capacity is the sum of the capacity of the added qualified facility and the capacity of the facility to which the qualified facility was added, as determined under § 1.48E-3(c) and paragraph (b)(2) of this section.
(2) Measurement standard. For purposes of this paragraph (b), taxpayers must use one of the measurement standards described in paragraph (b)(2)(i), (ii), or (iii) of this section to measure the capacity and change in capacity of a facility, except a taxpayer cannot use the measurement standard described in paragraph (b)(2)(ii) of this section if the taxpayer is able to use the measurement standard described in paragraph (b)(2)(i) of this section:
(i) Modified or amended facility operating licenses from the Federal Energy Regulatory Commission (FERC) or the Nuclear Regulatory Commission (NRC), or related reports prepared by FERC or NRC as part of the licensing process;
(ii) Nameplate capacity certified consistent with generally accepted industry standards, such as the International Standard Organization (ISO) conditions to measure the nameplate capacity of the facility consistent with the definition of nameplate capacity provided in 40 CFR 96.202; or
(iii) A measurement standard prescribed by the Secretary in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter).
(3) Special rule for restarted facilities. Solely for purposes of this paragraph (b), a facility that is decommissioned or in the process of decommissioning and restarts can be considered to have increased capacity from a base of zero if the conditions described in each of paragraphs (b)(3)(i) through (iv) of this section are met:
(i) The existing facility must have ceased operations;
(ii) The existing facility must have a shutdown period of at least one calendar year during which it was not authorized to operate by its respective Federal regulatory authority (that is, FERC or NRC);
(iii) The restarted facility must be eligible to restart based on an operating license issued by either FERC or NRC; and
(iv) The existing facility may not have ceased operations for the purpose of qualifying for the special rule for restarted facilities.
(4) Computation of qualified investment for a new unit or an addition of capacity. For purposes of this paragraph (b), a new unit or an addition of capacity requires the addition or replacement of components of qualified property, including any new or replacement integral property, added to a facility necessary to increase capacity. The taxpayer's qualified investment during the taxable year that resulted in an increased capacity of a facility by reason of a new unit or addition of capacity is its total qualified investment associated with the components of property that result in the new unit or addition of capacity.
(5) Examples. This paragraph (b)(5) provides examples illustrating the rules of this paragraph (b).
(i) Example 1. New Unit. X owns a hydropower facility (Facility H) that was originally placed in service in 2020, with a FERC license authorizing an installed capacity of 60 megawatts. During taxable years 2020 through 2024, X claimed a section 45 credit for the electricity produced by Facility H. On July 1, 2025, as allowed by a FERC license amendment, X places in service components of property comprising a new unit that results in Facility H having an increased authorized installed capacity of 90 megawatts in 2025. These components of property meet the requirements of qualified property (as defined in § 1.48E-2(e)). For purposes of this paragraph (b), this new unit will be treated as a separate facility (Facility J). X determines the amount of its section 48E credit based on the amount of its qualified investment in Facility J. Even though X claimed a section 45 credit for electricity produced by Facility H in taxable years 2020 through 2024, X can claim a section 48E credit for its qualified investment in Facility J. X may also continue to claim the section 45 credit through taxable year 2030 for electricity generated by Facility H (excluding the incremental electricity generation related to Facility J).
(ii) Example 2. Addition of Capacity. Y owns a nuclear facility (Facility N) that was originally placed in service on January 1, 2000. Y claimed a section 45U credit in taxable years 2024 and 2025 for the electricity generated by Facility N. On January 15, 2026, Y completed and placed in service an investment associated with a power uprate approved by an NRC license amendment that involved the removal and replacement of components of property and placing in service additional components of property. Both of these replacement and additional components of property meet the requirements of qualified property (as defined in § 1.48E-2(c)). NRC reports associated with the license amendment describe the uprate as increasing the nuclear facility's electrical capacity by 100 MW to 900 MW. For purposes of this paragraph (b), Facility N's addition of capacity equal to 100 MW is treated as a new separate qualified facility placed in service on January 15, 2026 (Facility P). Y determines the amount of its section 48E credit based on the entire amount of its qualified investment on January 15, 2026. Even though Y claimed a section 45U credit in taxable years 2024 and 2025 for the existing capacity of Facility N, Y can claim a section 48E credit for its investment in components of property needed to support the increase in capacity. Y may also continue to claim the section 45U credit for electricity generated by Facility N (excluding the incremental electricity generation related to Facility P).
(iii) Example 3. Geothermal Turbine and Generator Additions of Capacity. X owns a geothermal power plant (Facility G) with a 24 MW nameplate capacity, which is placed in service in 2007. Over the subsequent years, the plant's generating capability declines because of physical degradation of the turbine and generator. On March 1, 2027, X places in service components of property at Facility G that increase its capacity. The turbine rotor is removed, and the eroded blades are replaced with new blades, with associated capital expenditures. The generator is refurbished by removing old subcomponents of the generator and replacing those with new subcomponents, as well as replacing the old copper windings with new windings in concert with new insulation. These components of property meet the requirements of qualified property (as defined in § 1.48E-2(c)). After the upgrade, the plant increases its nameplate capacity to 26 MW, an increase of 2 MW over the previous nameplate capacity. For purposes of this paragraph (b), the addition of capacity to Facility G is treated as a new separate qualified facility placed in service on March 1, 2027 (Facility N). X determines the amount of its section 48E credit based on the amount of its qualified investment in qualified property needed to increase the capacity of the facility.
(iv) Example 4. Hydropower Addition of Capacity. X owns a hydropower plant (Facility H) placed in service in 1960. Facility H has become less efficient since it was placed in service with attendant reductions in its generating capacity. As approved by a FERC license amendment, X increases Facility H's capacity by installing new headcovers, new turbines with integrated dissolved oxygen injection, and a new high pressure digital governor system. All of the existing turbine systems are replaced with new turbine and governor systems. The new turbines are more efficient, and are capable of more power output, than the original design installed in 1960. Improvements to the generators involve removing the old asphalt coated copper windings and purchasing and then installing new epoxy coated double wound windings. X adds digital controls to effectively utilize new digital governors. These components of property meet the requirements of qualified property (as defined in § 1.48E-2(c)). X simultaneously invests in cybersecurity protection. As set forth in the FERC order amending its license, these investments, which are placed in service on April 15, 2026, increase Facility H's authorized installed nameplate capacity from 180 MW to 190 MW, an increase of 10 MW over the previous nameplate capacity. For purposes of this paragraph (b), Facility H's addition of capacity is treated as a new separate qualified facility placed in service on April 16, 2026 (Facility A). X determines the amount of its section 48E credit based on the amount of its qualified investment in qualified property needed in Facility A to result in the final 190 MW capacity, which would not include any investments in intangible property, such as those that might be associated with cybersecurity protection.
(v) Example 5. Nonoperational Nuclear Facility that Satisfies Restart Rule. T owns a nuclear facility (Facility N) that was originally placed in service in 1982. In 2020, Facility N ceased operations, began decommissioning, and the NRC no longer authorized the operation of Facility N. T did not cease operations at Facility N for the purpose of qualifying for the special rule for restarted facilities under section 48E. In 2028, the NRC authorized Facility N to restart, and, on October 1, 2028, Facility N placed in service qualified property that enabled Facility N to restart and resume operations, with an electrical capacity of 800 MW, as indicated in NRC documents related to the authorization to restart. For purposes of this paragraph (b), the restart of Facility N is considered to have increased capacity from a base of zero, and Facility N is treated as having an addition of capacity equal to 800 MW. For purposes of this paragraph (b), Facility N's 800 MW addition of capacity is treated as a new qualified facility placed in service on October 1, 2028 (Facility P). T determines the amount of its section 48E credit based on the amount of its qualified investment in qualified property needed to restart the facility.
(c) Retrofit of an existing facility (80/20 Rule) —(1) In general. For purposes of section 48E(b)(3)(A)(ii), a retrofitted qualified facility or an energy storage technology (EST) may qualify as originally placed in service even if it contains some used components of property within the unit of qualified facility or unit of EST, provided that the fair market value of the used components of the unit of qualified facility or unit of EST is not more than 20 percent of the total value of the unit of qualified facility or unit of EST (that is, the cost of the new components of property plus the value of the used components of property within the unit of qualified facility or unit of EST) (80/20 Rule). A qualified facility or EST that meets the 80/20 Rule may claim the section 48E credit without regard to any addition of capacity to the qualified facility or EST.
(2) Expenditures taken into account. Notwithstanding the rule provided in paragraph (c)(1) of this section, only the cost of new components of the unit of qualified facility or unit of EST are taken into account for purposes of computing the credit determined under section 48E with respect to the qualified facility or EST.
(3) Cost of new components. For purposes of this 80/20 Rule, the cost of new components of the unit of qualified facility or unit of EST includes all costs properly included in the depreciable basis of the new components of the unit of qualified facility.
(4) New costs. If the taxpayer satisfies the 80/20 Rule with regard to the unit of qualified facility or unit of EST and the taxpayer pays or incurs new costs for property that is an integral part of the qualified facility (as defined in § 1.48E-2(a)) or the EST (as defined in § 1.48E-2(g)), the taxpayer may include these new costs paid or incurred for property that is an integral part of the qualified facility or EST in the basis of the qualified facility or EST for purposes of the section 48E credit.
(5) Excluded costs. Costs incurred for new components of property added to used components of a unit of qualified facility or unit of EST may not be taken into account for purposes of the section 48E credit unless the taxpayer satisfies the 80/20 Rule by placing in service a unit of qualified facility or unit of EST for which the fair market value of the used components of property is not more than 20 percent of the total value of the unit of qualified facility or unit of EST taking into account the cost of the new components of property plus the value of the used components of property.
(6) Examples. This paragraph (c)(6) provides examples illustrating the rules of this paragraph (c).
(i) Example 1. Retrofitted facility that satisfies the 80/20 Rule. A owns an existing wind facility. On February 1, 2026, A replaces used components of unit of qualified facility of the wind facility with new components at a cost of $2 million. The fair market value of the remaining original components of the unit of qualified facility is $400,000, which is not more than 20 percent of the retrofitted unit of qualified facility's total fair market value of $2.4 million (the cost of the new components ($2 million) + the fair market value of the remaining original components of the unit of qualified facility ($400,000)). Thus, the retrofitted wind facility will be considered newly placed in service for purposes of section 48E, assuming all the other requirements of section 48E are met, and A will be able to claim a section 48E credit based on its investment in 2026 ($2 million).
(ii) Example 2. Retrofit of an existing facility that meets the 80/20 Rule. Facility Z, a facility that was originally placed in service on January 1, 2026, was not a qualified facility (as defined in § 1.48E-2(a)) when it was placed in service because it did not meet the greenhouse gas emissions rate requirements (as determined under rules provided in § 1.48E-5). On January 1, 2027, Facility Z was retrofitted and now meets the requirements to be a qualified facility (as defined in § 1.48E-2(a)). After the retrofit, the cost of the new property included in the unit of qualified facility of Facility Z is greater than 80 percent of unit of qualified facility's total fair market value. Because Facility Z meets the 80/20 Rule, Facility Z is deemed to be originally placed in service on January 1, 2027. Assuming all the other requirements of section 48E are met, Z may claim a section 48E credit based on its investment in the new components used to retrofit the existing facility in 2027.
(iii) Example 3. Retrofitted nuclear facility that satisfied the 80/20 Rule. T owns a nuclear facility (Facility N) that was originally placed in service on March 1, 1982. T replaces used components of property of the unit of qualified facility of Facility N with new components at a cost of $200 million, and then places in Facility N in service on July 15, 2026. The fair market value of the remaining original components of the unit of qualified facility, prior to the retrofit, is $30 million, which is not more than 20 percent of the unit of qualified facility's total fair market value of $230 million (the cost of the new components ($200 million) + the fair market value of the remaining original components of the unit of qualified facility ($30 million)) ($30 million/$230 million = 13%). Thus, assuming all the other requirements of section 48E are met, Facility N will be considered newly placed in service on July 15, 2026, for purposes of section 48E, and T will be able to claim a section 48E credit based on its investment in the new components ($200 million).
(iv) Example 4. Capital improvements to an existing qualified facility that do not satisfy the 80/20 Rule. X owns an existing facility, Facility C, that was originally placed in service on January 1, 2023. X makes capital improvements to Facility C that are placed in service on June 6, 2026. The cost of the capital improvements to the unit of qualified facility of Facility C total $500,000 and the fair market value of the unit of qualified facility after the improvements is $2 million. The fair market value of the old components of the unit of qualified facility is $1,500,000 or 75 percent of the total fair market value of the Facility C after the improvements. Because the fair market value of the new property included in the unit of qualified facility is less than 80 percent of the unit of qualified facility's total fair market value, Facility C does not meet the 80/20 Rule.
(v) Example 5. Upgrades to a hydropower qualified facility that satisfies the 80/20 Rule: Y owns a hydropower qualified facility (hydropower facility) and no taxpayer, including Y, has ever claimed a section 45 credit for the hydropower facility. The hydropower facility consists of a unit of qualified facility including water intake, water isolation mechanisms, turbine, pump, motor, and generator. The associated impoundment (dam) and power conditioning equipment are integral parts of the unit of qualified facility. Y makes upgrades to the unit of qualified facility by replacing the turbine, pump, motor, and generator with new components at a cost of $1.5 million. Y does not make any upgrades to the property that is an integral part of the unit of qualified facility. The remaining original components of the unit of qualified facility have a fair market value of $100,000, which is not more than 20 percent of the retrofitted hydropower facility's total value of $1.6 million (that is, the cost of the new components ($1.5 million) + the value of the remaining original components ($100,000)). Thus, the retrofitted hydropower facility will be considered newly placed in service for purposes of section 48E, and Y will be able to claim a section 48E credit based on the cost of the new components ($1.5 million).
