100598 Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 10015] 

RIN 1545–BO40 

Definition of Energy Property and 

Rules Applicable to the Energy Credit 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document sets forth final 

rules relating to the energy credit, 

including rules for determining whether 

investments in energy property are 

eligible for the energy credit and for 

implementing certain amendments 

made by the Inflation Reduction Act of 

2022. The final regulations impact 

taxpayers who invest in energy property 

eligible for the energy credit. 

DATES: 

Effective date: These regulations are 

effective on December 12, 2024. 

Applicability dates: For dates of 

applicability, see §§ 1.48–9(g), 1.48– 

13(f), 1.48–14(j), and 1.6418–5(j). 

FOR FURTHER INFORMATION CONTACT: 

Concerning the regulations, the IRS 

Office of the Associate Chief Counsel 

(Passthroughs and Special Industries) at 

(202) 317–6853 (not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document contains amendments 

to the Income Tax Regulations (26 CFR 

part 1) under sections 48 and 6418 of 

the Internal Revenue Code (Code) issued 

by the Secretary of the Treasury or her 

delegate (Secretary) pursuant to the 

authority granted under sections 

45(b)(12), 48(a)(3)(D), and (a)(16), 

6418(g) and (h), and 7805(a) of the Code 

(final regulations). 

Section 48(a)(3)(D) provides a specific 

delegation of authority for the Secretary 

to prescribe by regulations performance 

and quality standards for energy 

property after consulting with the 

Secretary of Energy. 

Sections 45(b)(12) and 48(a)(16) 

provide specific delegations of authority 

with respect to the requirements of 

section 45(b), including the prevailing 

wage and apprenticeship (PWA) 

requirements of section 45(b)(7) and (8), 

as incorporated by section 48(a)(10) and 

(11), with each stating, ‘‘[t]he Secretary 

shall issue such regulations or other 

guidance as the Secretary determines 

necessary to carry out the purposes of 

this subsection, including regulations or 

other guidance which provides for 

requirements for recordkeeping or 

information reporting for purposes of 

administering the requirements of this 

subsection.’’ Section 48(a)(10)(C) grants 

authority for the Secretary to provide, 

by regulations or other guidance, for 

recapturing the benefit of any increase 

in the credit allowed under section 48(a) 

allowed to an energy project that 

initially satisfies the PWA requirements 

if such energy project should later fail 

to satisfy such requirements during the 

recapture period by applying rules 

similar to the rules of section 50(a) of 

the Code. Section 48(a)(16) provides a 

general grant of regulatory authority for 

section 48(a), by stating: ‘‘The Secretary 

shall issue such regulations or other 

guidance as the Secretary determines 

necessary to carry out the purposes of 

this subsection, including regulations or 

other guidance which provides for 

requirements for recordkeeping or 

information reporting for purposes of 

administering the requirements of this 

subsection.’’ 

Section 6418(g) provides several 

specific delegations of authority to the 

Secretary with regard to enforcing 

requirements for valid transfers of 

certain Federal income tax credits under 

section 6418 and recapturing excessive 

credit transfers. Section 6418(h) 

provides a specific delegation of 

authority with respect to the transfer of 

credits under section 6418, stating, in 

part, that ‘‘[t]he Secretary shall issue 

such regulations or other guidance as 

may be necessary to carry out the 

purposes of this section.’’ 

Finally, section 7805(a) authorizes the 

Secretary to ‘‘prescribe all needful rules 

and regulations for the enforcement of 

[the Code], including all rules and 

regulations as may be necessary by 

reason of any alteration of law in 

relation to internal revenue.’’ 

Background 

I. Overview 

Section 38 of the Code allows certain 

business credits against the Federal 

income tax imposed by chapter 1 of the 

Code (chapter 1). Among the credits 

allowed by section 38 are the 

investment credit determined under 

section 46 of the Code, which includes 

the energy credit determined under 

section 48 (section 48 credit). See 

sections 38(b)(1) and 46(2). Section 

48(a)(1) generally provides that the 

section 48 credit for any taxable year is 

the energy percentage of the basis of 

each energy property placed in service 

during such taxable year. For most types 

of energy property, eligibility for the 

section 48 credit and, in some cases, the 

amount of the section 48 credit depends 

upon meeting certain deadlines for 

beginning construction of the energy 

property or for placing the energy 

property in service. 

Section 48 originally was enacted by 

section 2 of the Revenue Act of 1962, 

Public Law 87–834, 76 Stat. 960, 963 

(October 16, 1962), to spur economic 

growth by encouraging investments in 

various capital projects across many 

industries including energy, 

transportation, and communications. 

Section 48 has been amended many 

times since its enactment, most recently 

by section 13102 of Public Law 117– 

169, 136 Stat. 1818 (August 16, 2022), 

commonly known as the Inflation 

Reduction Act of 2022 (IRA). The IRA 

amended section 48 in several ways, 

including by making additional types of 

energy property eligible for the section 

48 credit, providing a special rule to 

allow certain lower-output energy 

properties to include amounts paid for 

qualified interconnection property in 

connection with the installation of 

energy property, and providing an 

increased credit amount for energy 

projects that satisfy prevailing wage and 

apprenticeship requirements, a 

domestic content bonus credit amount, 

and an increase in credit rate for energy 

communities. 

The Income Tax Regulations at 

§ 1.48–9 in effect prior to December 12, 

2024 (former § 1.48–9), which provide 

definitions and rules for determining 

whether property is energy property 

eligible for the section 48 credit, 

originally were published on January 

23, 1981 (T.D. 7765, 46 FR 7287). Those 

regulations were amended on July 21, 

1987 (T.D. 8147, 52 FR 27336) to 

provide rules for dual use property. 

Thus, former § 1.48–9 has not been 

updated since 1987, which is before 

many of the current types of energy 

property became eligible for the section 

48 credit. 

II. Prior Guidance 

Prior to proposing the amendments to 

the regulations under section 48 being 

finalized by this treasury decision, the 

Department of the Treasury (Treasury 

Department) and the IRS twice 

requested comments on issues to be 

addressed in these regulations. On 

October 26, 2015, the Treasury 

Department and the IRS published 

Notice 2015–70, 2015–43 I.R.B. 604, 

requesting comments regarding 

statutory updates to section 48 

preceding those made by the IRA. On 

October 24, 2022, in response to the 

passage of the IRA, the Treasury 

Department and the IRS published 

Notice 2022–49, 2022–43 I.R.B. 321, 

requesting general as well as specific 


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comments on issues arising under 

section 48, among other sections, that 

were amended or added by the IRA. 

On August 30, 2023, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking (REG– 

100908–23) in the Federal Register (88 

FR 60018), corrected in 88 FR 73807 

(Oct. 27, 2023), corrected in 89 FR 

25550 (April 11, 2024), proposing rules 

regarding the increased credit amounts 

available for taxpayers satisfying PWA 

requirements established by the IRA 

(PWA Proposed Regulations). 

Comments were requested and a public 

hearing was held November 21, 2023. 

On November 22, 2023, after 

consideration of all the comments 

submitted in response to Notice 2015– 

70 and Notice 2022–49, and after 

consultation with the Department of 

Energy (DOE), the Treasury Department 

and the IRS published a notice of 

proposed rulemaking and a notice of 

public hearing (REG–132569–17) in the 

Federal Register (88 FR 82188), 

corrected in 89 FR 2182 (January 12, 

2024), proposing rules that would 

provide guidance under section 48 

(Proposed Regulations). On February 22, 

2024, the Treasury Department and the 

IRS published a second correction to the 

Proposed Regulations in the Federal 

Register (89 FR 13293) that re-opened 

the comment period through March 25, 

2024 (Correction). The Proposed 

Regulations withdrew certain portions 

of the PWA Proposed Regulations and 

re-proposed regulations that would 

provide additional guidance on the 

PWA requirements under section 48, 

including the statutory exception for 

energy projects with a maximum output 

of less than one megawatt (MW) and the 

recapture rules under section 

48(a)(10)(C) related to the PWA 

requirements. 

Although the Proposed Regulations 

withdrew certain portions of the PWA 

Proposed Regulations, the Explanation 

of Provisions section in the preamble to 

the PWA Proposed Regulations 

generally remained relevant. Therefore, 

to the extent consistent with the 

preamble to the Proposed Regulations, 

the Explanation of Provisions section of 

the PWA Proposed Regulations was 

incorporated in the preamble to the 

Proposed Regulations. 

The preamble to the Proposed 

Regulations did not address written 

comments that were submitted in 

response to the PWA Proposed 

Regulations. Any comments received in 

response to the Proposed Regulations, 

including comments on the re-proposed 

regulations addressing the PWA 

requirements specific to section 48, are 

addressed in the Summary of Comments 

and Explanation of Revisions section of 

this preamble. The Proposed 

Regulations did not extend the comment 

period or affect the scheduled hearing 

for the PWA Proposed Regulations. The 

PWA Proposed Regulations, other than 

the portions that were withdrawn, were 

adopted as final regulations by Treasury 

Decision (T.D. 9998), which was 

published in the Federal Register (89 

FR 53184) on June 25, 2024 (PWA Final 

Regulations). 

On June 21, 2023, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking (REG– 

101610–23) in the Federal Register (88 

FR 40496) proposing rules concerning 

the election under section 6418 to 

transfer certain Federal income tax 

credits, including the section 48 credit 

(6418 Proposed Regulations). Proposed 

§ 1.6418–5 of the 6418 Proposed 

Regulations included proposed rules 

addressing notification requirements 

and the impact of the credit recapture 

rules under sections 50(a), 49(b), and 

45Q(f)(4) on the transfer of Federal 

income tax credits. Comments were 

requested and a public hearing on the 

6418 Proposed Regulations was held on 

August 23, 2023. 