(d) Special rules regarding ownership —(1) Qualified investment with respect to a qualified facility or EST. For purposes of this paragraph (d), a taxpayer that owns a qualified investment with respect to a qualified facility or EST is eligible for the section 48E credit only to the extent of the taxpayer's basis in the qualified facility or EST. In the case of multiple taxpayers holding direct ownership through their qualified investments in a single qualified facility or EST (and such arrangement is not treated as a partnership for Federal income tax purposes), each taxpayer determines its basis based on its fractional ownership interest in the qualified facility or EST.
(2) Multiple owners. A taxpayer must directly own at least a fractional interest in the entire unit of qualified facility (as defined in § 1.48E-2(b)(2)) or unit of EST (as defined in § 1.48E-2(g)(2)) for a section 48E credit to be determined with respect to such taxpayer's interest. No section 48E credit may be determined with respect to a taxpayer's ownership of one or more separate components of a qualified facility or an EST if the components do not constitute a unit of qualified facility (as defined in § 1.48E-2(b)(2)) or unit of EST (as defined in § 1.48E-2(g)(2)). However, the use of property owned by one taxpayer that is an integral part of a qualified facility or EST owned by another taxpayer will not prevent a section 48E credit from being determined with respect to the second taxpayer's qualified investment in a qualified facility or EST (though neither taxpayer would be eligible for a section 48E credit with respect to the first taxpayer's property). See § 1.48E-2(b)(3)(vi) for rules regarding shared integral property.
(3) Section 761(a) election. If a qualified facility or EST is owned through an unincorporated organization that has made a valid election under section 761(a) of the Code, each member's undivided ownership share in the qualified facility or EST will be treated as a separate qualified facility or EST owned by such member.
(4) Examples. The following examples illustrate the rules in this paragraph (d). In each example, X and Y are unrelated taxpayers.
(i) Example 1. Fractional ownership required to satisfy section 48E. X and Y each own a direct fractional ownership interest in an entire qualified facility (as defined in § 1.48E-2(b)) and as a result, a section 48E credit may be determined with respect to X's and Y's qualified investment in their fractional ownership interests in the qualified facility.
(ii) Example 2. Ownership of separate components of property that are part of a qualified facility. X and Y each own separate components of a qualified facility, which taken together would constitute a unit of qualified facility but taken separately would not constitute a unit of qualified facility. X owns component A and Y owns component B. No section 48E credit may be determined with respect to either component A or component B because X and Y each owns a separate component of a qualified facility that does not constitute a unit of qualified facility (as defined in § 1.48E-2(b)(2)).
(iii) Example 3. Separate ownership of property that is an integral part of separate qualified facilities. X owns a solar farm that is a qualified facility (as defined in § 1.48E-2(b)) (Solar Qualified Facility), which includes property that is an integral part of the Solar Qualified Facility, specifically a transformer in which the electricity is stepped up to electrical grid voltage before being transmitted to the electrical grid through an intertie. Y owns a wind facility that is a qualified facility (as defined in § 1.48E-2(b)) (Wind Qualified Facility) that connects to X's transformer. X and Y are not related persons within the meaning of paragraph (d)(4)(i) of this section. Because Y does not hold an ownership interest in the transformer, Y may compute its section 48E credit for the Wind Qualified Facility, but it may not include any costs relating to the transformer in its section 48E credit base.
(iv) Example 4. Related taxpayers and property that is an integral part. X owns a wind facility that is a unit of qualified facility and a solar facility that is a unit of qualified facility. Both the wind facility and the solar facility are connected to a transformer where the electricity is stepped up to electrical grid voltage before being transmitted to the electrical grid through an intertie. The transformer is an integral part of both the wind facility and the solar facility (within the meaning of § 1.48E-2(d)(3)(i)) and is owned by Y. X and Y are related persons within the meaning of paragraph (d)(4)(i) of this section. X and Y are treated as one taxpayer under paragraph (d)(4)(ii) of this section. X may include the basis of the transformer in computing its section 48E credit with respect to the wind facility and the solar facility (but may not include more than 100% of that basis in the aggregate).
(e) Coordination rule for section 42 credits and section 48E credits. As provided under section 50(c)(3)(C) of the Code, in determining eligible basis for purposes of calculating a credit under section 42 of the Code (section 42 credit), a taxpayer is not required to reduce its basis in a qualified facility or EST by the amount of the section 48E credit determined with respect to the taxpayer's qualified investment with respect to such qualified facility or EST. The qualified investment with respect to a qualified facility or EST property may be used to determine a section 48E credit and may also be included in eligible basis to determine a section 42 credit. See paragraph (d) of this section for special rules regarding ownership.
(f) Recapture —(1) In general. The credit calculated under section 48E(a) and § 1.48E-1(b) is subject to general recapture rules under section 50(a). Additionally, section 48E(g) provides for recapture for any qualified facility for which a taxpayer claimed a section 48E credit that has a greenhouse gas emissions rate (as determined under rules provided in § 1.45Y-5) of greater than 10 grams of CO 2 e per kWh during the five-year period beginning on the date such qualified facility is originally placed in service (five-year recapture period).
(2) Recapture event —(i) In general. Any event that results in a qualified facility having a greenhouse gas emissions rate (as determined under rules provided in § 1.45Y-5) of greater than 10 grams of CO 2 e per kWh during the five-year period is a recapture event. If a qualified facility's greenhouse gas emissions rate exceeds 10 grams of CO 2 e per kWh, the section 48E credit is subject to recapture.
(ii) Changes to the Annual Table. A change to the greenhouse gas emissions rate for a type or category of facility that is published in the Annual Table (as defined in § 1.48E-5(f)) after a facility is placed in service does not result in a recapture event.
(iii) Yearly determination —(A) In general. A determination of whether a recapture event occurred under this paragraph (f)(2) must be made for each taxable year (or portion thereof) occurring within the five-year recapture period, beginning with the taxable year ending after the date the qualified facility is placed in service. Thus, for each taxable year that begins or ends within the five-year recapture period, the taxpayer must determine, for any qualified facility for which it has claimed the section 48E credit, whether such facility has maintained a greenhouse gas emissions rate of not greater than 10 grams of CO 2 e per kWh.
(B) Annual reporting requirement. A taxpayer that has claimed the section 48E credit amount under § 1.48E-1(b), including a taxpayer that has transferred a specified credit portion under section 6418 of the Code, is required to provide to the IRS information on the greenhouse gas emissions rate of the qualified facility during the recapture period at the time and in the form and manner prescribed in IRS forms or instructions or in publications or guidance published in the Internal Revenue Bulletin. See § 601.601 of this chapter.
(iv) Carryback and carryforward adjustments. In the case of any recapture event described in this paragraph (f)(2), the carrybacks and carryforwards under section 39 of the Code must be adjusted by reason of such recapture event.
(3) Recapture amount —(i) In general. If a recapture event occurred as described in paragraph (f)(2) of this section, the tax under chapter 1 of the Code for the taxable year in which the recapture event occurs is increased by an amount equal to the applicable recapture percentage multiplied by the credit amount that was claimed by the taxpayer under § 1.48E-1(b).
(ii) Applicable recapture percentage. If the recapture event occurs:
(A) Within one full year after the property is placed in service, the recapture percentage is 100;
(B) Within one full year after the close of the period described in paragraph (f)(3)(ii)(A) of this section, the recapture percentage is 80;
(C) Within one full year after the close of the period described in paragraph (f)(3)(ii)(B) of this section, the recapture percentage is 60;
(D) Within one full year after the close of the period described in paragraph (f)(3)(ii)(C) of this section, the recapture percentage is 40; and
(E) Within one full year after the close of the period described in paragraph (f)(3)(ii)(D) of this section, the recapture percentage is 20.
(4) Recapture period. The five-year recapture period begins on the date the qualified facility is placed in service and ends on the date that is five full years after the placed in service date. Each 365-day period (366-day period in case of a leap year) within the five-year recapture period is a separate recapture year for recapture purposes.
(5) Increase in tax for recapture. The increase in tax under chapter 1 of the Code for the recapture of the credit amount claimed under section 48E(a) and § 1.48E-1(b) occurs in the year of the recapture event.
(g) Qualified progress expenditure election. A taxpayer may elect, as provided in § 1.46-5, to increase the qualified investment with respect to any qualified facility or EST of an eligible taxpayer for the taxable year, by any qualified progress expenditures made after August 16, 2022.
(h) Incremental cost —(1) In general. For purposes of section 48E, if a component of qualified property of a qualified facility or component of property of an EST is also used for a purpose other than the intended function of the qualified facility or EST, only the incremental cost of such component is included in the basis of the qualified facility or EST. The term incremental cost means the excess of the total cost of a component over the amount that would have been expended for the component if that component were used for a non-qualifying purpose.
(2) Example. A installs a solar qualified facility above the surface of an existing roof of a building that A owns. The solar qualified facility uses bifacial panels that convert to energy the light that strikes both the front and back of the panels. Therefore, along with installing the bifacial panels, A is reroofing their building with a reflective roof that has a highly reflective surface. Because the reflective roof enables the panels' generation of significant amounts of electricity from reflected sunlight, when installed in connection with the solar qualified facility, it constitutes part of that solar qualified facility to the extent that the cost of the reflective roof exceeds the cost of reroofing A's building with a non-reflective roof. The cost of reroofing with the reflective roof is $15,000 whereas the cost of a reroofing with a standard roof for the building would be $10,000. The incremental cost of the reflective roof is $5,000, and that amount is included in A's basis in the solar qualified facility for purposes of the section 48E credit.
(i) Cross references. (1) To determine applicable recapture rules, see section 50(a) of the Code.
(2) For rules regarding the credit eligibility of property used outside the United States, see section 50(b)(1) of the Code.
(3) For rules regarding the credit eligibility of property used by certain tax-exempt organizations, see section 50(b)(3) of the Code. See section 6417(d)(2) of the Code for an exception to the rule in section 50(b)(3) in the case of an applicable entity making an elective payment election.
(4) For application of the normalization rules to the section 48E credit in the case of certain regulated companies, including rules regarding the election not to apply the normalization rules to EST (as defined in section 48(c)(6) of the Code without regard to section 48(c)(6)(D) of the Code), see section 50(d)(2) of the Code.
(5) For rules relating to certain leased property, see section 50(d)(5) of the Code.
(j) 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-5   Greenhouse gas emissions rates for qualified facilities under section 48E.
(a) In general. Section 48E(b)(3)(B)(ii) provides that rules similar to the rules of section 45Y(b)(2) regarding greenhouse emissions rates apply for purposes of section 48E. Paragraphs (b) through (f) of this section thus provide that the definitions and rules regarding greenhouse gas emissions rate requirements (as determined under rules provided in § 1.45Y-5) apply for purposes of section 48E and this section. Paragraph (g) of this section provides rules related to provisional emissions rates for purposes of section 48E and this section. Paragraph (h) of this section provides rules for determining an anticipated greenhouse gas emissions rate. Paragraph (i) of this section provides rules regarding reliance on the annual publication of emissions rates and provisional emissions rates. Finally, paragraph (j) of this section provides rules regarding substantiation requirements.
(b) Definitions. The definitions provided in § 1.45Y-5(b) apply for purposes of section 48E and this section.
(c) Non-C&G Facilities. The rules provided in § 1.45Y-5(c) apply for purposes of determining greenhouse gas emissions rates for Non-C&G Facilities for purposes of section 48E and this section.
(d) C&G Facilities. The rules provided in § 1.45Y-5(d) apply for purposes of determining greenhouse gas emissions rates for C&G Facilities for purposes of section 48E and this section.
(e) Use of methane from certain sources to produce electricity. The rules provided in § 1.45Y-5(e) regarding the use of methane from certain sources to produce electricity apply for purposes of section 48E and this section.
(f) Carbon capture and sequestration. The rules provided in § 1.45Y-5(f) regarding carbon capture and sequestration apply for purposes of section 48E and this section.
(g) Annual publication of emissions rates. The rules provided in § 1.45Y-5(g) regarding the annual publication of a table (Annual Table) that sets forth the greenhouse gas emissions rates for types or categories of facilities apply for purposes of section 48E and this section.
(h) Provisional emissions rates —(1) In general. In the case of any facility for which an emissions rate has not been established by the Secretary, a taxpayer that owns such facility may file a petition with the Secretary for determination of the emissions rate with respect to such facility (Provisional Emissions Rate or PER). A PER must be determined and obtained under the rules of this section.
(2) Rate not established. An emissions rate has not been established by the Secretary for a facility for purposes of sections 45Y(b)(2)(C)(ii) and 48E(b)(3)(B)(ii) if such facility is not described in the Annual Table. If a taxpayer's request for an emissions value pursuant to paragraph (h)(5) of this section is pending at the time such facility is or becomes described in the Annual Table, the taxpayer's request for an emissions value will be automatically denied.
(3) Process for filing a PER petition. To file a PER petition with the Secretary, a taxpayer must submit a PER petition by attaching it to the taxpayer's Federal income tax return or Federal return, as appropriate, for the taxable year in which the taxpayer claims the section 48E credit with respect to the facility to which the PER petition relates. The PER petition must contain an emissions value and, if applicable, the associated letter from DOE. An emissions value may be obtained from DOE or by using the designated LCA model in accordance with paragraph (h)(6) of this section. An emission value obtained from DOE will be based on an analytical assessment of the emissions rate associated with the facility performed by one or more of the National Laboratories, in consultation with other Federal agency experts as appropriate, consistent with this section. A taxpayer must retain in its books and records the application and correspondence to and from DOE including a copy of the taxpayer's request to DOE for an emissions value and any information provided by the taxpayer to DOE pursuant to the emissions value request process provided in paragraph (h)(5) of this section. Alternatively, an emissions value can be determined by the taxpayer for a facility using the most the recent version of an LCA model, as of the time the PER petition is filed, that has been designated by the Secretary for such use under paragraph (h)(6) of this section. If an emissions value is determined using the designated LCA model under paragraph (h)(6) of this section, a taxpayer is required to provide to the IRS information to support its determination in the form and manner prescribed in IRS forms or instructions or in publications or guidance published in the Internal Revenue Bulletin. See § 601.601 of this chapter. A taxpayer may not request an emissions value from DOE for a facility for which an emissions value can be determined using the most recent version of an LCA model or models designated for such use under paragraph (h)(6) of this section.
(4) PER determination. Upon the IRS's acceptance of the taxpayer's return to which a PER petition is attached, the emissions value of the facility specified on such petition is deemed accepted. A taxpayer can rely upon an emissions value provided by DOE for purposes of claiming a section 48E credit, provided that any information, representations, or other data provided to DOE in support of the request for an emissions value are accurate. If applicable, a taxpayer may rely upon an emissions value determined for a facility using the LCA model designated under paragraph (h)(6) of this section, provided that any information, representations, or other data used to obtain such emissions value are accurate. The IRS's deemed acceptance of an emissions value is the Secretary's determination of the PER. However, the taxpayer must also comply with all applicable requirements for the section 48E credit and any information, representations, or other data supporting an emissions value are subject to later examination by the IRS.
(5) Emissions value request process. An applicant that submits a request for an emissions value must follow the procedures specified by DOE to request and obtain such emissions value. Emissions values will be determined consistent with the rules provided in this section. An applicant can request an emissions value from DOE only after a front-end engineering and design (FEED) study or similar indication of project maturity, as determined by DOE, such as the completion of a project specification and cost estimation sufficient to inform a final investment decision for the facility. DOE may decline to review applications that are not responsive, including those applications that relate to a facility described in the Annual Table (consistent with paragraph (h)(2) of this section) or a facility for which an emissions value can be determined by an LCA model under paragraph (h)(6) of this section (consistent with paragraph (h)(3) of this section), or applications that are incomplete. Applicants must follow DOE's guidance and procedures for requesting and obtaining an emissions value from DOE. DOE will publish this guidance and procedures, including a process for, under limited circumstances, a revision to DOE's initial assessment of an emissions value on the basis of revised technical information or facility design and operation.
(6) LCA model for determining an emissions value for C&G Facilities. The rules provided in § 1.45Y-5(h)(6) regarding the designation of an LCA model or models for determining an emissions value for C&G Facilities apply for purposes of section 48E and this section.
(7) Effect of PER. A taxpayer who files for a PER must use a PER determined by the Secretary to determine eligibility for the section 48E credit, provided all other requirements of section 48E are met. The Secretary's PER determination is not an examination or inspection of books of account for purposes of section 7605(b) of the Code and does not preclude or impede the IRS (under section 7605(b) or any administrative provisions adopted by the IRS) from later examining a return or inspecting books or records with respect to any taxable year for which the section 48E credit is claimed. Further, a PER determination does not signify that the IRS has determined that the requirements of section 48E have been satisfied for any taxable year.
(i) Determining anticipated greenhouse gas emissions rate —(1) In general. A facility's anticipated greenhouse gas emissions rate must be objectively determined based on an examination of all the facts and circumstances. Certain Non-C&G Facilities, such as the facilities described in § 1.45Y-5(c)(2), may have an anticipated greenhouse gas emissions rate that is not greater than zero based on the technology and practices they rely upon to generate electricity. For facilities that require the use of certain fuel sources, which may vary, or carbon capture and sequestration, to generate electricity with a greenhouse gas emissions rate that is not greater than zero, objective indicia that such facilities will use such fuel sources or operate such carbon capture equipment, as applicable, in a manner that results in a greenhouse gas emissions rate that is not greater than zero for at least 10 years beginning from the date the facility is placed in service are required to establish a reasonable expectation that the combination of fuel, type of facility, and practice will result in a greenhouse gas emissions rate that is not greater than zero. Taxpayers must attest under penalty of perjury that the anticipated greenhouse gas emissions rate as determined under the statute and these final regulations is not greater than zero. A facility subject to legally binding Federal or State permit conditions requiring that the facility operate in a manner that would be incompatible with a greenhouse gas emissions rate of not greater than zero is not a facility for which the anticipated greenhouse gas emissions rate is not greater than zero.
(2) Examples of objective indicia. Examples of objective indicia that may establish an anticipated greenhouse gas emissions rate that is not greater than zero for specific elements of the type of facility, fuel source, or practice include, but are not limited to:
(i) Co-location of the facility with a fuel source (for example, an anaerobic digester) for which the combination of fuel, type of facility, and practice is reasonably expected to result in a greenhouse gas emissions rate that is not greater than zero;
(ii) A 10-year binding written contract to purchase fuels for which the combination of fuel, type of facility, and practice is reasonably expected to result in a greenhouse gas emissions rate that is not greater than zero;
(iii) A facility type that only accommodates one type of fuel or a small range of fuels for which the combination of fuel, type of facility, and practice is reasonably expected to result in a greenhouse gas emissions rate that is not greater than zero;
(iv) A 10-year binding written contract for the permanent geological storage (including after injection into an enhanced oil and gas recovery (EOR) project) or utilization of qualified carbon dioxide from the facility for which the combination of fuel, type of facility, and capture and practice is reasonably expected to result in a greenhouse gas emissions rate that is not greater than zero; or
(v) A legally binding Federal or State air permit which requires, as a condition of the permit, that the facility operates in a manner for which the combination of fuel, type of facility, and practice is reasonably expected to result in a greenhouse gas emissions rate that is not greater than zero and that any captured carbon dioxide is permanently geologically stored and subjects the holder to civil or criminal penalties in the event the relevant permit requirements are breached.
(j) Reliance on Annual Table or provisional emissions rate. Taxpayers may rely on the Annual Table in effect as of the date a facility began construction or the provisional emissions rate determined by the Secretary for the taxpayer's facility under paragraph (h)(4) of this section to determine the facility's greenhouse gas emissions rate, provided that the facility continues to operate as a type of facility that is described in the Annual Table or the facility's emissions value request, as applicable, for the entire taxable year.
(k) Substantiation —(1) In general. A taxpayer must maintain in its books and records documentation regarding the design and operation of a facility that establishes that such facility had an anticipated greenhouse gas emissions rate that is not greater than zero in the year in which the section 48E credit is determined and operated with a greenhouse gas emissions rate that is not greater than 10 grams of CO 2 e per kWh during each year of the recapture period that applies for purposes of section 48E(g).
(2) Sufficient substantiation. Documentation sufficient to substantiate that a facility had a greenhouse gas emissions rate, as determined under this section, not greater than 10 grams of CO 2 e per kWh during each year of the recapture period that applies for purposes of section 48E(g) includes documentation or a report prepared by an unrelated party that verifies the facility's actual emissions rate. A facility described in § 1.45Y-5(c)(2) can maintain sufficient documentation to demonstrate a greenhouse gas emissions rate that is not greater than 10 grams of CO 2 e per kWh during each year of the recapture period that applies for purposes of section 48E(g) by showing that it is the type of facility described in § 1.45Y-5(c)(2). The Secretary may determine that other types of facilities can sufficiently substantiate a greenhouse gas emissions rate, as determined under this section, that is not greater than 10 grams of CO 2 e per kWh during each year of the recapture period that applies for purposes of section 48E(g) with certain documentation and will describe such facilities and documentation in IRS forms or instructions or in publications or guidance published in the Internal Revenue Bulletin. See § 601.601 of this chapter. For such other types of facilities that utilize biomass feedstocks, the taxpayer must substantiate that the source of such fuels or feedstocks used are consistent with the taxpayer's claims. For all facilities that utilize unmarketable feedstocks that are indistinguishable from marketable feedstocks (for instance, after processing), the taxpayer will be required to maintain documentation substantiating the origin and original form of the feedstock.
(l) Applicability date. This section applies to qualified facilities placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025.
§ 1.48E(h)-0   Table of contents.
This section lists the captions contained in § 1.48E(h)-1.
(a) Overview.
(1) General rule.
(2) Certain terms used in this section.
(i) Applicant.
(ii) Disregarded entity.
(iii) Internal Revenue Bulletin.
(b) Applicable 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) Less than five megawatts requirement.
(i) In general.
(ii) Nameplate capacity for purposes of the less than five megawatts requirement.
(iii) Nameplate capacity for an applicable facility that generates in direct current for purposes of the less than five megawatts requirement.
(iv) Integrated operations.
(4) Related taxpayers.
(c) Eligible property.
(d) Location.
(1) In general.
(2) Nameplate Capacity Test for Location.
(3) Nameplate capacity for purpose of Nameplate Capacity Test for Location.
(e) Financial benefits for a Category 3 facility.
(1) In general.
(2) Threshold requirement.
(3) Financial value of the electricity produced by the facility.
(4) Gross financial value defined.
(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) With cost to participate.
(ii) No or nominal cost of participation.
(iii) Calculation on annual basis.
(iv) Examples.
(A) Example 1.
(B) Example 2.
(C) Example 3.
(3) Demonstration of financial benefits statement.
(4) Low-income verification and recordkeeping.
(i) In general.
(ii) Methods of verification.
(A) Categorical eligibility.
(B) Direct income verification methods.
(C) Impermissible verification method.
(g) Annual Capacity Limitation.
(1) In general.
(2) Sub-reservations.
(3) Redistribution within Program year.
(4) Carryover of unallocated Annual Capacity Limitation.
(5) Allocations to applicable facilities with nameplate capacity in alternating current.
(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) Partner qualifying partnership under ownership criteria.
(C) Partner qualifying partnership involving low-income housing credit under ownership criteria.
(iii) Tribal enterprise.
(iv) Alaska Native Corporation.
(v) Native Hawaiian Organization.
(vi) Renewable energy cooperative.
(vii) Qualified tax-exempt entity.
(viii) Qualified renewable energy company.
(3) Geographic criteria.
(i) In general.
(ii) Persistent Poverty County.
(iii) Certain census tracts under Climate and Economic Justice Screening Tool.
(A) Energy burden.
(B) PM2.5.
(C) 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) 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.
(4) Application period.
(i) Opening and closing dates.
(ii) Initial 30-day period.
(iii) Applications submitted after the initial 30-day period.
(A) In general.
(B) Additional Selection Criteria Applications submitted after the initial 30-day period.
(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) 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 48E(h) Increase to the section 48E(a) credit.
(1) In general.
(2) Exception to application of recapture.
(3) Recapture events.
(4) Section 50(a) recapture.
(o) Record retention.
(p) Applicability date.
§ 1.48E(h)-1   Clean Electricity Low-Income Communities Bonus Credit Amount Program.
(a) Overview —(1) General rule. For purposes of section 46 of the Internal Revenue Code (Code), if an allocation of the capacity limitation (Capacity Limitation) is made with respect to eligible property (as defined in paragraph (c) of this section) that is part of any applicable facility (as defined in paragraph (b) of this section) placed in service in connection with low-income communities under the Clean Electricity Low-Income Communities Bonus Credit Amount Program (Program) established under section 48E(h)(4), the applicable percentage used to calculate the amount of the clean electricity investment credit determined under section 48E(a) (section 48E credit) is increased under section 48E(h)(1).
(2) Certain terms used in this section. In this section:
(i) Applicant. The terms applicant and taxpayer are used interchangeably as the context may require. An applicant is the taxpayer that owns the applicable facility and that intends to claim the section 48E credit and will be applying for an allocation of Capacity Limitation for purposes of the section 48E(h) Increase. A disregarded entity is not eligible to be an applicant. The regarded taxpayer that owns the disregarded entity is the owner of the applicable facility and, therefore, the applicant, for purposes of the Program and this section.
(ii) Disregarded entity. The term disregarded entity means an entity that is disregarded as separate from its owner for Federal income tax purposes.
(iii) Internal Revenue Bulletin. The term Internal Revenue Bulletin has the meaning provided in § 601.601 of this chapter.
(b) Applicable facility defined —(1) In general. An applicable facility means any qualified facility (as defined in section 48E(b)(3)) that—
(i) Is a non-combustion and gasification facility for which the Secretary of the Treasury or her delegate has determined has a greenhouse gas (GHG) emissions rate of not greater than zero and announced in guidance published either in the Federal Register or in the Internal Revenue Bulletin as of the opening date for a Program year;
(ii) Has a maximum net output of less than five megawatts (MW) (as measured in alternating current (AC)); and
(iii) Is described in at least one of the four categories described in section 48E(h)(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 defined under section 45D(e)(1) of the Code as any population census tract for which the poverty rate is at least 20 percent based on the most recently released 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, a taxpayer can choose to base the poverty rate for any population census tract on either the prior version of the 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. Population 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 as described in section 48E(h)(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 Qualified Residential Property could either be a multifamily rental property or single-family rental property. However, the building, and not merely the tenants, must participate in a covered housing program or other affordable housing program described in section 48E(h)(2)(B)(i). A facility does not need to be installed directly on the building to be considered installed on a Qualified Residential Property 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) Less than five megawatts requirement —(i) In general. For purposes of this paragraph (b), the less than five megawatts requirement in paragraph (b)(1)(ii) of this section is measured at the level of the applicable facility in accordance with section 48E(h)(2)(A)(ii). The maximum net output of an applicable facility is measured only by nameplate generating capacity of the applicable facility, which includes only functionally interdependent components of the applicable facility, at the time the applicable facility is placed in service. Components of property are functionally interdependent if the placing in service of each component is dependent upon placing in service other components to produce electricity.