The Proposed Regulations would 

supplement the 6418 Proposed 

Regulations by adding provisions to 

proposed § 1.6418–5 addressing 

notification requirements and the 

impact of the recapture rules for failing 

to satisfy the PWA requirements under 

section 48(a)(10) if an election under 

§ 1.6418–2 or § 1.6418–3 has been made. 

The preamble to the Proposed 

Regulations did not address written 

comments that were submitted in 

response to the regulations proposed in 

the 6418 Proposed Regulations. Any 

comments received in response to the 

Proposed Regulations, including the 

additions to proposed § 1.6418–5 

described in the Proposed Regulations, 

are addressed in the Summary of 

Comments and Explanation of Revisions 

section of this preamble. The Proposed 

Regulations did not otherwise extend 

the comment period for the 6418 

Proposed Regulations. On April 30, 

2024, a Treasury Decision (T.D. 9993) 

adopting the 6418 Proposed Regulations 

as final regulations (6418 Final 

Regulations) was published in the 

Federal Register (89 FR 34770). The 

6418 Final Regulations did not finalize 

the portion of proposed § 1.6418–5 that 

was included in the Proposed 

Regulations. 

Summary of Comments and 

Explanation of Revisions 

The Treasury Department and the IRS 

received 350 written comments in 

response to the Proposed Regulations. 

The comments are available for public 

inspection at https://

www.regulations.gov or upon request. 

After full consideration of the comments 

received in response to the Proposed 

Regulations, these final regulations 

adopt the Proposed Regulations with 

modifications as described in this 

Summary of Comments and Explanation 

of Revisions. 

Comments addressing the 

requirements for energy property are 

described in part I of this Summary of 

Comments and Explanation of 

Revisions. Comments addressing the 

PWA requirements are described in part 

II of this Summary of Comments and 

Explanation of Revisions. Comments 

addressing rules applicable to energy 

property are described in part III of this 

Summary of Comments and Explanation 

of Revisions. 

Comments summarizing the statute or 

the Proposed Regulations, 

recommending statutory revisions, or 

addressing issues that are outside the 

scope of this rulemaking (such as 

revising other Federal regulations and 

recommending changes to IRS forms) 

generally are not addressed in this 

Summary of Comments and Explanation 

of Revisions or adopted in these final 

regulations. In addition to modifications 

described in this Summary of 

Comments and Explanation of 

Revisions, the final regulations also 

include non-substantive grammatical or 

stylistic changes to the Proposed 

Regulations. Unless otherwise indicated 

in this Summary of Comments and 

Explanation of Revisions, provisions of 

the Proposed Regulations with respect 

to which no comments were received 

are adopted without substantive change. 

I. Requirements for Energy Property 

For purposes of the section 48 credit, 

energy property consists of all the 

components of property that meet the 

statutory requirements for an energy 

property as defined by section 48(a)(3) 

and (c). 

Section 48(a)(3)(B) through (D) 

provide general requirements for all 

types of energy property. Section 

48(a)(3)(B) limits energy property to 

property that is constructed, 

reconstructed, or erected by the 

taxpayer or that the taxpayer acquires if 

the original use of such property 

commences with the taxpayer. Section 

48(a)(3)(C) provides that to be eligible as 

energy property, depreciation (or 

amortization in lieu of depreciation) 

must be allowable for the property. 

Section 48(a)(3)(D) provides that to be 

eligible as energy property, the property 

must also meet any performance and 


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quality standards that have been 

prescribed by the Secretary, after 

consultation with the Secretary of 

Energy, and are in effect at the time of 

the taxpayer’s acquisition of the 

property. Under section 48(a)(3), energy 

property does not include property that 

is part of a qualified facility the 

production from which is allowed a 

renewable electricity production credit 

determined under section 45 (section 45 

credit) for the taxable year or any prior 

taxable year. Lastly, if the statutory text 

of section 48 provides dates by which 

construction of energy property must 

begin or when energy property must be 

placed in service, such energy property 

must meet those deadlines to be eligible 

for the section 48 credit at specified 

energy percentages. 

A. Definitions Related to Requirements 

for Energy Property 

Before 1990, section 48 defined the 

term ‘‘section 38 property’’ to include, 

among other types of property, energy 

property eligible for the section 48 

credit. The Revenue Reconciliation Act 

of 1990, Public Law 101–508, 104 Stat. 

1388 (November 5, 1990) removed the 

term ‘‘section 38 property’’ in amending 

section 48. However, section 48 is one 

of the credits that comprise the 

investment credit for any taxable year 

determined under section 46, which is 

included in section 38(b)(1) and remains 

subject to the general business credit 

rules under section 38. As a result, rules 

related to ‘‘section 38 property’’ remain 

generally applicable to the section 48 

credit. 

Sections 1.48–1 and 1.48–2 provide 

guidance with respect to section 38 

property. Section 1.48–1 was last 

substantially revised on October 11, 

1988 (T.D. 8233, 53 FR 39592) and 

§ 1.48–2 was last revised on June 28, 

1985 (T.D. 8031, 50 FR 26698). 

Although subsequent amendments to 

section 48 have made some of the rules 

provided by these regulations 

inapplicable, those rules continue to 

provide useful definitions related to 

requirements for energy property, some 

of which would be adopted under 

proposed § 1.48–9. 

1. Performance and Quality Standards 

for Energy Property 

Section 48(a)(3)(D) provides that 

energy property is property that meets 

the performance and quality standards 

(if any) that have been prescribed by the 

Secretary by regulations (after 

consultation with the Secretary of 

Energy) and are in effect at the time of 

the acquisition of the property. Former 

§ 1.48–9(m)(1) provided that ‘‘energy 

property must meet quality and 

performance standards, if any, that have 

been prescribed by the Secretary (after 

consultation with the Secretary of 

Energy) and are in effect at the time of 

acquisition.’’ Generally, proposed 

§ 1.48–9(c)(2)(i) would adopt this rule 

for performance and quality standards 

for energy property from former § 1.48– 

9(m)(1) by providing that energy 

property must meet performance and 

quality standards, if any, which have 

been prescribed by the Secretary (after 

consultation with the Secretary of 

Energy) and are in effect at the time of 

acquisition of the energy property. The 

final regulations adopt this rule as 

proposed. 

2. Performance and Quality Standards 

for Electrochromic Glass Property 

Proposed § 1.48–9(c)(2)(ii)(B) would 

provide rules for performance and 

quality standards for electrochromic 

glass property by stating that to be 

eligible for the section 48 credit, 

electrochromic windows must be rated 

in accordance with the National 

Fenestration Rating Council (NFRC) and 

secondary glazing systems must be rated 

in accordance with the Attachments 

Energy Rating Council (AERC) Rating 

and Certification Process, or subsequent 

revisions. 

A few commenters addressed the 

performance and quality standards for 

electrochromic glass provided in the 

Proposed Regulations. Generally, these 

commenters suggested methods to 

satisfy the NFRC rating requirement and 

were particularly interested in a 

simulation-based process. For example, 

a commenter advocated for a process 

that emphasizes simulation-based 

validation to expedite compliance and 

reduce barriers to implementation, 

particularly given the lengthy delays 

associated with physical testing. This 

commenter stated that simulations, 

supported by advanced and reliable 

modeling software, have become a 

standard practice within the industry. 

Another commenter also emphasized 

the need to use simulations to satisfy 

the NFRC rating requirement. 

In response to these comments, the 

Treasury Department and the IRS 

consulted with the DOE and learned 

that the existing NRFC and the AERC 

ratings systems incorporate simulation 

methodologies that should address the 

commenters’ concerns. Accordingly, the 

final regulations adopt this rule as 

proposed. 

3. Placed in Service 

a. General Rules 

Section 48(a) provides that the section 

48 credit for any taxable year is the 

energy percentage of the basis of each 

energy property placed in service during 

such taxable year. As part of the 

regulations under section 46 for the 

investment credit, § 1.46–3(d)(1) 

provides general rules for determining 

when a taxpayer has placed a property 

in service for purposes of the section 48 

credit. Under § 1.46–3(d)(1) property is 

considered placed in service in the 

earlier of the taxable year in which, 

under the taxpayer’s depreciation 

practice, the period for depreciation 

with respect to such property begins; or 

the taxable year in which the property 

is placed in a condition or state of 

readiness and availability for a 

specifically assigned function, whether 

in a trade or business, in the production 

of income, in a tax-exempt activity, or 

in a personal activity. 

Proposed § 1.48–9(b)(5) largely 

proposed to adopt the general rules of 

§ 1.46–3(d)(1) for determining when a 

taxpayer has placed an energy property 

in service. However, to be eligible for 

the section 48 credit, energy property 

must be property with respect to which 

depreciation (or amortization in lieu of 

depreciation) is allowable. Accordingly, 

proposed § 1.48–9(b)(5)(i) would 

provide that the taxable year in which 

energy property is placed in service is 

the earlier of the taxable year in which, 

under the taxpayer’s depreciation 

practice, the period for depreciation of 

such property begins, or the taxable year 

in which the energy property is placed 

in a condition or state of readiness and 

availability for a specifically assigned 

function in either a trade or business or 

in the production of income. 

A commenter requested that the final 

regulations provide a different placed in 

service rule for energy storage 

technology. Because energy storage 

technology may charge and discharge 

prior to commercial readiness, the 

commenter suggested that energy 

storage technology should be treated as 

placed in service when: (i) such 

property has all licenses, permits, and 

approvals required to store and dispatch 

power; (ii) pre-operational testing is 

complete; (iii) the taxpayer has title to 

the property; and (iv) the property is 

available to store and discharge power 

on a regular, commercial basis. 

Proposed § 1.48–9(b)(5) would adopt 

the general placed in service rules of 

§ 1.46–3(d)(1), which have applied to 

the section 48 credit since its 

enactment, with a modification to 

reflect the requirement that the property 

be eligible for depreciation or 

amortization. Until the IRA amended 

section 48, energy storage property 

(referred to as ‘‘energy storage 

technology’’ after the IRA amendments) 


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Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 100601 

was considered a component of energy 

property. Without providing specific 

indicia that an energy property is placed 

in service, the rule provided at proposed 

§ 1.48–9(b)(5) would provide general 

principles for a taxpayer to determine 

when an energy property has been 

placed in service that are broadly 

applicable to all types of energy 

property, well-understood, and widely 

relied upon by industry. The general 

principles provided by the final rule are 

sufficiently broad to address the 

commenter’s concerns. Therefore, the 

final regulations do not adopt these 

comments and instead adopt the placed 

in service rules as proposed. 

b. Lease-Passthrough Election 

Section 1.46–3(d)(3) provides that, 

notwithstanding the provisions of 

§ 1.46–3(d)(1), property with respect to 

which an election is made under § 1.48– 

4 to treat the lessee as having purchased 

such property is considered placed in 

service by the lessor in the taxable year 

in which possession is transferred to 

such lessee. Proposed § 1.48–9(b)(5)(ii) 

would adopt the special rule from 

§ 1.46–3(d)(3) for determining when a 

leased property has been placed in 

service. Several commenters provided 

comments relating to the rule for leased 

property in the context of qualified 

biogas property. 

A commenter requested clarification 

on the application of the lease 

passthrough election under § 1.48–4 to 

treat a lessee as having purchased such 

energy property from the lessor with 

respect to any property comprising a 

qualified biogas property, including 

both component properties considered 

functionally interdependent as a single 

unit of energy property and property 

treated as an integral part of energy 

property. This commenter asked for 

illustrative examples of the application 

of the lease passthrough election in the 

context of a renewable natural gas 

(RNG) qualified biogas property if the 

equipment comprising the qualifying 

biogas production property, including 

equipment treated as an integral part of 

the qualifying biogas property, is owned 

by multiple taxpayers. 

Another commenter suggested 

allowing a single taxpayer to 

consolidate deemed ownership of an 

entire qualified biogas property to 

permit a more efficient use and/or 

transfer of the section 48 credit under 

the section 6418 credit transfer rules by 

relying on existing lease passthrough 

rules that apply to energy property. The 

commenter asserted that this would 

permit greater qualified investment and 

use of the section 48 credit if, for 

regulatory or environmental permitting 

reasons, some portion of the section 48 

credit-eligible qualified biogas property 

simply cannot be owned by a single or 

related taxpayers. The commenter 

acknowledged that under the 6418 

Proposed Regulations, the transfer of the 

tax credits to a lessee under a lease 

passthrough election will preclude 

further transfers under section 6418. 

Guidance on eligibility for the lease 

passthrough election is beyond the 

scope of the Proposed Regulations 

because proposed § 1.48–9(b)(5)(ii) 

merely proposed a rule for determining 

when property with respect to which a 

lease passthrough election is made 

under § 1.48–4 is placed in service. 

Guidance on eligibility for the lease 

passthrough election is addressed 

elsewhere, such as in § 1.48–4 and the 

6418 Final Regulations. Accordingly, 

these final regulations do not adopt 

these comments. 

4. Acquisition of Energy Property 

Proposed § 1.48–9(b)(2) would 

provide that the term acquisition of 

energy property means a transaction by 

which a taxpayer obtains rights and 

obligations with respect to energy 

property, including title to the energy 

property under the law of the 

jurisdiction in which the energy 

property is placed in service, unless the 

property is possessed or controlled by 

the taxpayer as a lessee, and physical 

possession or control of the energy 

property. This definition was intended 

to require that the taxpayer establish tax 

ownership of the energy property for 

Federal income tax purposes. The final 

regulations modify the definition in 

proposed § 1.48–9(b)(2) to make this 

requirement explicit. 

B. Types of Energy Property 

Proposed § 1.48–9(e) would expand 

the definitions of energy property 

provided in former § 1.48–9 to account 

for new technologies that were added by 

amendments to section 48, including by 

the IRA. Generally, the definitions of the 

types of energy property provided in the 

Proposed Regulations incorporate the 

definitions provided in section 48(a)(3) 

and (c) but do not provide specific 

beginning of construction or placed in 

service deadlines. Taxpayers should 

refer to the current definitions of energy 

property provided by section 48 for 

specific requirements applicable to each 

type of energy property. The definitions 

of the types of energy property provided 

in proposed § 1.48–9(e) were developed 

by the Treasury Department and the IRS 

in consultation with the DOE. 

Some commenters requested 

clarification concerning whether a 

particular type of technology would fall 

into one of the categories of energy 

property. For example, a commenter 

requested guidance concerning what 

type of energy property would include 

sewage energy recovery property and 

provided three options: geothermal heat 

pump (GHP) property by reference to 

‘‘underground fluids,’’ energy storage 

technology, or waste energy recovery 

property (WERP). A definitive response 

to such comments would require the 

Treasury Department and the IRS to 

conduct a complete factual analysis of 

the property in question, which may 

include information that was not 

provided by the commenters. Because 

more information is needed to make the 

determinations requested by the 

commenters, these final regulations do 

not address the requested clarifications 

concerning the categorization of specific 

technologies. 

1. Combined Heat and Power System 

Property 

Section 48(a)(3)(A)(v) includes 

combined heat and power system (CHP) 

property as a type of energy property. 

Section 48(c)(3)(A) defines CHP 

property as property comprising a 

system that, among other requirements, 

uses the same energy source for the 

simultaneous or sequential generation of 

electrical power, mechanical shaft 

power, or both, in combination with the 

generation of steam or other forms of 

useful thermal energy (including 

heating and cooling applications). 

Section 48(c)(3)(A) further provides, in 

part, that a CHP property must produce 

at least 20 percent of its total useful 

energy in the form of thermal energy 

that is not used to produce electrical or 

mechanical power (or combination 

thereof), and at least 20 percent of its 

total useful energy in the form of 

electrical or mechanical power (or 

combination thereof), and that the 

energy efficiency percentage of the 

system must exceed 60 percent. 

Section 48(c)(3)(B) provides that the 

amount of the section 48 credit with 

respect to CHP property is reduced to 

the extent that a CHP property has an 

electrical or mechanical capacity in 

excess of applicable limits. Subject to 

the exception for CHP property that uses 

closed or open-loop biomass as 

feedstock, CHP property with capacity 

in excess of the applicable capacity 

limit (15 MW or a mechanical capacity 

of more than 20,000 horsepower or an 

equivalent combination of electrical and 

mechanical energy capacities) is eligible 

for only a fraction of the otherwise 

allowable section 48 credit. This 

fraction is equal to the applicable 

capacity limit divided by the capacity of 

the CHP property. However, CHP 


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property with a capacity in excess of 50 

MW or a mechanical energy capacity in 

excess of 67,000 horsepower or an 

equivalent combination of electrical and 

mechanical energy capacities does not 

qualify for the section 48 credit. 

Section 48(c)(3)(C) provides that the 

energy efficiency percentage of a CHP 

property is the fraction (i) the numerator 

of which is the total useful electrical, 

thermal, and mechanical power 

produced by the system at normal 

operating rates, and expected to be 

consumed in its normal application, and 

(ii) the denominator of which is the 

lower heating value of the fuel sources 

for the system. The energy efficiency 

percentage and the percentages under 

section 48(c)(3)(A)(ii) are determined on 

a British thermal unit (Btu) basis. 

Section 48(c)(3)(C)(iii) specifically 

provides that the term ‘‘combined heat 

and power system property’’ does not 

include property used to transport an 

energy source to the facility or to 

distribute energy produced by the 

facility. 

Additionally, section 48(c)(3)(D) 

provides that a CHP property with a fuel 

source that is at least 90 percent from 

closed or open-loop biomass that would 

otherwise qualify for the section 48 

credit but for the failure to meet the 

efficiency standard is eligible for a 

credit reduced in proportion to the 

degree to which the system fails to meet 

the efficiency standard. For example, a 

system that would otherwise be 

required to meet the 60-percent 

efficiency standard, but that only 

achieves 30-percent efficiency, would 

be permitted to claim a credit equal to 

one-half of the otherwise allowable 

credit. 

Proposed § 1.48–9(e)(6)(i) would 

provide generally that CHP property is 

property comprising a system that uses 

the same energy source for the 

simultaneous or sequential generation of 

electrical power, mechanical shaft 

power, or both, in combination with the 

generation of steam or other forms of 

useful thermal energy (including 

heating and cooling applications). 

Proposed § 1.48–9(e)(6)(i) would also 

provide that CHP property must 

produce at least 20 percent of its total 

useful energy in the form of thermal 

energy that is not used to produce 

electrical or mechanical power (or 

combination thereof), and at least 20 

percent of its total useful energy in the 

form of electrical or mechanical power 

(or combination thereof). Further, 

proposed § 1.48–9(e)(6)(i) would 

provide that the energy efficiency 

percentage of CHP property must exceed 

60 percent (except in the case of CHP 

systems that use biomass within the 

meaning of section 45). Proposed 

§ 1.48–9(e)(6)(i) would also provide that 

CHP property does not include any 

property comprising a system if such 

system has a capacity in excess of 50 

MW or a mechanical energy capacity in 

excess of 67,000 horsepower or an 

equivalent combination of electrical and 

mechanical energy capacities. Proposed 

§ 1.48–9(e)(6)(ii) would provide that 

CHP property does not include property 

used to transport the energy source to 

the generating facility or to distribute 

energy produced by the facility. 

A commenter requested that the final 

regulations clarify whether a CHP 

property would be eligible for the 

section 48 credit, assuming all other 

criteria are met, if the fuel source is 

exclusively non-renewable natural gas. 

There is no requirement that a CHP 

property use a specific fuel or feedstock. 

The Treasury Department and the IRS 

emphasize that all CHP property must 

meet the requirements of section 

48(c)(3) and those provided in proposed 

§ 1.48–9(e)(6)(i), which the final 

regulations adopt as proposed. 