(ii) Nameplate capacity for purposes of the less than five megawatts requirement. The determination of whether an applicable facility has a maximum net output of less than 5 MW (as measured in AC) is based on the nameplate capacity of the applicable facility. If an applicable facility has integrated operations with one or more other qualified facilities of the same technology type, then the aggregate nameplate capacity of the applicable facility and each other qualified facility is used to determine whether the less than five megawatts requirement in paragraph (b)(1)(ii) of this section is met. If an applicable facility has a maximum net output equal to or more than 5MW (as measured in AC), it is not eligible for the Program. The nameplate capacity for purposes of the less than five megawatts requirement in paragraph (b)(1)(ii) of this section is the maximum electrical generating output in MW that the applicable facility 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 of nameplate capacity provided in 40 CFR 96.202. If applicable, the International Standard Organization conditions should be used to measure the maximum electrical generating output of an applicable facility.
(iii) Nameplate capacity for an applicable facility that generates in direct current for purposes of the less than five megawatts requirement. Only for applicable facilities that generate electricity in direct current, the taxpayer may choose to determine the maximum net output (in alternating current) of the applicable facility by using the lesser of:
(A) The nameplate generating capacity of the applicable facility in direct current, which is deemed the nameplate generating capacity of the applicable facility in alternating current; or
(B) The nameplate capacity of the first component of property that inverts the direct current electricity into alternating current.
(iv) Integrated operations. For the purposes of the less than five megawatts requirement in paragraph (b)(1)(ii) of this section, an applicable facility is treated as having integrated operations with one or more other qualified facilities of the same technology type if the facilities are:
(A) Owned by the same or related taxpayers;
(B) Placed in service in the same taxable year; and
(C) Transmit electricity generated by the facilities through the same point of interconnection or, if the facilities are not grid-connected or are delivering electricity directly to an end user behind a utility meter, are able to support the same end user.
(4) Related taxpayers —(i) Definition. For purposes of this paragraph (b), 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)).
(ii) Related taxpayer rule. For purposes of this paragraph (b), related taxpayers are treated as one taxpayer in determining whether an applicable facility has integrated operations.
(c) Eligible property. Eligible property means a qualified investment (as defined in section 48E(b)) with respect to any applicable facility.
(d) Location —(1) In general. An applicable facility is treated as located in a low-income community or located on Indian land under section 48E(h)(2)(A)(iii)(I) if the applicable facility satisfies the requirements of the Nameplate Capacity Test for Location of paragraph (d)(2) of this section. Similarly, an applicable 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 for Location.
(2) Nameplate Capacity Test for Location. An applicable facility satisfies the requirements of the Nameplate Capacity Test for Location of this paragraph (d)(2) and 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 applicable facility's nameplate capacity is in a qualifying area. The percentage of an applicable facility's nameplate capacity (as defined in paragraph (d)(3) of this section) that is in a qualifying area is determined by dividing the nameplate capacity of the applicable facility's electricity-generating units that are located in the qualifying area by the total nameplate capacity of all the electricity-generating units of the applicable facility.
(3) Nameplate capacity for purpose of Nameplate Capacity Test for Location. Nameplate capacity for an electricity generating unit means the maximum electrical output that the applicable facility 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 of nameplate capacity provided in 40 CFR 96.202. If applicable, the International Standard Organization conditions should be used to measure the maximum electrical generating output. For purposes of assessing the Nameplate Capacity Test, electricity-generating units that generate direct current (DC) power before converting to AC (for example, solar photovoltaic), should use nameplate capacity in DC, otherwise the nameplate capacity in AC should be used.
(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. The same rules for financial benefits for Category 3 facilities apply to both multi-family property and single-family Qualified Residential Property.
(2) Threshold requirement. At least 50 percent of the financial benefits of the electricity produced by the applicable facility (as defined in paragraph (e)(3) of this section) must be allocated equitably 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 electricity produced by the facility. Financial benefits are calculated as the financial value of the electricity produced by the applicable facility. For purposes of this paragraph (e), financial value of the electricity produced by the facility means the greater of:
(i) 25 percent of the gross financial value (as defined in paragraph (e)(4) of this section) of the annual electricity produced by the applicable facility; or
(ii) The net financial value (as defined in paragraph (e)(5) of this section) of the annual electricity produced by the applicable facility.
(4) Gross financial value defined. For purposes of this paragraph (e), gross financial value of the annual electricity produced by the applicable facility means the sum of:
(i) The total self-consumed kilowatt-hours produced by the applicable facility multiplied by the Qualified Residential Property's metered volumetric price of electricity;
(ii) The total exported kilowatt-hours produced by the applicable facility multiplied by the Qualified Residential Property's volumetric export compensation rate for the type of electricity produced by the applicable facility per kilowatt-hour; and
(iii) The sale of any attributes associated with the applicable facility's production (including, for example, any Federal, State, Tribal, or utility incentives or renewable energy certificates), 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 means:
(A) The gross financial value of the annual electricity produced; minus
(B) The annual average (or levelized) cost of the applicable 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 power purchase agreement or other contract for electricity services with the Qualified Residential Property owner and/or building occupants, net financial value means:
(A) The gross financial value of the annual electricity produced; minus
(B) Any payments made by the building owner and/or building occupants to the facility owner for electricity services associated with the facility in a given year.
(iii) Equitable allocation of financial benefits. Paragraphs (e)(5)(iii)(A) and (B) of this section provide rules regarding an equitable allocation of financial benefits in circumstances where financial value is distributed to building occupants via utility bill savings or via different means, respectively. Distributed financial benefits or investments previously made to the Qualified Residential Property are not considered eligible financial benefits for this purpose.
(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 allocated equitably if at least 50 percent of the financial value of the electricity 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 48E(h)(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, who exercise their right to not participate in or to opt out of a community solar subscription in their applicable jurisdictions), the portion of the financial value that would otherwise be distributed to non-participating occupants must be distributed instead 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 use this method of benefit distribution. In the case of a solar facility, applicants must follow guidance published by the Department of Housing and Urban Development (HUD) regarding benefits sharing, such as Treatment of Financial Benefits to HUD-Assisted Tenants Resulting from Participation in Solar Programs Notice (Housing Notice 2023-09), located at https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf, or other applicable HUD guidance, or other guidance or notices from the Federal agency that oversees the applicable housing program identified in section 48E(h)(2)(B) to ensure that tenants' annual income for rent calculations or other requirements impacting total tenant payment are not negatively impacted by the distribution of financial value. In the case of any other applicable facility, applicants must follow applicable HUD guidance on benefits sharing, or other guidance from the Federal agency that oversees the applicable housing program. In the absence of applicable guidance from a Federal agency, applicants should apply principles similar to those articulated in HUD guidance in the case of any other applicable 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 allocated equitably if at least 50 percent of the financial value of the electricity produced by the facility is distributed to occupants using one or more methods described in HUD guidance regarding benefits sharing for master-metered HUD-assisted housing, such as the Treatment of Financial Benefits to HUD-Assisted Tenants Resulting from Participation in Solar Programs Notice (Housing Notice 2023-09) located at https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-09hsgn.pdf, or other applicable HUD guidance, or other guidance or notices from the Federal agency that oversees the applicable housing program identified in section 48E(h)(2)(B). In the case of a solar facility, applicants must comply with applicable 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 electricity generation to ensure that HUD-assisted tenants' calculations for utility allowances and annual income for rent are not negatively impacted. In the absence of applicable guidance from a Federal agency, applicants should apply principles similar to those articulated in HUD guidance in the case of any other applicable facility.
(6) Benefits sharing statement —(i) In general. The facility owner must prepare a Benefits sharing statement to submit at placed in service reporting, 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, specify 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. The requirements of each of paragraph (f)(1)(i) through (iii) of this section must be met 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 48E(h)(2)(C)(i) or (ii) ( Qualifying Household ).
(ii) At least 50 percent of the total financial benefits of the electricity produced by the applicable facility must be assigned to Qualifying Households. Total financial benefits is calculated as the sum of all value from electricity production as measured by the utility, independent system operator, or other off-taker procuring electricity, and any additional value (including, for example, any electricity services, products, and credits or certificates such as RECs provided in connection with the electricity produced by such facility, but excluding any Federal tax credits), from the facility.
(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) With cost to participate. A bill credit discount rate is the difference between the amount of the total financial benefits 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 by a Qualifying Household for participating in the program (including, but not limited to subscription payments for zero carbon and any other fees or charges, such as consolidated billing fees), expressed as a percentage of the amount of the total financial benefits provided to a Qualifying Household. The bill credit discount rate must be calculated by starting with the amount of the total financial benefits provided to a Qualifying Household, subtracting all payments made by a Qualifying Household (or payments remitted on behalf of the Qualifying Household through net crediting, consolidated billing, or similar arrangements) to the facility owner and any related third parties as a condition of receiving that financial benefit to determine the net financial benefit (cost savings) to a Qualified Household, then dividing that difference by the amount of the total financial benefit provided to the Qualifying Household.
(ii) No or nominal cost of participation. In cases in which the Qualifying Household has no or only a nominal cost of participation, and financial benefits are delivered through a utility or government body, the bill credit discount rate must be calculated as the net financial benefits (cost savings) 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 amount of the total financial benefit assigned to a Qualifying Household.
(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. Each month, the facility owner will assign a portion of the electricity generated (or its value) by the facility to the household's utility bill, and the household will pay the facility owner. The amount the household pays the facility owner cannot exceed 80 percent of the monetary value of the assigned generation. The remaining 20 percent is a cost savings to the household on electricity. In this example, over the course of the first year the facility owner or their agent cause $180 in utility bill credits to be placed on the Qualifying Household's bill, and the Qualifying Household pays $144, 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, causes $240 in bill credits to be provided to the Qualifying Household's bill and the household pays $192. In each year of facility operation described within this example, a bill credit discount rate of 20 percent is maintained (($180-$144)/$180 = 20%) and (($240-$192)/$240 = 20%), respectively.
(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, but rather payment is remitted on their behalf by the utility. 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's utility remits $160 to the facility owner, 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, causes $240 in bill credits to be provided to the Qualifying Household's bill and the utility remits $192 to the facility owner. In each year of facility operation described within this example, a bill credit discount rate of 20 percent is maintained (($200-$160)/$200 = 20%) and (($240-$192)/$240 = 20%), respectively.
(C) Example 3. Assume the facility is part of a program by which the financial benefits are delivered to 100 Qualifying Households through a utility or government body, and each Qualifying Household pays no cost to participate. Assume that the financial value of the electricity produced by the facility's total output is $120,000 in the first year and $160,000 in the second year. Assume that 50% of the facility's financial value of the electricity is assigned to Qualifying Households and is therefore calculated as $60,000 in the first year ($120,000 × 50% = $60,000) and $80,000 in the second year ($160,000 × 50% = $80,000). Assume further that each Qualifying Household is assigned the same total financial benefit ($600 in the first year and $800 in the second year). If the bill credit discount rate for each Qualifying Household is 20 percent in each year, the net financial benefits (or cost savings) provided to each Qualifying Household is $120 in the first year ($120/$600 = 20%) and $160 in the second year ($160/$800 = 20%).
(3) Demonstration of financial benefits statement. The facility owner must prepare a Demonstration of Financial Benefits Statement, which must include:
(i) A calculation of the total financial benefits of annual electricity production, as described in paragraph (f)(1)(ii) of this section;
(ii) The percent of the total financial benefits provided and/or assigned to Qualifying Households;
(iii) The bill credit discount rate method used (with cost to participate or no or nominal cost of participation);
(iv) A calculation of the bill credit discount rate;
(v) A description of the means of distributing the required benefits to Qualifying Households; and
(vi) Documentation that the facility is enrolled in the applicable utility tariff, program, or other arrangement used to distribute financial benefits to Qualifying Households.
(4) Low-income verification and recordkeeping —(i) In general. Taxpayers must verify that a household meets the income limits under section 48E(h)(2)(C)(i) or (ii), whichever is applicable to the household based on the household's location, for the household to be a Qualifying Household under paragraph (f)(1)(i) of this section. A 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. The qualifying income level for a Qualifying Household is based on where such household is located. Taxpayers must additionally maintain records of the verification for each household that prove the taxpayer has provided requisite percentage of financial benefits to Qualifying Households.
(ii) Methods of verification. Applicants may use categorical eligibility verification or direct income verification methods, but not an impermissible verification method described in paragraph (f)(4)(ii)(C) of this section, 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. An individual in the household must currently be approved for assistance from or participation in a 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.
(B) Direct income verification methods. Documentation like 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 member or members of a household is not a permissible method to establish a household is a Qualifying Household. This prohibition on direct self-attestation from a household, for purposes of this Program, does not extend to categorical eligibility verification where the eligible needs-based Federal, State, Tribal, or utility programs with income limits rely on self-attestation for verification of income, and the taxpayer has obtained proof of a member or members of a household's participation in such a program.
(g) Annual Capacity Limitation —(1) In general. Under section 48E(h)(4)(C), the total annual Capacity Limitation is 1.8 gigawatts of DC capacity (Annual Capacity Limitation) for each calendar year of the Program. The Annual Capacity Limitation for each Program year is divided across the four facility categories described in section 48E(h)(2)(A)(iii) and paragraph (b)(2) of this section 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. The initial distribution of the Annual Capacity Limitation for each Program year is:
Table 1 to Paragraph ( g )(1) of This Section
(2) Sub-reservations. The reservation of Capacity Limitation for Category 1 is further divided into Category 1 sub-reservations, which are described in paragraph (i) of this section. The category 1 sub-reservation distribution of Capacity Limitation is:
Table 2 to Paragraph ( g )(2) of This Section
(3) Redistribution within Program year. At the close of the application period for a Program year, if some categories or sub-reservations are undersubscribed, while others are oversubscribed, capacity will be redistributed within the Program year for allocation to applicants in another Category or sub-reservation. A category or sub-reservation is undersubscribed if the amount of capacity applied for in all eligible applications within a reservation is less than the amount of the Capacity Limitation portion distributed to that reservation. A category or sub-reservation is oversubscribed if the amount of capacity applied for in all eligible applications within a particular reservation is in excess of the Capacity Limitation portion distributed to that reservation. Capacity Limitation will be redistributed within a Program year in the following manner:
(i) Capacity will first be redistributed within a category from the undersubscribed reservation to the oversubscribed reservation. For example, if the Additional Selection Criteria reservation is undersubscribed while the non-Additional Selection Criteria reservation is oversubscribed, the remaining capacity reservation for the Additional Selection Criteria will be redistributed to and increase the non-Additional Selection Criteria reservation or sub-reservation in the same category.
(ii) If there is remaining capacity in a category after redistribution under paragraph (g)(3)(i) of this section, or, in general, if a category is, as a whole, undersubscribed such that paragraph (g)(3)(i) of this section does not apply to that category, then, any remaining capacity in any category will be redistributed to and increase the reservation for Category 1 residential BTM facilities, but only if Category 1 residential BTM is oversubscribed. If both the Additional Selection Criteria and non-Additional Section Criteria reservations are oversubscribed for Category 1 residential BTM, then consistent with paragraph (h)(1) of this section, the redistributed capacity limitation will first increase the reservation for Additional Selection Criteria applications, and then if any capacity is remaining it will be added to the reservation for non-Additional Selection Criteria applications.
(iii) If there is remaining capacity after redistribution under paragraphs (g)(3)(i) and (ii) of this section, or if redistribution under paragraph (g)(3)(ii) of this section is inapplicable due to undersubscription in Category 1 residential BTM, then the remaining capacity will be redistributed to and increase the reservation for Category 4. If both the Additional Selection Criteria and the non-Additional Selection Criteria reservations under Category 4 are oversubscribed, then consistent with paragraph (j)(4)(ii) of this section, the redistributed capacity limitation will first increase the reservation for Additional Selection Criteria applications, and then if any capacity is remaining it will be added to the reservation for non-Additional Selection Criteria applications.
(iv) If there is remaining capacity after redistribution under paragraphs (g)(3)(i) through (iii) of this section, or if redistribution under paragraph (g)(3)(iii) of this section is inapplicable due to undersubscription in Category 1 residential BTM and Category 4, then the remaining capacity will be redistributed to and increase the reservation for Category 3. If both the Additional Selection Criteria and the non-Additional Selection Criteria reservations under Category 3 are oversubscribed, then consistent with paragraph (j)(4)(ii) of this section, the redistributed capacity limitation will first increase the reservation for Additional Selection Criteria applications, and then if any capacity is remaining it will be added to the reservation for non-Additional Selection Criteria applications.
(v) If there is remaining capacity after redistribution under paragraphs (g)(3)(i) through (iv) of this section, or if redistribution under paragraph (g)(3)(iv) of this section is inapplicable due to undersubscription in Category 1 residential BTM, Category 4, and Category 3 then the remaining capacity will be redistributed to and increase the reservation for Category 2. If both the Additional Selection Criteria and the non-Additional Selection Criteria reservations under Category 2 are oversubscribed, then consistent with paragraph (j)(4)(ii) of this section, the redistributed capacity limitation will first increase the reservation for Additional Selection Criteria applications, and then if any capacity is remaining it will be added to the reservation for non-Additional Selection Criteria applications.
(vi) If there is remaining capacity after redistribution under paragraphs (g)(3)(i) through (v) of this section, or if redistribution under paragraph (g)(3)(iv) of this section is inapplicable due to undersubscription in Category 1 residential BTM, Category 4, Category 3, and Category 2, then the remaining capacity will be redistributed to and increase the reservation for Category 1 Eligible FTM facilities and non-residential BTM facilities. If both the Additional Selection Criteria and the non-Additional Selection Criteria reservations under Category 1 Eligible FTM facilities and non-residential BTM facilities are oversubscribed, then consistent with paragraph (j)(4)(ii) of this section, the redistributed capacity limitation will first increase the reservation for Additional Selection Criteria applications, and then if any capacity is remaining it will be added to the reservation for non-Additional Selection Criteria applications.
(vii) If after redistribution under paragraphs (g)(3)(i) through (vi) of this section, there is remaining Capacity Limitation at the close of a Program year, the unallocated amount of Capacity Limitation will be carried forward to the succeeding year as described in paragraph (g)(4) of this section.
(4) Carryover of unallocated Annual Capacity Limitation. If the Annual Capacity Limitation, as described in paragraph (g)(1) of this section, for any calendar year exceeds the aggregate amount of Annual Capacity Limitation allocated for a given calendar year, the Annual Capacity Limitation for the succeeding calendar year will be increased by the amount of such excess or remainder from previous Program Year. No amount of Capacity Limitation may be carried to any calendar year after the third calendar year following the applicable year (as defined in section 45Y(d)(3) of the Code). Any unallocated Capacity Limitation carried over from the preceding year will be equally distributed across Category 1, 2, 3, and 4. Within Category 1, the portion distributed from the carried over Capacity Limitation will be equally distributed across Category 1 sub-reservations and further across the reservation for Additional Selection Criteria within those sub-reservations. The portion of the carried over Capacity Limitation distributed to each of Category 2, 3, and 4 will be equally distributed within each category to the Additional Selection Criteria reservation and the non-Additional Selection Criteria reservation.
(5) Allocations to a pplicable facilities with nameplate capacity in alternating current. For applicable facilities which have a nameplate capacity in AC, and which are awarded an allocation, such an applicable facility will be awarded an amount of Capacity Limitation in direct current that is equal to the applicable facility's reported nameplate capacity in alternating current.
(h) Reservations of Capacity Limitation allocation for facilities that meet certain Additional Selection Criteria —(1) In general. 50 percent of the total Capacity Limitation in each facility category described in paragraph (b) of this section and Category 1 sub-reservation (described in paragraph (i) of this section) will be reserved at the beginning of an application period for applicable 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). The reservation of Capacity Limitation for applicable facilities meeting the Additional Selection Criteria may be redistributed across facility categories and sub-reservations as described in paragraph (g)(3) of this section. If after the initial 30-day period an Additional Selection Criteria reservation for a category or Category 1 sub-reservation is undersubscribed, such Additional Selection Criteria reservation of 50 percent is maintained. The procedures for applying under these Additional Selection Criteria are provided in guidance published in the Internal Revenue Bulletin.
(2) Ownership criteria —(i) In general. The ownership criteria are based on characteristics of the applicant that owns the applicable facility. An applicable 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 Native Hawaiian Organization (as defined in paragraph (h)(2)(v) of this section);
(D) A renewable energy cooperative (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).
(F) A qualified renewable energy company (as defined in paragraph (h)(2)(viii) of this section).
(ii) Indirect ownership —(A) Disregarded entities. If an applicant wholly owns a disregarded entity that is the owner of an applicable facility, then the applicant, and not the disregarded entity, is treated as the owner of the applicable facility for purposes of the ownership criteria. For entities wholly owned and chartered under Tribal law and corporations 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, an application may be made as a Tribal Enterprise. Disregarded entities are not eligible for an award and may not submit an application.
(B) Partner qualifying partnership under ownership criteria. Except as described in paragraph (h)(2)(ii)(C) of this section, if an applicant is an entity classified 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 of the partnership and is also a managing member or general partner (or similar title) under State or Tribal 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 applicable facility will be deemed to meet the ownership criteria. If the partnership described in the preceding sentence 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, then 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. Nothing in this paragraph (h)(2)(ii)(B) applies to an applicant described in paragraph (h)(2)(i)(F) of this section.
(C) Partner qualifying partnership involving low-income housing credit under ownership criteria. If an applicant is an entity classified as a partnership for Federal income tax purposes and is the owner of an applicable facility connected to a residential building to which credits under section 42 of the Code are reasonably anticipated or have been determined and has a partner for Federal income tax purposes that is an entity described in paragraphs (h)(2)(i)(A) through (E) of this section, the applicable 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 paragraph (h)(2)(i)(E) of this section, and complete ownership is transferred to a partnership that owns a qualified low-income building within the meaning of section 42(c)(2) (including, through a disregarded entity owned by the partnership), then the transfer of the facility to the partnership is not a disqualification event for purposes of paragraph (m)(5) of this section or subject to recapture for purposes of paragraph (n) of this section, so long as the requirements of paragraph (m)(5) of this section are satisfied.
(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 Code), or owned at least 51 percent indirectly through an entity 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) Native Hawaiian Organization. A Native Hawaiian Organization for purposes of the ownership criteria is defined in 13 CFR 124.3.
(vi) Renewable energy cooperative. A renewable energy cooperative for purposes of the ownership criteria is an entity that develops applicable 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 electricity or energy credits purchased (kWh), volume of financial benefits delivered (in United States dollars), or volume of financial payments made (in United States dollars); 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 48E(h)(2)(C)); or
(B) A worker cooperative controlled by its worker-members with each member having an equal voting right.
(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 of the Code by reason of being described in section 501(c)(3) or (d) of the Code;
(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.
(viii) Qualified renewable energy company. A qualified renewable energy company (QREC) 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. To be a QREC, an entity must meet all of the requirements in paragraphs (h)(2)(vii)(A) through (D) of this section.
(A) The entity's business purpose must be to serve low-income households or low-income communities, and this purpose must be stated in governing documents and dated at least two years prior to application submission;
(B) At least 51 percent of the entity's equity interests must be owned and controlled by one or more individuals;
(C) The entity must have first installed, operated, or provided services as a contractor or subcontractor to an applicable facility two or more years prior to the date of application; and
(D) The entity must have at least one but less than 10 full-time equivalent employees (as determined under section 4980H(c)(2)(E) and (c)(4) of the Code) and less than $20 million in annual gross receipts in the previous two calendar years. The number of full-time equivalent employees and amount in annual gross receipts must include the full-time equivalent employees and annual gross receipts of all affiliated entities. An entity is considered to be an affiliated entity if—
( 1 ) 25 percent or more of an entity's board seats, voting rights, or equity interests, are cumulatively held by another entity and related entities (as described in described in section 267(b) or section 707(b)(1) of the Code); or
( 2 ) One or more of an entities' officers, directors, managing members or partners with authority over the board of directors or management and operations also have authority over the board of directors or management and operations of another entity.
(3) Geographic criteria —(i) In general. Geographic criteria do 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)(ii) or (iii) 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.
(ii) Persistent Poverty County. A Persistent Poverty County (PPC), which is, generally, described as any county where 20 percent or more of residents have experienced high rates of poverty over the past 30 years. For purposes of the Program and this section, the PPC measure adopted by the USDA is used to make this determination. 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.
(iii) Certain census tracts under Climate and Economic Justice Screening Tool. A census tract that is described in the latest official Climate and Economic Justice Screening Tool (CEJST), as greater than or equal to the 90th percentile for energy burden and greater than or equal to the 65th percentile for low income, or as greater than or equal to the 90th percentile for PM 2.5 exposure and greater than or equal to the 65th percentile for low income.
(A) Energy burden. Energy burden is defined as average household annual energy cost in dollars divided by the average household income.
(B) 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.
(C) Low-income. Low income, for purposes of this section, is defined as the percent of a census tract's population in households for which 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, the sub-reservation may be reallocated later in the event it has excess capacity.
(2) Definitions —(i) Behind the meter (BTM) facility. For purposes of the Program and this section, an applicable 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 applicable facility that does not meet the requirements for a Category 3 facility and is BTM. An applicable facility is residential if it uses energy to generate electricity for use in a dwelling unit that is used as a residence.
(iii) FTM facility. For purposes of the Program and this section, an applicable 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, a FTM facility is defined as a facility that is not a BTM facility. For the purpose of Category 4 facilities, an applicable facility is also FTM if 50 percent or more of its electricity generation on an annual basis is exported physically 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.
(2) Information required as part of application. With each application for a Capacity Limitation allocation, applicants are required to submit information, documentation, and attestations to demonstrate eligibility for an allocation and project viability as specified in guidance published in the Internal Revenue Bulletin.
(3) No administrative appeal of Capacity Limitation allocation decisions. An applicant may not administratively appeal decisions regarding Capacity Limitation allocations.
(4) Application period —(i) Opening and closing dates. For calendar year 2026 and each succeeding calendar year of the Program, the application period will open the first Monday of February at 9 a.m. EST and close the first Friday of August at 11:59 p.m. EST. The application period for calendar year 2025 will be announced in guidance published in the Internal Revenue Bulletin.
(ii) Initial 30-day period. For each year, there will be an initial 30-day period during which all applications submitted will be considered to be submitted at the same time and date. The initial 30-day period will begin on the opening day of the application period described in paragraph (j)(4)(i) of this section, and end at 11:59 p.m. EST on the 30th calendar day after the opening day of the application period. The opening day is included in calculating the 30-day period. All applications submitted within the 30-day period will be ordered for review and consideration of an allocation of Capacity Limitation within the same category based on a process described in procedural guidance published in the Internal Revenue Bulletin. If during the initial 30-day period, an Additional Selection Criteria reservation for a category or Category 1 sub-reservation is oversubscribed with Additional Selection Criteria applications, Capacity Limitation from the applicable category or sub-reservation may be reallocated to prioritize review and consideration of Additional Selection Criteria applications. Additional Selection Criteria applications received during the initial 30-day period receive priority over other applications received during the initial 30-day period.
(iii) Applications submitted after the initial 30-day period —(A) In general. Applications submitted after the close of the initial 30-day period will be held for review and consideration of an allocation of Capacity Limitation after the applications in the same category or Category 1 sub-reservation which were submitted during the initial 30-day period. Review of such applications will occur only if sufficient Capacity Limitation remains to be allocated in a given category or Category 1 sub-reservation, and in conjunction with the redistribution provisions described under paragraph (g)(2) of this section. Provided sufficient Capacity Limitation remains in a given category or Category 1 sub-reservation, these applications submitted after the initial 30-day period will be reviewed and considered for an allocation in the order in which they are received.