2. Geothermal Heat Pump Property 

Section 48(a)(3)(A)(vii) provides, in 

part, that energy property includes 

equipment that uses the ground or 

ground water as a thermal energy source 

to heat a structure or as a thermal energy 

sink to cool a structure (geothermal heat 

pump or GHP property). Proposed 

§ 1.48–9(e)(8) would adopt the statutory 

definition of GHP property while 

providing the modification that in 

addition to the ground and ground 

water, other underground working 

fluids may be used as a thermal energy 

source or as a thermal energy sink. 

Accordingly, proposed § 1.48–9(e)(8) 

would provide that GHP property is 

equipment that uses the ground, ground 

water, or other underground fluids as a 

thermal energy source to heat a 

structure or as a thermal energy sink to 

cool a structure. 

Several commenters requested 

revisions to the definition of GHP 

property to include recovered heat as a 

thermal energy source. For example, 

representative of these comments, a 

commenter requested clarification that 

equipment used to circulate recovered 

heat qualifies as GHP property. This 

commenter asserted that the same GHP 

property that uses a ground heat 

exchanger as a source or sink can be 

designed to operate in a heat recovery 

mode, simply recycling heat around a 

building if the potential exists. Another 

commenter noted that the use of GHP 

property in heat recovery mode should 

be considered a qualified energy source 

for purposes of the calculation to 

determine whether the GHP property 

qualifies as dual use property. 

As defined in proposed § 1.48– 

14(b)(1), the term ‘‘dual use property’’ 

would mean property that uses energy 

derived from both a qualifying source 

(that is, from an energy property 

including a qualified facility for which 

a section 48(a)(5) election has been 

made) and from a non-qualifying source 

(that is, sources other than an energy 

property including a qualified facility 

for which a section 48(a)(5) election has 

been made). As proposed § 1.48–14(b)(2) 

would further provide, if dual use 

property uses energy derived from both 

a qualifying source and a non-qualifying 

source it will qualify as energy property 

if its use of energy from non-qualifying 

sources does not exceed 50 percent of 

its total energy input during an annual 

measuring period (Dual Use Rule). 

Further, if the energy used from 

qualifying sources is between 50 percent 

and 100 percent, only a proportionate 

amount of the basis of the energy 

property will be taken into account in 

computing the amount of the section 48 

credit. For example, if 80 percent of the 

energy used by a dual use property is 

from qualifying sources, 80 percent of 

the basis of the dual use property will 

be taken into account in computing the 

amount of the section 48 credit. 

The Treasury Department and the IRS 

decline to adopt these suggested 

revisions because they would conflict 

with the statutory definition of GHP 

property. Section 48(a)(3)(A)(vii) 

specifically provides that GHP property 

includes equipment that uses the 

ground or ground water as a thermal 

energy source. While the Proposed 

Regulations would provide that 

underground fluids may be included, 

this is a clarification that underground 

fluids other than water may offer 

another medium that contains thermal 

energy from the ground or ground water. 

The statute does not include any other 

thermal energy sources. For further 

discussion of the Dual Use Rule see part 

III.B. of this Summary of Comments and 

Explanation of Revisions. 

Additionally, a few commenters 

suggested expanding the definition to 

allow GHP property to be used to heat 

domestic hot water in addition to a 

structure. For example, a commenter 

requested that the final rule clarify that 

domestic hot water generation by GHP 

property is included in the definition of 

GHP property. Another commenter 

asserted that GHP property eligible for 

the section 48 credit should also be 

permitted to provide hot water 

generation because it would be 

counterintuitive if heating hot water for 

space conditioning is included in the 


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definitions, but heating of domestic hot 

water is not. The statute requires GHP 

property heat a structure or cool a 

structure; therefore, the suggestion to 

expand the definition is not authorized 

by the statute. The Treasury Department 

and the IRS decline to adopt these 

suggested revisions. The final 

regulations adopt this rule as proposed. 

A commenter mentioned that the 

energy property definition in proposed 

§ 1.48–9(e)(3) concerning geothermal 

energy property includes clarifying 

language on the scope of included 

property, specifically addressing 

production and distribution equipment. 

The commenter recommended 

including similar language for GHP 

property described in section 

48(a)(3)(A)(vii). The Treasury 

Department and the IRS declined to 

adopt this suggestion in the Proposed 

Regulations, and explained in the 

preamble to the Proposed Regulations 

that, while section 48(a)(3)(A)(vii) does 

not specify energy distribution 

equipment and components of a 

building’s heating and/or cooling 

system as components of GHP property, 

such equipment may be integral to the 

function of the GHP property to heat or 

cool a structure. Thus, energy 

distribution equipment may be 

considered GHP property for the reasons 

stated in the preamble to the Proposed 

Regulations. 

3. Waste Energy Recovery Property 

Section 48(a)(3)(A)(viii) provides that 

energy property includes waste energy 

recovery property (WERP). Section 

48(c)(5) defines WERP as property (with 

a capacity not in excess of 50 MW) that 

generates electricity solely from heat 

from buildings or equipment if the 

primary purpose of such building or 

equipment is not the generation of 

electricity. Additionally, section 

48(c)(5)(C) prevents taxpayers from 

claiming a double benefit by providing 

that any property that could be treated 

as WERP (determined without regard to 

section 48(c)(5)(C)) and is part of a CHP 

property is not treated as WERP for 

purposes of section 48 unless the 

taxpayer elects not to treat such system 

as a CHP property for purposes of 

section 48. 

Proposed § 1.48–9(e)(9)(i) would 

provide that WERP is property that 

generates electricity solely from heat 

from buildings or equipment if the 

primary purpose of such building or 

equipment is not the generation of 

electricity. Proposed § 1.48–9(e)(9)(i) 

would also provide examples of 

buildings or equipment the primary 

purpose of which is not the generation 

of electricity including, but not limited 

to, manufacturing plants, medical care 

facilities, facilities on college campuses, 

pipeline compressor stations, and 

associated equipment. Further, 

proposed § 1.48–9(e)(9)(i) would 

provide that WERP does not include any 

property that has a capacity in excess of 

50 MW. Proposed § 1.48–9(e)(9)(ii) 

would provide that any WERP that is 

part of a system that is a CHP property 

is not treated as WERP for purposes of 

section 48 unless the taxpayer elects to 

not treat such system as a CHP property 

for purposes of section 48. 

Several commenters requested that 

specific technologies, including 

‘‘pressure reduction’’ equipment or 

‘‘pressure letdown’’ equipment, 

sometimes referred to as 

‘‘turboexpanders,’’ which generally 

allow high pressure gas to expand and 

produce heat, be added to the examples 

of WERP that would be provided in 

proposed § 1.48–9(e)(9)(i). Another 

commenter requested that ‘‘pressure 

reduction’’ equipment be included as an 

example of WERP because pipeline 

transmissions (regardless of geographic 

distance) require high pressure, but at 

pressure letdown stations and within 

industrial facilities where the pressure 

is reduced, pressure reduction affords 

an opportunity for energy collection. A 

commenter requested that district 

energy systems paired with WERP be 

added to the examples of WERP, while 

another commenter suggested adding 

carbon dioxide power system 

technology to the examples of WERP. 

In response to these requests, the 

Treasury Department and the IRS 

highlight that proposed § 1.48–9(e)(9) 

would provide non-exhaustive 

examples of buildings and facilities at 

which WERP may function rather than 

examples of technology that may qualify 

as WERP. This approach provides a 

function-oriented approach to 

determine whether a technology is 

WERP that is broad enough to 

encompass nascent technologies 

without rendering the regulations 

quickly obsolete. Therefore, the final 

regulations do not adopt the requested 

revisions to the definition of WERP, and 

the final regulations adopt this rule as 

proposed. 

4. Energy Storage Technology 

Section 48(a)(3)(A)(ix), which was 

added by the IRA, provides that energy 

property includes energy storage 

technology. Section 48(c)(6)(A)(i) 

defines energy storage technology to 

mean property (other than property 

primarily used in the transportation of 

goods or individuals and not for the 

production of electricity) that receives, 

stores, and delivers energy for 

conversion to electricity (or, in the case 

of hydrogen, that stores energy), and has 

a nameplate capacity of not less than 5 

kilowatt-hours (kWh). Section 

48(c)(6)(A)(ii) provides that thermal 

energy storage property is also energy 

storage technology. 

Section 48(c)(6)(B) provides a rule for 

modifications of energy storage 

technology. In the case of any property 

that either was placed in service before 

August 16, 2022, and would be 

described in section 48(c)(6)(A)(i), 

except that such property has a capacity 

of less than 5 kWh and is modified in 

a manner that such property (after such 

modification) has a nameplate capacity 

of not less than 5 kWh, or is energy 

storage technology (as described in 

section 48(c)(6)(A)(i)) and is modified in 

a manner that such property (after such 

modification) has an increase in 

nameplate capacity of not less than 5 

kWh, such property is treated as energy 

storage technology (as described in 

section 48(c)(6)(A)(i)) except that the 

basis of any existing property prior to 

such modification is not taken into 

account for purposes of the section 48 

credit. 

Section 48(c)(6)(C) defines thermal 

energy storage property, for purposes of 

section 48(c)(6), as property comprising 

a system that: is directly connected to a 

heating, ventilation, or air conditioning 

system; removes heat from, or adds heat 

to, a storage medium for subsequent use; 

and provides energy for the heating or 

cooling of the interior of a residential or 

commercial building. Section 

48(c)(6)(C)(ii) provides that thermal 

energy storage property does not 

include a swimming pool, a CHP 

property, or a building or its structural 

components. 