(B) Additional Selection Criteria Applications submitted after the initial 30-day period. If the Additional Selection Criteria reservation for a category or Category 1 sub-reservation is undersubscribed after the initial 30-day period ends, then the Additional Selection Criteria reservation of 50 percent is maintained. Additional Selection Criteria applications submitted after the initial 30-day period will be prioritized for review and consideration of an allocation of Capacity Limitation from the Additional Selection Criteria reservation in the applicable category or Category 1 sub-reservation until such Additional Selection Criteria reservation is allocated or is reallocated.
(k) Placed in service —(1) Requirement to report date placed in service. For any facility that receives an allocation of Capacity Limitation, the owner of the facility must report the date the eligible property was placed in service.
(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 demonstrate the facility is still eligible to maintain the allocation and claim the increased applicable percentage under section 48E(h)(1) as specified in guidance published in the Internal Revenue Bulletin.
(3) Confirmation. The placed in service documentation and attestations demonstrating that the facility meets the eligibility criteria for the owner to claim an increased applicable percentage will be reviewed. A recommendation will then be considered by 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 this recommendation and underlying facts and circumstances analysis, the IRS will decide whether the facility should retain its allocation or if the facility should be disqualified. Eligibility is determined, 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, or, if eligible, making a transfer election under section 6418 of the Code, or 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. Applicable facilities must be placed in service after being awarded an allocation of Capacity Limitation.
(2) Rejection or rescission. An application for an applicable 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 materially changes or is in a different census tract.
(2) The maximum net output of the facility increases such that it exceeds the less than five megawatts AC requirement provided in section 48E(h)(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. However, the amount of bonus credit capacity allocated will not be exceeded from the original allocation amount.
(3) The facility either cannot or did not satisfy the financial benefits requirements under section 48E(h)(2)(B)(ii) and paragraph (e) of this section as planned, if applicable, or cannot satisfy the financial benefits requirements under section 48E(h)(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 classified 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 or Tribal 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 48E(h) Increase to the section 48E(a) credit —(1) In general. Section 48E(h)(5) provides for recapturing the benefit of any increase in the credit allowed under section 48E(a) by reason of section 48E(h) 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) of the Code). Section 48E(h) 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 an applicable facility under section 48E(h) 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 48E 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 48E(a), the eligibility of such property for such increase pursuant to section 48E(h) is restored. Such restoration of an increase pursuant to section 48E(h) 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 48E(h):
(i) Property described in section 48E(h)(2)(A)(iii)(II) fails to provide financial benefits;
(ii) Property described under section 48E(h)(2)(B) ceases to allocate the financial benefits equitably among the occupants of the dwelling units as described under section 48E(h)(2)(B)(ii), such as not allocating to residents the required net electricity savings of the electricity, as required by paragraph (e) of this section;
(iii) Property described under section 48E(h)(2)(C) ceases to provide at least 50 percent of the financial benefits of the electricity produced to Qualifying Households as described under section 48E(h)(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 48E(h)(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 48E(h)(2)(B)(i), as applicable; or
(v) A facility increases its maximum net output or nameplate capacity such that the facility's maximum net output or nameplate capacity is 5 MW AC or greater.
(4) Section 50(a) recapture. Any event that results in recapture under section 50(a) also will result in recapture of the benefit of the increase in the section 48E credit by reason of section 48E(h). 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) Record retention. The applicant is required to retain records and materials related to the application for the following periods:
(1) For at least 6 years after the due date (with extensions) for filing the Federal income tax return after the tax year that return is filed to claim the increase in the section 48E credit; and
(2) For at least 6 years after the due date (with extensions) for filing the Federal income tax return for the last year that the applicant could be subject to recapture as described in paragraph (n) of this section.
(p) Applicability date. This section applies to applicable facilities placed in service after December 31, 2024, and during taxable years ending on or after January 13, 2025.
§ 1.50-0   Table of contents.
This section lists the table of contents for §§ 1.50-1 and 1.50-2.
(a) In general.
(b) Coordination with basis adjustment rules.
(1) Basis adjustment.
(2) Amount of credit included ratably in gross income.
(i) In general.
(ii) Special rule for the energy credit.
(3) Special rule for partnerships and S corporations.
(i) In general.
(ii) Definition of ultimate credit claimant.
(c) Coordination with the recapture rules.
(1) In general.
(2) Income inclusion exceeds unrecaptured credit.
(3) Special rule for the energy credit.
(4) Timing of income inclusion or reduction following recapture.
(d) Election to accelerate income inclusion outside of the recapture period.
(1) In general.
(2) Exceptions.
(3) Manner and time for making election.
(e) Examples.
(1) Example 1.
(2) Example 2.
(3) Example 3.
(4) Example 4.
(5) Example 5.
(6) Example 6.
(f) Applicability date.
(a) Recapture in connection with certain expansions.
(1) In general.
(2) Exception.
(3) Carrybacks and carryover adjusted.
(b) Definitions.
(1) Applicable period.
(2) Applicable taxpayer.
(i) In general.
(ii) Special rules for partnerships and S corporations and their partners and shareholders.
(iii) Examples.
(A) Example 1: Applicable taxpayer: In general.
(B) Example 2: Applicable taxpayer: In general.
(C) Example 3: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders.
(D) Example 4: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders.
(E) Example 5: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders.
(F) Example 6: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders.
(iv) Affiliated groups.
(3) Applicable transaction.
(4) Applicable transaction recapture amount.
(5) Existing facility.
(6) Foreign country of concern.
(7) Material expansion.
(8) Semiconductor manufacturing capacity.
(9) Significant renovations.
(10) Significant transaction.
(i) In general.
(ii) Required agreement.
(11) Technology licensing.
(12) Technology or product that raises national security concerns.
(c) Exception from the definition of applicable transaction for the manufacturing of legacy semiconductors.
(1) In general.
(2) Legacy semiconductor.
(d) Example: Applicable transaction credit claimed.
(e) Applicability date.
§ 1.50-1   Lessee's income inclusion following election of lessor of investment credit property to treat lessee as acquirer.
(a) In general. Section 50(d)(5) provides that, for purposes of computing the investment credit, rules similar to the rules of former section 48(d) (relating to certain leased property) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990 (Pub. L. 101-508, 104 Stat. 1388 (November 5, 1990))) apply. This section provides rules similar to the rules of former section 48(d)(5) that the Secretary has determined shall apply for purposes of determining the inclusion in gross income required when a lessor elects to treat a lessee as having acquired investment credit property.
(b) Coordination with basis adjustment rules. In the case of any property with respect to which an election is made under § 1.48-4 by a lessor of investment credit property to treat the lessee as having acquired the property—
(1) Basis adjustment. Section 50(c) does not apply with respect to such property.
(2) Amount of credit included ratably in gross income —(i) In general. A lessee of the property must include ratably in gross income, over the shortest recovery period which could be applicable under section 168 with respect to that property, an amount equal to the amount of the credit determined under section 46 with respect to that property. The ratable income inclusion under this paragraph begins on the date the investment credit property is placed in service and continues on each one year anniversary date thereafter until the end of the applicable recovery period. The lessee will include in gross income the amount of its credit determined under section 46 regardless of limitations on the amount of the credit allowed under section 38(c) based on the amount of the lessee's income tax.
(ii) Special rule for the energy credit. In the case of any energy credit determined under section 48(a), paragraph (b)(2)(i) of this section applies only to the extent of 50 percent of the amount of the credit determined under section 46.
(3) Special rule for partnerships and S corporations —(i) In general. For purposes of paragraph (b)(2) of this section, if the lessee of the property is a partnership (other than an electing large partnership) or an S corporation, the gross income includible under such paragraph is not an item of partnership income to which the rules of subchapter K of Chapter 1, subtitle A of the Code apply or an item of S corporation income to which the rules of subchapter S of Chapter 1, subtitle A of the Code apply. Any partner or S corporation shareholder that is an ultimate credit claimant (as defined in paragraph (b)(3)(ii) of this section) is treated as a lessee that must include in gross income the amounts required under paragraph (b)(2) of this section in proportion to the credit determined under section 46 with respect to such partner or S corporation shareholder.
(ii) Definition of ultimate credit claimant. For purposes of this section, the term ultimate credit claimant means any partner or S corporation shareholder that files (or that would file) Form 3468, “Investment Credit,” with such partner's or S corporation shareholder's income tax return to claim an investment credit determined under section 46 with respect to such partner or S corporation shareholder.
(c) Coordination with the recapture rules —(1) In general. If section 50(a) requires an increase in the lessee's or the ultimate credit claimant's tax or a reduction in the carryback or carryover of an unused credit (or both) as a result of an early disposition (including a lease termination), etc., of leased property for which an election had been made under § 1.48-4, the lessee or the ultimate credit claimant is required to include in gross income an amount equal to the excess, if any, of the amount of the credit that is not recaptured over the total increases in gross income previously made under paragraph (b)(2) of this section with respect to the property. Such amount is in addition to the amounts the lessee or the ultimate credit claimant previously included in gross income under paragraph (b)(2) of this section.
(2) Income inclusion exceeds unrecaptured credit. If section 50(a) requires an increase in the lessee's or ultimate credit claimant's tax or a reduction in the carryback or carryover of an unused credit (or both) as a result of an early disposition (including a lease termination), etc., of leased property for which an election had been made under § 1.48-4, the lessee's or the ultimate credit claimant's gross income shall be reduced by an amount equal to the excess, if any, of the total increases in gross income previously included under paragraph (b)(2) of this section over the amount of the credit that is not recaptured.
(3) Special rule for the energy credit. In the case of any energy credit determined under section 48(a), paragraphs (c)(1) and (2) of this section apply by substituting the phrase “50 percent of the amount of the credit that is not recaptured” for the phrase “the amount of the credit that is not recaptured.”
(4) Timing of income inclusion or reduction following recapture. Any adjustment required by paragraphs (c)(1) and (2) of this section is taken into account in the taxable year in which the property is disposed of or otherwise ceases to be investment credit property.
(d) Election to accelerate income inclusion outside of the recapture period —(1) In general. If after the recapture period described in section 50(a), but prior to the expiration of the recovery period described in paragraph (b)(2) of this section, there is a lease termination, the lessee otherwise disposes of the lease, or a partner or S corporation shareholder that is an ultimate credit claimant disposes of its entire interest, either direct or indirect, in a lessee partnership (other than an electing large partnership) or S corporation, the lessee, or, in the case of a partnership or S corporation, the ultimate credit claimant may irrevocably elect to take into account the remaining amount required to be included in gross income under this section in the taxable year of the disposition or termination.
(2) Exceptions. The election provided under paragraph (d)(1) of this section is not available to—
(i) Lessees or ultimate credit claimants required by paragraph (c) of this section to account for the remaining amount required to be included in gross income after accounting for recapture in the taxable year in which the property was disposed of or otherwise ceased to be investment credit property under section 50(a); or
(ii) Former partners or S corporation shareholders that own no interest, either direct or indirect, in a lessee partnership or S corporation at the time of a lease termination or disposition.
(3) Manner and time for making election. The election under paragraph (d)(1) of this section is made by including the remaining amount required to be included under this section in gross income in the taxable year of the lease termination or disposition or the disposition of the ultimate credit claimant's entire interest, either direct or indirect, in a partnership or S corporation. The election must be made on or before the due date (including any extension of time) of the lessee's income tax return, or, in the case of a partnership or S corporation, the ultimate credit claimant's income tax return for the taxable year in which the lease termination or disposition or the disposition of the ultimate credit claimant's entire interest, either direct or indirect, in a partnership or S corporation occurs.
(e) Examples. The provisions of this section may be illustrated by the following examples:
(1) Example 1. X, a calendar year C corporation, leases nonresidential real property from Y. The property is placed in service on October 1, 2016. Y elects under § 1.48-4 to treat X as having acquired the property. X's investment credit determined under section 46 for 2016 with respect to such property is $9,750. The shortest recovery period that could be available to the property under section 168 is 39 years. Because Y has elected to treat X as having acquired the property, Y does not reduce its basis in the property under section 50(c). Instead, X, the lessee of the property, must include ratably in gross income over 39 years an amount equal to the credit determined under section 46 with respect to such property. Under paragraph (b)(2) of this section, X's increase in gross income for each of the 39 years beginning with 2016 is $250 ($9,750/39 year recovery period).
(2) Example 2. The facts are the same as in Example 1 in paragraph (e)(1) of this section, except that instead of nonresidential real property, X leases from Y solar energy equipment for which an energy credit under section 48 is determined under section 46. X's investment credit determined under section 46 for 2016 with respect to the property is $9,750. The shortest recovery period that could be available to the property under section 168 is 5 years. X, the lessee of the property, must include ratably in gross income over 5 years an amount equal to 50% of the credit determined under section 46 with respect to such property. Under paragraph (b)(2) of this section, X's increase in gross income for each of the 5 years beginning with 2016 is $975 ($4,875/5 year recovery period).
(3) Example 3. A and B, calendar year taxpayers, form a partnership, the AB partnership, that leases nonresidential real property from Y. The property is placed in service on October 1, 2016. Y elects under § 1.48-4 to treat the AB partnership as having acquired the property. A's investment credit determined under section 46 for 2016 is $3,900 and B's investment credit determined under section 46 for 2016 is $7,800 with respect to the property. The shortest recovery period that could be available to the property under section 168 is 39 years. Because Y has elected to treat the AB partnership as having acquired the property, Y does not reduce its basis in the building under section 50(c). Instead, A and B, the ultimate credit claimants, must include the amount of the credit determined with respect to A and B under section 46 ratably in gross income over 39 years, the shortest recovery period available with respect to such property. Therefore, A and B must include ratably in gross income over 39 years under paragraph (b)(2) of this section an amount equal to $3,900 and $7,800, respectively. Under paragraph (b)(2) of this section, A's increase in gross income for each of the 39 years beginning with 2016 is $100 ($3,900/39 year recovery period) and B's is $200 ($7,800/39 year recovery period). Because the gross income A and B are required to include under paragraph (b)(2) of this section is not an item of partnership income, the rules under subchapter K applicable to items of partnership income do not apply with respect to such income. In particular, A and B are not entitled to an increase in the outside basis of their partnership interests under section 705(a) and are not entitled to an increase in their capital accounts under section 704(b).