Commenters requested clarifications 

regarding the treatment of energy 

storage technology co-located with, an 

integral part of, or shared with a facility 

that is otherwise eligible for certain 

Federal tax credits. For example, a 

commenter requested clarification 

concerning boundaries between energy 

storage technology eligible for the 

section 48 credit and qualified clean 

hydrogen production facilities eligible 

for the credit under section 45V. 

Another commenter requested 

confirmation that energy storage 

technology, including a hydrogen 

energy storage property, separately 

qualifies for the section 48 credit 

regardless of whether it is part of a 

facility for which a credit under section 

45, 45V, or 48 is or has been allowed. 

A commenter also requested 

confirmation that energy storage 

technology will be treated as separate 

property for section 48 and other Code 


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provisions. The Treasury Department 

and the IRS confirm that energy storage 

technology is eligible for the section 48 

credit if it satisfies the requirements of 

section 48 even if the energy storage 

technology is co-located with or shared 

by a facility that is otherwise eligible for 

the section 45, 45V, or 48 credits. 

a. Hydrogen Energy Storage Property 

Proposed § 1.48–9(e)(10)(iv) would 

provide that hydrogen energy storage 

property is property (other than 

property primarily used in the 

transportation of goods or individuals 

and not for the production of electricity) 

that stores hydrogen and has a 

nameplate capacity of not less than 5 

kWh, equivalent to 0.127 kg of hydrogen 

or 52.7 standard cubic feet (scf) of 

hydrogen. Proposed § 1.48–9(e)(10)(iv) 

would also require hydrogen energy 

storage property to store hydrogen that 

is solely used for the production of 

energy and not for other purposes such 

as for the production of end products 

such as fertilizer. Proposed § 1.48– 

9(e)(10)(iv) would also provide a nonexhaustive list of components of 

hydrogen energy storage property that 

would include, but would not be 

limited to, a hydrogen compressor and 

associated storage tank and an 

underground storage facility and 

associated compressors. 

In the preamble to the Proposed 

Regulations, the Treasury Department 

and the IRS requested comments on 

alternative approaches to assessing 

limitations on the use of hydrogen 

energy storage property, including 

whether additional clarification is 

needed regarding the production of 

energy from hydrogen, and what type of 

documentation would be needed to 

demonstrate that a hydrogen energy 

storage property was used to store 

hydrogen that is solely used for the 

production of energy. 

A commenter particularly endorsed 

the approach taken in the Proposed 

Regulations by providing that the 

nameplate capacity requirement for 

hydrogen is 0.127 kilograms for 5 kWh. 

The commenter suggested this rule be 

retained in the final regulations. 

Generally, commenters disagreed with 

the requirement that hydrogen energy 

storage property must store hydrogen 

that is solely used for the production of 

energy and not for other purposes, 

which the commenters referred to as the 

‘‘end use requirement.’’ For example, a 

commenter stated that the final 

regulations should be revised to align 

with the statutory language and asserted 

that the end use requirement is not in 

accord with legislative intent, would 

cause delays, is unworkable, and 

misaligns with the Biden 

Administration’s U.S. National Clean 

Hydrogen Strategy and Roadmap. Some 

commenters asserted that the end use 

requirement is simply unworkable due 

to lack of tracing mechanisms once 

hydrogen enters the stream of 

commerce. 

Multiple commenters also asserted 

that imposing an end use requirement 

on hydrogen energy storage property is 

unsupported by the statute and would 

be impossible to administer. 

Commenters expressed concerns that 

the end use requirement would render 

the credit useless, impact markets 

inappropriately, and lead to confusion. 

Commenters also asserted that section 

48(c)(6)(A)(i) requires only that 

hydrogen energy storage property ‘‘store 

energy’’ and does not require that it 

actually be used for the production of 

energy. Another commenter noted that 

because hydrogen is a form of energy, 

that hydrogen storage is per se energy 

use. 

With respect to administrability, 

commenters explained the difficulties of 

both requiring exclusive energy use and 

obtaining the information to make this 

determination. For example, a 

commenter stated that it is too difficult 

for the storage owner to predict how 

hydrogen will be used and another 

asserted that requiring stored hydrogen 

to be used solely for the production of 

energy would, in cases of bulk storage, 

be nearly impossible. Another 

commenter likewise stated that 

taxpayers do not have full control of, or 

even information regarding, the use of 

hydrogen once it leaves their storage 

facilities and will be unable to have the 

certainty needed regarding end use to 

obtain project financing. This 

commenter, along with others, also 

noted the significant burden of 

documenting the end use of the stored 

hydrogen. This commenter explained 

that currently there are no 

recordkeeping or documentation 

precedents available for a taxpayer to 

efficiently demonstrate the end-use of 

hydrogen, a fungible molecule, stored in 

a taxpayer’s hydrogen energy storage 

property. The commenter asserted that 

because there is no available 

documentation pathway for tracking 

hydrogen molecules through to their 

end use, it would be both impractical 

and prohibitively costly for a taxpayer 

to develop and implement such 

recordkeeping practices. Another 

commenter requested that the end use 

requirement conclude with the 

recapture period. 

Lastly, commenters explained how 

the end use requirement would limit the 

usefulness of the credit. For example, a 

commenter asserted that the end use 

requirement would render the section 

48 credit largely useless as a means of 

encouraging the development of the 

large-scale hydrogen storage capability 

that will be essential to the 

establishment of a robust hydrogen 

ecosystem in the United States. 

Additionally, a commenter stated that 

an end use requirement would cause 

several problems, including deterring 

the provision of hydrogen storage 

services to a significant portion of the 

hydrogen market sector (for example, for 

ammonia production). This commenter 

also requested clarification regarding 

the appropriate treatment in a case in 

which hydrogen is another step 

removed from ammonia production 

with electricity production as an interim 

step. Generally, under the Proposed 

Regulations, this scenario satisfies the 

end use requirement. 

A commenter noted that the end use 

requirement would lead to a risk of 

creating two separate markets for 

hydrogen: those that are able to use the 

section 48 credit and those that are not. 

Emphasizing the same points, another 

commenter stated that restricting the 

end-use of the clean hydrogen to 

‘‘energy’’ may materially impact the 

ability of producers to secure offtake 

agreements and/or restrict the usage of 

hydrogen storage and transportation 

networks to only certain types of 

hydrogen end-uses. 

Another commenter noted that energy 

storage technology neutrality is very 

important. This commenter stated that it 

believes that the ‘‘energy only’’ end use 

requirement would make hydrogen 

storage a second (or even third) class 

technology if compared to battery 

energy storage for purposes of the 

section 48 credit. The commenter added 

that one way of reading the positioning 

of hydrogen and battery storage within 

the same statutory provision is that this 

reflects the intent of Congress to not 

favor one form of energy storage over 

the other. This commenter further 

asserts that the absence of an end use 

requirement imposed on battery storage 

property indicates that no such 

requirement should be imposed on 

hydrogen energy storage property. 

While the majority of commenters 

objected to including the end use 

requirement, several commenters 

provided suggestions if the end use 

requirement is adopted. Several of these 

commenters suggested the use of an 

allocation rule similar to the Dual Use 

Rule under proposed § 1.48–14(b)(2) 

and discussed in part III.B. of this 

Summary of Comments and Explanation 

of Revisions. A commenter suggested 

revising the Proposed Regulations to 


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require a reasonable allocation between 

qualifying energy uses and 

nonqualifying non-energy uses of stored 

hydrogen similar to the requirements 

found in the Dual Use Rule. Another 

commenter stated that the final 

regulations should provide flexibility 

and permit any reasonable method to 

establish the annual use of the stored 

hydrogen similar to proposed § 1.48– 

14(b)(2)(ii). A commenter proposed that 

the final regulations provide a Dual Use 

safe harbor for a portion of a hydrogen 

energy storage property. 

Alternatively, several commenters 

suggested linking the end use 

requirement to the rules for the credit 

for production of clean hydrogen under 

section 45V of the Code. These 

commenters proposed that hydrogen 

energy storage be eligible for the section 

48 credit regardless of end use, if the 

hydrogen stored is at least 50 percent 

qualified clean hydrogen under section 

45V(c)(2). 

Commenters also requested 

clarifications regarding what would be 

considered energy use for purposes of 

applying the end use requirement. For 

example, a commenter requested a 

clarification that the definition of energy 

use is inclusive of an application in 

which hydrogen is fully consumed in 

the manufacturing of a downstream 

molecule, which is in turn clearly used 

in an energy application for which 

hydrogen would be qualified if used 

directly. Another commenter noted that 

the examples provided in the preamble 

to the Proposed Regulations are too 

narrow and should be expanded to 

reflect various uses of hydrogen as 

energy, including ammonia as a 

feedstock for fuel. A commenter asked 

for clarification that storage of hydrogen 

that is solely used as energy includes 

hydrogen used as energy for mobility 

purposes. Finally, a commenter 

requested that the final regulations 

allow for the storage of hydrogen whose 

end use is fertilizer for food production, 

because prohibiting hydrogen storage 

used in this way may encourage the 

parallel development of hydrogen 

storage and transportation infrastructure 

that could otherwise be shared. 

Several commenters also requested 

clarification regarding substantiation of 

the end use requirement. A commenter 

suggested that taxpayers be permitted to 

rely on the use described in commercial 

sales contracts without the need to track 

the ultimate end use of hydrogen by 

third-party users. Another commenter 

asked that taxpayers be required only to 

maintain documentation, such as an 

agreement between the two parties or a 

certification, that the immediate 

purchaser of the stored hydrogen 

intends to use it for energy. This 

commenter stated that tracking use past 

the point of immediate purchaser to the 

end use of the molecule is impossible 

and as a result may make the credit 

unavailable to a variety of hydrogen 

storage projects. Another commenter 

noted that operators of clean hydrogen 

transport and storage systems will need 

to know what sort of assurances are 

needed from off-takers at the limits of 

their system to satisfy credit eligibility 

and ensure limited recapture risk. 