(4) Example 4. The facts are the same as in Example 3 in paragraph (e)(3) of this section, except that on January 1, 2019, the lease between AB partnership and Y terminates (Y retains ownership of the property), which is a recapture event under section 50(a). A's and B's income tax for 2019 is increased under section 50(a) by $2,340 and $4,680, respectively (60% of $3,900 and $7,800, respectively, assuming that the aggregate decrease in the credits allowed under section 38 was the full amount of the investment credits determined as to A and B under section 46). Therefore, the amount of the unrecaptured credit as to A and B is $1,560 and $3,120, respectively (40% of $3,900 and $7,800, respectively). The amounts that A and B previously included in gross income under paragraph (b)(2) of this section are $300 ($100 for each of 2016, 2017, and 2018) and $600 ($200 for each of 2016, 2017, and 2018), respectively. A and B are required under paragraph (c)(1) of this section to include in gross income an amount equal to the excess of the credit that is not recaptured ($1,560 and $3,120, respectively) over the total increases in gross income previously made under paragraph (b)(2) of this section with respect to the property ($300 and $600, respectively). Therefore, A and B must include in gross income $1,260 and $2,520, respectively, in the taxable year of the lease termination (2019) in addition to the recapture amounts described above.
(5) Example 5. (i) The facts are the same as in Example 4 in paragraph (e)(4) of this section, except that instead of nonresidential real property, the AB partnership leases from Y solar energy equipment for which an energy credit under section 48 is determined under section 46. Because the shortest recovery period that could be available to the property under section 168 is 5 years, A and B are required under paragraph (b)(2)(ii) of this section to include ratably in gross income over 5 years an amount equal to 50% of the credit determined under section 46 with respect to such property (50% of $3,900/5, or $390, per year for A, and 50% of $7,800/5, or $780, per year for B).
(ii) The January 1, 2019 lease termination requires A's and B's income tax for 2019 to be increased under section 50(a) by $2,340 and $4,680, respectively (60% of $3,900 and $7,800, respectively). Therefore, the amount of the unrecaptured credit as to A and B is $1,560 and $3,120, respectively (40% of $3,900 and $7,800, respectively). Under paragraph (b)(2)(ii) of this section, the amounts A and B previously included in gross income are $1,170 ($390 for each of 2016, 2017, and 2018) and $2,340 ($780 for each of 2016, 2017, and 2018), respectively. A and B are entitled to a reduction in gross income under paragraph (c)(2) of this section equal to the excess of the total increases in gross income made under paragraph (b)(2)(ii) of this section ($1,170 and $2,340, respectively) over 50% of the amount of the credit that is not recaptured ($780 and $1,560, respectively). Therefore, A and B are entitled to a reduction in gross income in the amount of $390 and $780, respectively, in the taxable year of the lease termination (2019).
(6) Example 6. (i) The facts are the same as in Example 3 in paragraph (e)(3) of this section, except that on December 1, 2021, A sells its entire interest to C, and on January 1, 2022, the lease between AB partnership and Y terminates. At the time of the lease termination, B is still a partner in the AB partnership. There is no recapture event under section 50(a) because both the lease termination and the disposition of A's interest in the partnership occurred outside of the recapture period.
(ii) At the time that A sold its interest in the AB partnership to C, A had previously included $500 ($100 for each of 2016-2020) in gross income under paragraph (b)(2) of this section. Under paragraph (b)(2) of this section, A must continue to include the remaining $3,400 (including $100 in 2021) in gross income ratably over the remaining portion of the applicable recovery period of 39 years. Alternatively, under paragraph (d)(1) of this section, A may irrevocably elect to include the remaining $3,400 in gross income in the taxable year that A sold its entire interest in the AB partnership to C (2021). Pursuant to paragraph (d)(2) of this section, A cannot make this election in the taxable year of the lease termination (2022).
(iii) At the time of the lease termination, B had previously included $1,200 ($200 for each of 2016-2021) in gross income under paragraph (b)(2) of this section. Under paragraph (b)(2) of this section, B must continue to include the remaining $6,600 required in gross income ratably over the remaining portion of the applicable recovery period of 39 years. Alternatively, under paragraph (d)(1) of this section, B may irrevocably elect to include the remaining $6,600 in gross income in the taxable year of the lease termination (2022).
(f) Applicability date. This section applies to property placed in service on or after September 19, 2016.
§ 1.50-2   Recapture of the advanced manufacturing investment credit in the case of certain expansions.
(a) Recapture in connection with certain expansions —(1) In general. Except as provided in section 50(a)(3)(B) of the Code and paragraph (a)(2) of this section, if an applicable taxpayer engages in an applicable transaction before the close of the applicable period, then the tax under chapter 1 for the taxable year in which such transaction occurs is increased by 100 percent of the applicable transaction recapture amount. Any taxpayer, including an applicable taxpayer, that engages in an applicable transaction during a taxable year does not meet the definition of an eligible taxpayer under section 48D(c) and the section 48D regulations and is ineligible for the section 48D credit for that taxable year. See paragraph (b) of this section for definitions of terms used in section 50(a)(3) and this section.
(2) Exception. Section 50(a)(3)(A) and paragraph (a)(1) of this section do not apply if the applicable taxpayer demonstrates to the satisfaction of the Commissioner that the applicable transaction has been ceased or abandoned within 45 days of a determination and notice by the Commissioner. A taxpayer that ceases or abandons a particular applicable transaction for a taxable year may still be treated as engaging in a different applicable transaction for a taxable year. A taxpayer may not circumvent the application of section 50(a)(3) and this section by engaging in a series of applicable transactions, multiple applicable transactions, or other similar arrangements.
(3) Carrybacks and carryover adjusted. In the case of any cessation described in section 50(a)(1) or (2), or any applicable transaction to which section 50(a)(3) and paragraph (a)(1) of this section apply, any carryback or carryover under section 39 of the Code is appropriately adjusted by reason of such cessation or applicable transaction.
(b) Definitions. The following definitions apply for purposes of section 50(a)(3) and this section.
(1) Applicable period. The term applicable period means the 10-year period beginning on the date that an applicable taxpayer placed in service property that is eligible for the section 48D credit.
(2) Applicable taxpayer —(i) In general. Except as provided in paragraph (b)(2)(ii) of this section, the term applicable taxpayer means any taxpayer who was allowed a section 48D credit or made an election under section 48D(d)(1) with respect to such credit, for any taxable year prior to the taxable year in which such taxpayer entered into an applicable transaction.
(ii) Special rules for partnerships and S corporations and their partners and shareholders. In the case of qualified property placed in service by a partnership or an S corporation for which a section 48D credit was determined, the term applicable taxpayer also means—
(A) The partnership and the partners of such partnership (directly or indirectly through one or more tiered partnerships) who were allowed a section 48D credit for such property, or S corporation and the shareholder(s) of such S corporation who were allowed a section 48D credit for such property, for any taxable year prior to the taxable year in which such partnership or S corporation entered into an applicable transaction;
(B) Any partner in a partnership (directly or indirectly through one or more tiered partnerships) or any shareholder in an S corporation with respect to the partner's or S corporation shareholder's share of any section 48D credit allowed for such property for any taxable year prior to when such partner or S corporation shareholder entered into an applicable transaction;
(C) Any partnership or S corporation that made an election under section 48D(d)(2) with respect to a credit determined under section 48D(a)(1) for any taxable year prior to the taxable year in which such partnership or S corporation entered into an applicable transaction; and
(D) Any partner in a partnership (directly or indirectly through one or more tiered partnerships) or shareholder in an S corporation with respect to the partner's or S corporation shareholder's share of any tax-exempt income from the partnership or S corporation that made an election under section 48D(d)(2) for any taxable year prior to when such partner or shareholder entered into an applicable transaction.
(iii) Examples. The following examples illustrate the rules of this paragraph (b)(2).
(A) Example 1: Applicable taxpayer: In general. On July 1, 2026, X Corp, a calendar-year C corporation, entered into an applicable transaction. In 2025, X Corp had placed in service qualified property that is part of an advanced manufacturing facility and was allowed a section 48D credit for its 2025 taxable year. X Corp is an applicable taxpayer when it entered into the applicable transaction.
(B) Example 2: Applicable taxpayer: In general. The facts are the same as in paragraph (b)(2)(iii)(A) of this section ( Example 1 ), except that X timely filed its 2025 tax return properly making an election under section 48D(d)(1) with respect to the section 48D credit. X Corp is an applicable taxpayer when it entered into the applicable transaction.
(C) Example 3: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders. A, B, C, and D, all calendar-year C corporations, are partners in the ABCD partnership. Partners A, B, C, and D share partnership profits equally. On May 1, 2027, the ABCD partnership engages in an applicable transaction. On November 1, 2025, the ABCD partnership had placed in service qualified property with a basis of $1 million. Each partner's share of the basis of the qualified property, as determined in § 1.46-3(f)(2), is $250,000 ($1m x 0.25) and each partner's qualified investment is $250,000. A, B, C, and D each filed its 2025 tax return claiming a section 48D credit. The ABCD partnership and A, B, C, and D each are an applicable taxpayer when ABCD partnership enters into the applicable transaction.
(D) Example 4: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders. The facts are the same as in paragraph (b)(2)(iii)(C) of this section ( Example 3 ), except that on May 1, 2027, A, and not ABCD partnership, engages in an applicable transaction. A is an applicable taxpayer with respect to A's share of the section 48D credit when A enters into the applicable transaction. Neither the ABCD partnership nor partners B, C, nor D are an applicable taxpayer with respect to the applicable transaction entered into by A.
(E) Example 5: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders. The facts are the same as in paragraph (b)(2)(iii)(C) of this section ( Example 3 ), except that A, B, C and D do not claim a section 48D credit on their timely filed 2025 tax returns. Instead, the ABCD partnership makes an election pursuant to section 48D(d)(2) with respect to the section 48D credit determined under section 48D(a)(1). The ABCD partnership is an applicable taxpayer with respect to the elective payment to the ABCD partnership pursuant to section 48D(d)(2)(A)(i)(I).
(F) Example 6: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders. The facts are the same as in paragraph (b)(2)(iii)(E) of this section ( Example 5 ), except that the ABCD partnership did not engage in an applicable transaction. On May 1, 2027, A engages in an applicable transaction. A is an applicable taxpayer with respect to its share of tax-exempt income allocated to A pursuant to section 48D(d)(2)(A)(i)(II) and (IV). Neither the ABCD partnership nor partners B, C, or D are an applicable taxpayer with respect to the applicable transaction entered into by A.
(iv) Affiliated groups. For purposes of this paragraph (b)(2), all members of an affiliated group under section 1504(a) of the Code, determined without regard to section 1504(b)(3), are treated as one taxpayer.
(3) Applicable transaction. Except as provided in section 50(a)(6)(D)(ii) and paragraph (c)(1) of this section, the term applicable transaction means, with respect to any applicable taxpayer, any significant transaction involving the material expansion of semiconductor manufacturing capacity of such applicable taxpayer in any foreign country of concern.
(4) Applicable transaction recapture amount. The term applicable transaction recapture amount means, with respect to an applicable taxpayer, the aggregate decrease in the credits allowed under section 38 of the Code for all prior taxable years that would have resulted solely from reducing to zero any credit determined under section 46 of the Code that is attributable to the advanced manufacturing investment credit under section 48D(a), with respect to property that has been placed in service during the applicable period.
(5) Existing facility. The term existing facility means any facility built, equipped, and operating prior to a taxpayer placing in service qualified property as defined in section 48D(b)(2) and § 1.48D-3. Existing facilities are defined by their semiconductor manufacturing capacity at the time the qualified property is placed in service; facilities that undergo significant renovations, as defined in paragraph (b)(9) of this section, will no longer qualify as existing facilities within the meaning of this paragraph (b)(5).
(6) Foreign country of concern. The term foreign country of concern has the same meaning as provided in 15 CFR 231.102.
(7) Material expansion. The term material expansion means—
(i) With respect to an existing facility, the increase of the semiconductor manufacturing capacity of that facility by more than five percent during the applicable period due to the addition of a cleanroom, production line or other physical space, or a series of such additions; or
(ii) Any construction of a new facility for semiconductor manufacturing.
(8) Semiconductor manufacturing capacity. The term semiconductor manufacturing capacity means, consistent with 15 CFR 231.117, the productive capacity of a semiconductor facility. In the case of a semiconductor wafer production facility that includes the processes of growing single-crystal ingots and boules, wafer slicing, wafer bonding, etching and polishing, cleaning, epitaxial deposition, and metrology, semiconductor manufacturing capacity is measured in wafer starts per month. In the case of a semiconductor fabrication facility, semiconductor manufacturing capacity is measured in wafer starts per year. In the case of a packaging facility, semiconductor manufacturing capacity is measured in packages per year.
(9) Significant renovations. The term significant renovations means building new cleanroom space or adding a production line or other physical space to an existing facility that, in the aggregate during the applicable period, increases semiconductor manufacturing capacity by 10 percent or more of the capacity.
(10) Significant transaction —(i) In general. As determined in coordination with the Secretary of Commerce and the Secretary of Defense and except as provided in paragraph (b)(10)(ii) of this section, the term significant transaction means any of the following:
(A) An investment, whether proposed, pending, or completed, including any capital expenditure, loan, or gift;
(B) The formation of a subsidiary, whether classified as a corporation or partnership for Federal tax purposes;
(C) A merger, acquisition, or takeover, including—
(1) The acquisition of a new or additional ownership interest in an entity;
(2) The acquisition of a material portion of the assets of an entity; or
(3) A consolidation;
(D) The formation of a joint venture; or
(E) A long-term lease or concession arrangement under which a lessee (or equivalent) makes substantially all business decisions concerning the operation of a leased entity (or equivalent), as if it were the owner.
(F) A transaction that involves the expansion of manufacturing capacity for legacy semiconductors (other than with respect to an existing facility or equipment of an applicable taxpayer for manufacturing legacy semiconductors) if less than 85 percent of the output of the semiconductor manufacturing facility (for example, wafers, semiconductor devices, or packages) by value, is incorporated into final products (that is, not an intermediate product that is used as factory inputs for producing other goods) that are used or consumed in the market of a foreign country of concern; or
(G) A transaction during the applicable period in which an applicable taxpayer knowingly (within the meaning of 15 CFR 231.106) engages in any joint research, as defined in 15 CFR 231.105, or technology licensing effort with a foreign entity of concern that relates to a technology or product that raises national security concerns.
(ii) Required agreement. If a taxpayer enters into a required agreement with the Secretary of Commerce pursuant to 15 U.S.C. 4652(a)(6)(C) and 15 CFR 231.112, then the term significant transaction for purposes of section 48D and the section 48D regulations has the meaning provided in the required agreement. Defined terms in the required agreement control only for purposes of determining the meaning of the term significant transaction. Thus, the effect of a significant transaction is determined under section 50(a)(3) and (6) during the applicable term defined under paragraph (b)(1) of this section.
(11) Technology licensing. The term technology licensing has the same meaning as provided in 15 CFR 231.120.
(12) Technology or product that raises national security concerns. The term technology or product that raises national security concerns has the same meaning as provided in 15 CFR 231.121.
(c) Exception from the definition of applicable transaction for the manufacturing of legacy semiconductors —(1) In general. The term applicable transaction, as defined in section 50(a)(6)(D) and paragraph (b)(3) of this section, does not include a transaction that primarily involves the expansion of manufacturing capacity for legacy semiconductors, but only to the extent not described in paragraph (b)(10)(i)(F) of this section.
(2) Legacy semiconductor. The term legacy semiconductor has the same meaning as provided in 15 CFR 231.107.
(d) Example: Applicable transaction credit claimed. On January 15, 2025, X Corp, a C corporation that is a calendar-year taxpayer, placed in service Property A, qualified property with a basis of $1 million. X Corp's qualified investment, as determined in § 1.46-3(c), for the taxable year is $1 million. X Corp's advanced manufacturing investment credit for the taxable year is $250,000 ($1 million × 0.25) and, assume that X Corp's income tax liability is $400,000. X Corp does not determine any other credits in 2025. X claims an advanced manufacturing investment credit of $250,000 for its 2025 taxable year. On December 15, 2026, X Corp engages in an applicable transaction, as defined in section 50(a)(6)(D) and paragraph (b)(3) of this section and did not cease or abandon the transaction within 45 days of a determination and notice by the Commissioner. X Corp has not determined or claimed any general business credits since its 2025 taxable year. The aggregate decrease in credits allowed under section 38 for all prior years resulting from reducing to zero any credit determined under section 46 that is attributable to the advanced manufacturing investment credit is $250,000 ($250,000 (credit allowed)−$0 (credit that would have been allowed)). X Corp's tax under chapter 1 is increased by $250,000 (1.0 × $250,000) for the 2026 taxable year. Pursuant to section 48D(c), for the 2026 taxable year, X Corp is not an eligible taxpayer and is ineligible to claim or carryforward the advanced manufacturing investment credit.
(e) 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.
§ 1.50A-1   Determination of amount.
(a) In general. Except as otherwise provided in this section and in § 1.50A-2, the amount of the work incentive program (WIN) credit allowed by section 40 for the taxable year is equal to 20 percent of the taxpayer's WIN expenses (as determined under paragraph (a) of § 1.50B-1). The amount equal to 20 percent of the WIN expenses shall be referred to in this section and §§ 1.50A-2 through 1.50B-5 as the “credit earned.”
(b) Limitation based on amount of tax. Notwithstanding the amount of the credit earned for the taxable year, under section 50A(a)(2) the credit allowed by section 40 for the taxable year is limited to—
(1) If the liability for tax (as defined in paragraph (c) of this section) is $25,000 or less, the liability for tax; or
(2) If the liability for tax is more than $25,000, then, the first $25,000 of the liability for tax plus 50 percent of the liability for tax in excess of $25,000. However, such $25,000 amount may be reduced in the case of certain married individuals filing separate returns (see paragraph (e) of this section); corporations which are members of a controlled group (see paragraph (f) of this section); estates and trusts (see paragraph (c) of § 1.50B-3); and organizations to which section 593 applies, regulated investment companies or real estate investment trusts subject to taxation under subchapter M, chapter 1 of the Code, and cooperative organizations described in section 1381(a) (see § 1.50B-5). The excess of the credit earned for the taxable year over the limitations described in this paragraph for such taxable year is an unused credit which may be carried back or forward to other taxable years in accordance with § 1.50A-2.
(c) Liability for tax. For the purpose of computing the limitation based on amount of tax, section 50A(a)(3) defines the liability for tax as the income tax imposed for the taxable year by chapter 1 of the Code, reduced by the sum of the credits allowable under—
(1) Section 33 (relating to taxes of foreign countries and possessions of the United States,
(2) Section 37 (relating to credit for the elderly),
(3) Section 38 (relating to investment in certain depreciable property), and
(4) Section 41 (relating to contributions to candidates for public office).
(d) Example. The application of paragraphs (a), (b), and (c) of this section may be illustrated by the following example:
(e) Married individuals. If a separate return is filed by a husband or wife, the limitation based on amount of tax under paragraph (b) of this section shall be computed by substituting a $12,500 amount for the $25,000 amount in applying such paragraph (b). However, this reduction of the $25,000 amount to $12,500 applies only if the taxpayer's spouse is entitled to a credit under section 40 for the taxable year of such spouse which ends with, or within, the taxpayer's taxable year. The taxpayer's spouse is entitled to a credit under section 40 either because of incurring WIN expenses for such taxable year of the spouse (whether directly incurred by such spouse or whether apportioned to such spouse, for example, from an electing small business corporation, as defined in section 1371(b)), or because of a credit carryback or carryover to such taxable year under § 1.50A-2. The determination of whether an individual is married shall be made under the principles of section 143 and the regulations thereunder.
(f) Apportionment of $25,000 amount among component members of a controlled group —(1) In general. In determining the limitation based on amount of tax under section 50A(a)(2) in the case of corporations which are component members of a controlled group of corporations on a December 31, only one $25,000 amount is available to such component members for their taxable years that include such December 31. See subparagraph (2) of this paragraph for apportionment of such amount among such component members. See subparagraph (3) of this paragraph for the definition of “component member.”
(2) Manner of apportionment. (i) In the case of corporations which are component members of a controlled group on a particular December 31, the $25,000 amount may be apportioned among such members for their taxable years that include such December 31 in any manner the component members may select, provided that each such member less than 100 percent of whose stock is owned, in the aggregate, by the other component members of the group on such December 31 consents to an apportionment plan. The consent of a component member to an apportionment plan with respect to a particular December 31 shall be made by means of a statement signed by a person duly authorized to act on behalf of the consenting member, stating that such member consents to the apportionment plan with respect to such December 31. The statement shall set forth the name, address, employer identification number, and taxable year of each component member of the group on such December 31, the amount apportioned to each such member under the plan, and the location of the Internal Revenue Service center where the statement is to be filed. The consent of more than one component member may be incorporated in a single statement. The statement shall be timely filed with the Internal Revenue Service center where the component member having the taxable year first ending on or after such December 31 files its return for such taxable year and shall be irrevocable after such filing. If two or more component members have the same such taxable year, a statement of consent may be filed by any one of such members. Such statement shall be considered as timely filed if filed on or before the due date (including any extensions of time) of such member's income tax return which includes such December 31. However, if the due date (including any extensions of time) of the return of such member is on or before December 15, 1972, the required statement shall be considered as timely filed if filed on or before March 15, 1973. Each component member of the group on such December 31 shall keep as a part of its records a copy of the statement containing all the required consents.
(ii) An apportionment plan adopted by a controlled group with respect to a particular December 31 shall be valid only for the taxable year of each member of the group which includes such December 31. Thus, a controlled group must file a separate consent to an apportionment plan with respect to each taxable year which includes a December 31 as to which an apportionment plan is desired.
(iii) If an apportionment plan is not timely filed, the $25,000 amount specified in section 50A(a)(2) shall be reduced for each component member of the controlled group, for its taxable year which includes a December 31, to an amount equal to $25,000 divided by the number of component members of each group on such December 31.
(iv) If a component member of the controlled group makes its income tax return on the basis of a 52-53 week taxable year, the principles of section 441(f)(2)(A)(ii) and paragraph (b)(1) of § 1.441-2 apply in determining the last day of such taxable year.
(3) Definitions of controlled group of corporations and component member of controlled group. For the purpose of this paragraph, the terms “controlled group of corporations” and “component member” of a controlled group of corporations shall have the same meaning assigned to those terms in section 1563 (a) and (b) and the regulations thereunder. For purposes of applying § 1.1563-1(b)(2)(ii)( c), an electing small business corporation shall be treated as an excluded member whether or not it is subject to the tax imposed by section 1378.
(4) Members of a controlled group filing a consolidated return. If some component members of a controlled group join in filing a consolidated return pursuant to § 1.1502-3(a)(3), and other component members do not join, then, unless a consent is timely filed apportioning the $25,000 amount among the group filing the consolidated return and the other component members of the controlled group, each component member of the controlled group (including each component member which joins in filing the consolidated return) shall be treated as a separate corporation for purposes of equally apportioning the $25,000 amount under subparagraph (2)(iii) of this paragraph. In such case, the limitation based on the amount of tax for the group filing the consolidated return shall be computed by substituting for the $25,000 amount the total of the amount apportioned to each component member which joins in filing the consolidated return. If the affiliated group, filing the consolidated return and the other component members of the controlled group adopt an apportionment plan, the affiliated group shall be treated as a single member for the purpose of applying subparagraph (2)(i) of this paragraph. Thus, for example, only one consent executed by the common parent to the apportionment plan is required for the group filing the consolidated return. If any component member of the controlled group which joins in the filing of the consolidated return is an organization to which section 593 applies or a cooperative organization described in section 1381(a), rules similar to the rules contained in paragraph (a)(3)(ii) of § 1.1502-3 are applicable.
(5) Examples. The provisions of this paragraph may be illustrated by the following examples:
§ 1.50A-2   Carryback and carryover of unused credit.
(a) Allowance of unused credit as carryback or carryover —(1) In general. Section 50A(b)(1) provides for carrybacks and carryovers of any unused credit. An unused credit is the excess of the credit earned for the taxable year (as determined under paragraph (a) of § 1.50A-1) over the limitation based on amount of tax for such taxable year (as determined under paragraph (b) of § 1.50A-1). Subject to the limitation contained in paragraph (b) of this section, an unused credit shall be added to the amount allowable as a credit under section 40 for the years to which the unused credit can be carried. The year with respect to which an unused credit arises shall be referred to in this section as the “unused credit year.”
(2) Taxable years to which unused credit may be carried. An unused credit shall be a work incentive program (WIN) credit carryback to each of the 3 taxable years preceding the unused credit year and a WIN credit carryover to each of the 7 taxable years succeeding the unused credit year, except that an unused credit shall be a carryback only to taxable years beginning after December 31, 1971. An unused credit must be carried first to the earliest of the taxable years to which it may be carried, and then to each of the other taxable years (in order of time) to the extent that the unused credit may not be added (because of the limitation contained in paragraph (b) of this section) to the amount allowable as a credit under section 40 for a prior taxable year.
(b) Limitation on allowance of unused credit. The amount of the unused credit from any particular unused credit year which may be added to the amount allowable as a credit under section 40 for any of the preceding or succeeding taxable years to which such credit may be carried shall not exceed the amount by which the limitation based on amount of tax for such preceding or succeeding taxable year exceeds the sum of (1) the credit earned for such preceding or succeeding year, and (2) other unused credits carried to such preceding or succeeding year which are attributable to unused credit years prior to the particular unused credit year.
(c) Corporate acquisitions. For the carryover of unused credits in the case of certain corporate acquisitions, see section 381(c)(24) and the regulations thereunder. [§ 1.381(c)(24)-1]
(d) Periods of less than 12 months. A fractional part of a year which is considered as a taxable year under sections 441(b) and 7701(a)(23) shall be treated as a preceding or a succeeding taxable year for the purpose of determining under section 50A(b) and this section the taxable years to which an unused credit may be carried.
(e) Example. The provisions of paragraphs (a) through (d) of this section may be illustrated by the following example:
( a ) 1972. The portion of the unused credit for 1973 ($90,000) which is allowable as a credit for 1972 is $25,000. This amount shall be added to the amount allowable as a credit for 1972. The balance of the unused credit for 1973 to be carried to 1974 is $65,000. These amounts are computed as follows:
( a ) 1974. The portion of the unused credit for 1977 ($40,000) allowable as a credit for 1974 is zero. The balance of the unused credit for 1977 to be carried to 1975 is $40,000. These amounts are computed as follows:
(f) Electing small business corporation. An unused credit of a corporation which arises in an unused credit year for which the corporation is not an electing small business corporation (as defined in section 1371(b)) and which is a carryback or carryover to a taxable year for which the corporation is an electing small business corporation shall not be added to the amount allowable as a credit under section 40 to the shareholders of such corporation for any taxable year. However, a taxable year for which the corporation is an electing small business corporation shall be counted as a taxable year for purposes of determining the taxable years to which such unused credit may be carried.