Several commenters suggested that 

the final regulations provide a method 

for a taxpayer to demonstrate that a 

hydrogen energy storage property was 

used to store hydrogen solely used for 

the production of energy. A commenter 

recommended that taxpayers be able to 

meet this requirement through (i) an 

affirmative attestation of intent by the 

taxpayer that owns the storage property 

and (ii) a five-year lookback process, 

with reasonable threshold tests, to 

determine whether a recapture has 

occurred and what percentage of the 

credit should be recaptured. Another 

commenter recommended that the final 

regulations create a rebuttable 

presumption of energy use allowing 

taxpayers to demonstrate energy end use 

requirements under the relevant facts 

and circumstances. 

The Proposed Regulations would 

require that the hydrogen energy storage 

property store hydrogen solely use for 

the production of energy and not for 

other purposes such as for the 

production of end products such as 

fertilizer. After consideration of 

comments received, the Treasury 

Department and the IRS agree that 

section 48(c)(6)(A)(i) does not require 

that hydrogen energy storage property 

store hydrogen that will be used for the 

production of energy. The Treasury 

Department and the IRS also understand 

commenters’ concerns regarding the 

administrative challenges the end use 

requirement presents for taxpayers and 

agree that the final regulations require 

modification. Accordingly, the final 

regulations do not adopt the 

requirement that hydrogen energy 

storage property store hydrogen that is 

solely used for the production of energy 

and not for other purposes such as for 

the production of end products such as 

fertilizer. 

Some commenters asserted that the 

preamble to the Proposed Regulations 

indicated that hydrogen energy storage 

property is not limited to hydrogen. 

Since hydrogen may be stored within 

ammonia or methanol, commenters 

requested that the final regulations state 

that hydrogen storage property that 

stores hydrogen in the form of ammonia, 

methanol, or another stable medium 

qualifies as energy storage technology if 

such product is produced directly from 

hydrogen and subject to any use 

limitation provided in the regulations. 

Another commenter requested that the 

final regulations clarify that equipment 

used to process hydrogen into ammonia, 

methanol, and other carriers, as well as 

storage for such hydrogen carriers, is 

hydrogen energy storage property. 

The Treasury Department and the IRS 

decline to adopt the comments 

requesting that the final regulations 

provide that chemical storage, that is, 

equipment used to store hydrogen 

carriers (such as ammonia and 

methanol), is hydrogen energy storage 

property. Section 48(c)(6)(A)(i) 

specifically references only hydrogen, 

not compounds containing hydrogen. 

While most vessels designed for 

hydrogen storage (both above and below 

ground) may be capable of storing other 

gases, they are usually dedicated to a 

single gas (and not repurposed) to avoid 

contamination and mixing of gases. 

Many commenters also provided 

feedback on the non-exhaustive list of 

components of property that may be 

considered part of hydrogen energy 

storage property as would be provided 

in proposed § 1.48–9(e)(10)(iv). A 

commenter endorsed the inclusion of 

‘‘compressor and storage tank’’ as a 

component of hydrogen energy storage 

property. Several commenters requested 

that additional components of property 

be added to this list, some by asserting 

that the components should be eligible 

under rules for functionally 

interdependent or integral property. 

Other commenters requested that the 

final regulations expand the examples of 

integral and functionally 

interdependent equipment to be more 

inclusive of existing and future 

hydrogen energy storage property 

technologies. 

Specifically, commenters requested 

that hydrogen energy storage property 

include hydrogen liquefaction and 

related equipment, equipment required 

to operate underground hydrogen 

storage property, as well as dedicated 

hydrogen distribution equipment such 

as pipelines located on the storage side 

of custody meters, hydrogen trailers (for 

example, cryogenic liquid tankers, or 

cylinders hauled by modules or chassis) 

and railcars. Another commenter 

proposed that the final regulations treat 

hydrogen liquefaction equipment and 

related equipment in the same manner 

as power conditioning and transfer 

equipment may be treated with respect 

to certain energy property that generates 

electricity. 


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The Treasury Department and IRS 

agree that additional clarity on the 

definition of hydrogen energy storage 

property is warranted. The Treasury 

Department and IRS understand that 

hydrogen liquefaction equipment may 

prepare hydrogen for storage in the 

hydrogen energy storage property, 

making such property an integral part of 

hydrogen energy storage property. 

Section 48(c)(6)(A)(i) provides that 

energy storage technology does not 

include property primarily used in the 

transportation of goods or individuals 

and not for the production of electricity. 

Pipelines, trailers, and railcars are 

property primarily used in the 

transportation of goods or individuals 

not for the production of electricity. 

However, hydrogen energy storage 

property may have gathering and 

distribution lines to transport hydrogen 

within the hydrogen energy storage 

property, making such property an 

integral part of the hydrogen energy 

storage property. Therefore, the 

gathering and distribution lines used 

within a hydrogen energy storage 

property are not pipelines used to 

transport hydrogen outside of the 

hydrogen energy storage property. The 

final regulations provide that property 

that is an integral part of hydrogen 

energy storage property includes, but is 

not limited to, hydrogen liquefaction 

equipment and gathering and 

distribution lines within a hydrogen 

energy storage property. 

Several commenters requested 

clarification regarding the costs 

included in hydrogen energy storage 

property. In the context of salt caverns, 

a commenter asserted that the final 

regulations should confirm that eligible 

costs for a salt cavern include not only 

the costs to acquire and construct the 

eligible property but also all direct and 

indirect costs associated with the 

development and construction of the 

salt cavern and referenced rules under 

section 263A of the Code. Another 

commenter requested clarification 

regarding what equipment from an 

operational storage facility would be 

includible in basis for purposes of the 

section 48 credit. A commenter 

requested that power-to-gas 

methanation facility qualify as hydrogen 

energy storage. 

As stated for other energy properties, 

the Treasury Department and the IRS 

emphasize that the rule for determining 

what constitutes a unit of energy 

property is function-based. Because 

more information is needed to make the 

determinations requested by the 

commenters, the final regulations do not 

adopt these comments. 

b. Electrical Energy Storage Property 

Proposed § 1.48–9(e)(10)(ii) would 

provide that electrical energy storage 

property is property (other than 

property primarily used in the 

transportation of goods or individuals 

and not for the production of electricity) 

that receives, stores, and delivers energy 

for conversion to electricity, and has a 

nameplate capacity of not less than 5 

kWh. For example, subject to the 

exclusion for property primarily used in 

the transportation of goods or 

individuals, electrical energy storage 

property includes, but is not limited to, 

rechargeable electrochemical batteries of 

all types (such as lithium ion, vanadium 

flow, sodium sulfur, and lead-acid); 

ultracapacitors; physical storage such as 

pumped storage hydropower, 

compressed air storage, flywheels; and 

reversible fuel cells. 

Multiple commenters requested 

clarification concerning specific 

technologies that may be electrical 

energy storage property. A commenter 

requested that the definition be 

expanded to include compressed fluid 

storage in addition to compressed air 

storage so as to include liquid and gas 

applications. Because these applications 

generally are used by pipelines, which 

are property primarily used in the 

transportation of goods or individuals 

and not for the production of electricity, 

the Treasury Department and the IRS 

decline to adopt these revisions. 

Multiple commenters requested that 

load controllers be described as an 

integral part of electrical energy storage 

technology while other commenters 

requested that bidirectional chargers be 

eligible as energy storage technology. 

Another commenter requested that the 

final regulations explicitly include 

thermal batteries capable of storing 

energy for conversion to electricity in its 

non-exhaustive list of eligible ‘‘electrical 

energy storage property’’ due to 

confusion related to thermal energy 

storage (TES) being a separate category. 

As has been noted previously, the 

Proposed Regulations are intended to 

provide a function-oriented method to 

determine whether a technology is 

energy storage technology that is broad 

enough to encompass nascent 

technologies without rendering the 

regulations quickly obsolete. It is 

impossible to enumerate every single 

technology that may be eligible for the 

section 48 credit given the everchanging nature of the industry and 

technological development. Although 

these regulations do not list all 

technologies that may qualify for the 

section 48 credit, the Proposed 

Regulations provide adequate guidance 

and examples to illustrate the 

application of the rules for taxpayers to 

analyze a particular technology. The 

Treasury Department and the IRS, 

therefore, do not adopt commenters’ 

requests concerning specific 

technologies. 

Multiple commenters questioned 

what primarily used in the 

transportation in section 48(c)(6)(A)(i) 

means in the case of electrical energy 

storage property. A commenter 

explained that pipeline systems can be 

multi-tasked with a section of the pipe 

to act as energy storage and requested 

that the phrase ‘‘primarily used in the 

transportation of goods’’ specifically 

exclude equipment that is mobile but 

include stationary property such as 

pipelines. Another commenter 

requested a bright line rule for 

technologies that are not primarily used 

in transportation of goods or individuals 

to qualify for the section 48 credit. This 

commenter suggested that property, 

including school buses, that receives, 

stores, and delivers energy for 

conversion to electricity and that is used 

less than 35 percent of the hours in a 

calendar year for transporting goods or 

individuals is not primarily used for 

transportation. In response to these 

commenters, the Treasury Department 

and the IRS note that pipelines and 

school buses are both primarily used in 

transportation. In addition, there are 

other IRA tax incentives intended to 

benefit some technologies for which 

commenters seek section 48 credit 

eligibility. For instance, section 45W 

provides a tax credit for electric school 

buses. Furthermore, a notice of 

proposed rulemaking (REG–118269–23) 

published in the Federal Register (89 

FR 76759) on September 19, 2024, 

regarding the section 30C alternative 

fuel vehicle refueling property credit 

(30C Proposed Regulations) proposed a 

definition for property primarily used in 

the transportation of goods or 

individuals and not for the production 

of electricity for purposes of sections 48 

and 48E. In particular, proposed § 1.48– 

9(e)(10)(vi) of the 30C Proposed 

Regulations would provide that energy 

storage property is primarily used in the 

transportation of goods or individuals 

and not for the production of electricity, 

and therefore is not energy storage 

technology eligible for the section 48 

credit, if a credit is claimed under 

section 30C for such property. 

Accordingly, comments regarding this 

proposed definition will be addressed 

when the 30C Proposed Regulations are 

finalized. 

In the context of a pumped storage 

hydropower facility, a commenter 

suggested that the scope of eligible 


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electrical energy storage technology be 

defined to include all property 

necessary to receive, store, and deliver 

energy for conversion to electricity, 

consistent with the definition in section 

48(c)(6)(A)(i), and include all tangible 

personal property and other tangible 

property up to and including the stepup transformer at the substation prior to 

transmission to the grid. This 

commenter also suggested that an 

example be included to illustrate these 

concepts. Another commenter stated 

that the final regulations should confirm 

that the term ‘‘energy storage 

technology’’ includes all the qualified 

property up to and including the stepup transformer at the substation prior to 

transmission to the grid, and that this 

property would include the two 

reservoirs, the powerhouse (including 

the generators, turbines, and associated 

electrical equipment), the piping and 

pumps, the tunnel, substation 

equipment, and other integral property. 

A definitive response to such 

comments would require the Treasury 

Department and the IRS to conduct a 

complete factual analysis of the 

property in question, which may 

include information beyond that which 

was provided by the commenters. 

Because more information is needed to 

make the determinations requested by 

the commenters, the requested 

clarifications are not addressed in these 

final regulations. 

c. Thermal Energy Storage Property 

Proposed § 1.48–9(e)(10)(iii) would 

provide that thermal energy storage 

property is property comprising a 

system that is directly connected to a 

heating, ventilation, or air conditioning 

(HVAC) system; removes heat from, or 

adds heat to, a storage medium for 

subsequent use; and provides energy for 

the heating or cooling of the interior of 

a residential or commercial building. 

Thermal energy storage property 

includes equipment and materials, and 

parts related to the functioning of such 

equipment, to store thermal energy for 

later use to heat or cool, or to provide 

hot water for use in heating a residential 

or commercial building. It does not 

include a swimming pool, CHP 

property, or a building or its structural 

components. The Proposed Regulations 

included a non-exhaustive list of 

examples of thermal energy storage 

property. 

Commenters requested clarifications 

on what constitutes thermal energy 

storage property. A commenter 

requested clarification that thermal 

energy storage property includes all airsource heat pumps, electric boilers, and 

hot water heat pumps, but does not 

include fossil-fuel-powered water 

boilers. The commenter also requested 

that the final regulations clarify that 

ground and air source heat pumps 

qualify as energy storage technology and 

suggested that thermal energy stored in 

one medium may be transferred and 

stored in a second medium for 

subsequent use. The commenter also 

requested that the use of the term 

‘‘subsequent’’ in the definition of 

thermal energy storage property under 

section 48(c)(6)(C)(i)(II) not require a 

specific interval of time between storage 

and use for a process to qualify. Another 

commenter stated that the point at 

which the scope of thermal energy 

storage property ends is unclear and 

requested clarification regarding 

whether ‘‘equipment’’ extends to the 

thermal energy source for thermal 

energy storage property. This 

commenter also requested clarity on 

whether the thermal energy source 

equipment (for example, chiller, heat 

pump, or furnace) may be used for 

multiple purposes or if the thermal 

energy source equipment must be 

dedicated to the thermal energy storage 

property. Another commenter asked 

whether equipment that uses thermal 

energy to heat or cool a structure is also 

thermal energy storage property. Some 

commenters endorsed the proposed 

examples of thermal energy storage 

property, while other commenters 

requested additions, such as including 

‘‘chilled water’’ to ice and electric 

boilers that use electricity to heat water 

and later use this stored energy to heat 

a building through the HVAC system. 

The Treasury Department and IRS 

agree that the definition of thermal 

energy storage property requires 

clarification. Thermal energy storage 

property is defined, in part, as a system 

which ‘‘removes heat from, or adds heat 

to, a storage medium for subsequent 

use.’’ The Treasury Department and IRS, 

in consultation with DOE, understand 

the phrase ‘‘adds heat to’’ as including 

equipment that is involved in adding, or 

transferring, already-existing heat from 

one medium to the storage medium, but 

not equipment involved in transforming 

other forms of energy into heat in the 

first instance. Equipment that just adds 

(or removes) heat includes technologies, 

like heat pumps, that draw heat from 

the ambient air or other stores of heat, 

and add that heat to a storage medium. 

By contrast, equipment that transforms 

other forms of energy into heat in the 

first instance, for example through 

combustion or electric resistance, is not 

property that ‘‘removes heat from, or 

adds heat to’’ a storage medium and is 

therefore not an eligible component of a 

thermal energy storage property. For 

example, a conventional gas boiler with 

an integrated storage tank would not 

generally be thermal energy storage 

property. While the gas boiler elements 

would not be part of such property, the 

integrated storage tank, however, may 

be thermal energy storage property if it 

otherwise meets the thermal energy 

storage property definition. Further, an 

air-to-water heat pump with a thermal 

storage tank, for example, would 

generally be thermal energy storage 

property provided that it otherwise 

meets the thermal energy storage 

definition. This could be the case even 

if the heat pump also serves a purpose 

in the connected HVAC system’s realtime heating or cooling of a building. In 

that case, the thermal storage tank 

would be thermal energy storage 

property and the heat pump may also 

qualify as part of that eligible property 

to the extent the taxpayer’s costs exceed 

the cost of an HVAC system without 

thermal storage capacity that would 

meet the same functional heating or 

cooling needs as the heat pump system 

with a storage medium, other than time 

shifting of heating or cooling. 

The Proposed Regulations included 

an example of electric furnaces that use 

electricity to heat bricks to high 

temperatures and later use this stored 

energy to heat a building through the 

HVAC system. The Treasury 

Department and IRS acknowledge that 

this example needs to be refined to more 

precisely delineate the scope of eligible 

thermal energy storage property. 

Whereas the heated bricks and 

equipment that adds heat generated by 

the furnace to those bricks, or removes 

heat from the bricks, is eligible thermal 

energy storage property, the electric 

furnace equipment that transforms 

energy into the thermal energy in the 

first instance is not. The final 

regulations clarify that thermal energy 

storage property does not include 

property that transforms other forms of 

energy into heat in the first instance and 

this example has been revised 

accordingly in the final regulations. 

With respect to the requirement for 

subsequent use, the Treasury 

Department and IRS also agree that 

additional clarity is warranted. The 

statute requires that thermal energy 

storage property must be able to perform 

certain functions, not simply performing 

heat transfer. Any heat transfer may take 

some amount of time and heat does not 

immediately dissipate even if no effort 

is made to store it. While some may 

assert that such heat transfer is 

subsequent use, the Treasury 

Department and IRS disagree. A plain 

reading of the statute indicates that 


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thermal energy storage property does 

not include property that simply 

engages in heat transfer. The thermal 

energy storage property must be able to 

store the heat. The Treasury Department 

and IRS, in consultation with DOE, find 

that a minimum time interval for 

subsequent use provides certainty for 

taxpayers and sound tax administration. 

Accordingly, the final regulations clarify 

that property that ‘‘removes heat from, 

or adds heat to, a storage medium for 

subsequent use’’ is property that is 

designed with the particular purpose of 

substantially altering the time profile of 

when heat added to or removed from 

the thermal storage medium can be used 

to heat or cool the interior of a 

residential or commercial building. The 

final regulations also provide a safe 

harbor for thermal energy storage 

property. If the thermal energy storage 

property can store energy that is 

sufficient to provide heating or cooling 

of the interior of a residential or 

commercial building for the minimum 

of one hour, it is deemed to have the 

purpose of substantially altering the 

time profile of when heat added to or 

removed from the thermal storage 

medium can be used to heat or cool the 

interior of a residential or commercial 

building. 

The Treasury Department and IRS 

have revised the definition of thermal 

energy storage property and the 

examples in the final regulations to 

illustrate what constitutes thermal 

energy storage property. These final 

regulations also add that thermal energy 

storage property may store thermal 

energy in an artificial pit, an aqueous 

solution, or a solid-liquid phase change 

material, in addition to the underground 

tank or a borehole field already 

included in the proposed regulation, in 

order to be extracted for later use for 

heating and/or cooling. The final 

regulations clarify that a heat pump 

system that transfers heat into and out 

of a storage medium is thermal energy 

storage property. However, consistent 

with § 1.48–14(d), if thermal energy 

storage property, such as a heat pump 

system, includes equipment, such as a 

heat pump, that also serves a purpose in 

an HVAC system that is installed in 

connection with the thermal energy 

storage property, the taxpayer’s basis in 

the thermal energy storage property 

includes the total cost of the thermal 

energy storage property and HVAC 

system less the cost of an HVAC system 

without thermal storage capacity that 

would meet the same functional heating 

or cooling needs as the heat pump 

system with a storage medium, other 

than time shifting heating or cooling. 

Commenters also requested 

clarifications regarding whether specific 

components may be part of thermal 

energy storage. A commenter requested 

that pipes to distribute stored thermal 

energy to and within buildings 

(including for multiple residential or 

commercial buildings such as through a 

district heating system) and equipment 

in building heating and/or cooling 

systems—such as coils, radiators, and 

other end-use equipment—necessary to 

convey stored thermal energy to 

building space or domestic hot water 

supply be included in thermal energy 

storage property. 

With respect to the request to include 

pipes and equipment in building 

heating and/or cooling systems, the 

statutory definition of thermal energy 

storage property provides, in part, that 

it is directly connected to an HVAC 

system, not that it is an HVAC system. 

The Proposed Regulations would 

provide a function-oriented method to 

evaluate whether property is a 

functionally interdependent or an 

integral part of thermal energy storage 

property. With respect to the request to 

include equipment necessary to convey 

domestic hot water supply, the statutory 

definition further provides, in part, that 

thermal energy storage property 

provides energy for the heating or 

cooling of the interior of a residential or 

commercial building. The statute does 

not provide for stored energy for 

domestic hot water supply for 

consumptive use. Therefore, property 

that provides energy for domestic hot 

water supply exclusively for 

consumptive use and not for heating or 

cooling of the interior of such a building 

is not eligible under the statute. The 

final regulations do not adopt these 

comments. 

Another commenter requested 

clarification that if property that would 

otherwise qualify as thermal energy 

storage property is connected to a 

district heating system that provides 

energy for the heating or cooling of 

multiple buildings, it would 

nonetheless be considered ‘‘directly 

connected to a heating, ventilation, or 

air conditioning system’’. Proposed 

§ 1.48–9(e)(10)(iii) would not preclude 

thermal energy storage technology 

property that is directly connected to 

more than one HVAC system from being 

a thermal energy storage property. The 

final regulations do not modify the 

example. 

Commenters also requested 

modification of the definition of thermal 

energy storage property in proposed 

§ 1.48–9(e)(10)(iii). A commenter 

suggested adding ‘‘refrigeration’’ to ‘‘is 

directly connected to a heating, 

ventilation, or air conditioning system’’ 

because industrial refrigeration systems 

are considered part of the HVAC system 

in construction. This commenter also 

joined another in recommending adding 

‘‘industrial’’ to ‘‘for use in heating a 

residential or commercial building’’ to 

prevent restricting the use of thermal 

energy storage in industrial sites and to 

eliminate confusion regarding 

commercial and industrial building 

types. To maintain consistency with the 

statutory text, the final regulations 

maintain the wording set forth in 

section 48(c)(6)(C)(i)(I) and (III) as is. 

Commenters also expressed concerns 

that the language ‘‘directly connected to 

. . .’’ in proposed § 1.48–9(e)(10)(iii) 

might exclude thermal energy storage 

property that directly functions as a 

heating system itself without connecting 

to an HVAC system. A commenter 

suggested providing guidance to clarify 

that thermal energy storage property 

that functions as a self-contained 

heating or cooling system is eligible 

thermal energy storage property under 

proposed § 1.48–9(e)(10)(iii). Section 

48(c)(6)(C)(i)(I) requires that thermal 

energy storage property is directly 

connected to a heating, ventilation, or 

air conditioning system, but does not 

include the HVAC system itself as 

eligible thermal energy storage property. 

Therefore, these comments are not 

adopted because they would be 

inconsistent with the statute. However, 

elements of such a system could 

constitute eligible thermal energy 

storage property. 

Additionally, a commenter requested 

clarification that thermal energy storage 

property may be considered battery 

storage technology for the purpose of 

claiming the credit available to 

residential customers under section 

25D(d)(6) of the Code. The Treasury 

Department and the IRS decline to 

address this request because it is outside 

of the scope of section 48 and, therefore, 

these final regulations. 

d. Modifications of Energy Storage 

Property 

Proposed § 1.48–9(e)(10)(v) would 

provide that with respect to electrical 

energy storage property and hydrogen 

energy storage property placed in 

service after December 31, 2022, energy 

storage technology that is modified as 

set forth in proposed § 1.48–9(e)(10)(v) 

is treated as electrical energy storage 

property or hydrogen energy storage 

property, except that the basis of any 

existing property prior to such 

modification is not taken into account 

for purposes of the section 48 credit. 

Proposed § 1.48–9(e)(10)(v) applies to 

any electrical energy storage property 


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Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 100609 

and hydrogen energy storage property 

that either: (A) was placed in service 

before August 16, 2022, and would be 

described in section 48(c)(6)(A)(i), 

except that such property had a capacity 

of less than 5 kWh and is modified in 

a manner that such property (after such 

modification) has a nameplate capacity 

(after such modification) of not less than 

5 kWh; or (B) is described in section 

48(c)(6)(A)(i) and is modified in a 

manner that such property (after such 

modification) has an increase in 

nameplate capacity of not less than 5 

kWh. 

A commenter asked if the section 48 

credit is available for repurposed 

batteries used to build energy storage 

systems. Whether a battery is 

repurposed and eligible for the section 

48 credit requires a factual 

determination that is beyond the scope 

of these regulations. The 80/20 Rule 

provides general rules for taxpayers that 

include some used components when 

placing in service an energy property. 

Another commenter requested that 

the requirement that any modified 

energy storage property must increase 

the nameplate capacity of the energy 

storage property by 5 kWh or more be 

removed. Section 48(c)(6)(B) sets forth 

the 5 kWh requirement for 

modifications to energy storage property 

so it cannot be removed. The final 

regulations do not adopt this comment. 

Multiple commenters requested 

clarification that the minimum 5 kWh 

capacity increase needed for 

modifications of energy storage under 

section 48(c)(6)(B) be the nameplate 

capacity not actual capacity (which may 

have decreased due to degradation). The 

commenters explained that focusing on 

nameplate capacity will provide greater 

certainty than measuring actual 

capacity. Another commenter explained 

that nameplate capacity should be 

tested at the time of purchase, rather 

than on the date of modification, 

especially due to non-degrading systems 

and storage augmentation. The 

commenter noted that if augmentations 

are implemented, the installed energy 

storage capacity of the energy storage 

technology is increased (original 

installation nameplate capacity plus the 

augmentation totaling the amount 

installed), but the nameplate capacity of 

the property and interconnection 

agreement remains unchanged. 

Section 48(c)(6)(B) provides that, for 

purposes of the modification rule, 

nameplate capacity is examined at the 

time of the modification and must result 

in a nameplate capacity increase from 

below 5 kWh to not less than 5 kWh (for 

energy storage property originally 

placed in service before enactment of 

the IRA) or by at least 5 kWh (for energy 

storage technology placed in service 

after the enactment of the IRA that is 

later modified). Consistent with the 

statute, the Proposed Regulations would 

not take into account actual capacity but 

instead use nameplate capacity. The 

only instance in which section 

48(c)(6)(B) uses the term ‘‘capacity’’ 

alone, rather than ‘‘nameplate capacity’’, 

is nonetheless still a reference to 

nameplate capacity. Specifically, 

section 48(c)(6)(B)(i) refers to property 

that ‘‘would be described in 

subparagraph (A)(i), except that such 

property has a capacity of less than 5 

kilowatt hours’’. The referenced section 

48(c)(6)(A)(i) text makes clear that the 5 

kWh capacity threshold is, in fact, a 

nameplate capacity threshold. 

Therefore, for the avoidance of doubt, 

the final regulations at § 1.48– 

9(e)(10)(v)(A) clarify that the relevant 

pre-modification capacity is the 

nameplate capacity. Therefore, other 

than the minor clarification noted 

above, these comments were not 

adopted in the final regulations. 

Additionally, a commenter requested 

clarification whether capacity must be 

added within the bounds of an existing 

electrical storage property enclosure, or 

whether the enclosure may be expanded 

or an additional enclosure added to 

accommodate the increased capacity. 

Another commenter requested 

clarification that adding new battery 

racks to an existing enclosure would be 

eligible for the section 48 credit if the 

nameplate capacity of the new battery 

rack is at least 5 kWh. The Proposed 

Regulations would provide no 

limitation on the physical space 

occupied by an energy storage 

technology and the final regulations 

retain this approach. 

5. Qualified Biogas Property 

Section 48(a)(3)(A)(x) was added by 

the IRA to provide that energy property 

includes qualified biogas property. 

Section 48(c)(7)(A) defines qualified 

biogas property as property comprising 

a system that converts biomass (as 

defined in section 45K(c)(3), as in effect 

on the date of enactment of section 

48(a)(7) (August 16, 2022)) into a gas 

that consists of not less than 52 percent 

methane by volume, or is concentrated 

by such system into a gas that consists 

of not less than 52 percent methane, and 

captures such gas for sale or productive 

use, and not for disposal via 

combustion. Section 48(c)(7)(B) 

provides that qualified biogas property 

includes any property that is part of 

such system that cleans or conditions 

such gas. 

Proposed § 1.48–9(e)(11) would adopt 

the statutory definition of qualified 

biogas property. Proposed § 1.48– 

9(f)(2)(i) would provide that 

components of property are considered 

qualified biogas property if they are 

functionally interdependent, that is, if 

the placing in service of each 

component is dependent upon the 

placing in service of each of the other 

components in order to perform the 

intended function of the qualified 

biogas property as described in 

proposed § 1.48–9(e)(11)(i). The 

Proposed Regulations adopted this 

approach because it provides a functionoriented method to determine what is 

considered included in a qualified 

biogas property and is broad enough to 

encompass technological changes. 

Additionally, proposed § 1.48– 

9(e)(11)(i) would provide examples of 

functionally interdependent 

components of a qualified biogas 

property including, but not limited to, a 

waste feedstock collection system, a 

landfill gas collection system, mixing or 

pumping equipment, and an anaerobic 

digester. 

Proposed § 1.48–9(e)(11)(i) would 

clarify that upgrading equipment is not 

a functionally interdependent 

component of qualified biogas property. 

The preamble to the Proposed 

Regulations stated that the upgrading 

equipment that is necessary to condition 

biogas into the appropriate mixture for 

injection into the pipeline is not 

functionally interdependent with the 

qualified biogas property that converts 

biomass into a gas containing not less 

than 52 percent methane and captures 

such gas for sale or productive use as 

specified in the statute. The preamble to 

the Proposed Regulations also stated 

that while this upgrading equipment 

makes the injection of biogas into a 

pipeline possible, such upgrading 

equipment is not necessary to satisfy the 

statutory requirements that the biogas 

converted from biomass contain not less 

than 52 percent methane, and that it be 

captured for sale or productive use. 

a. Correction and Cleaning and 

Conditioning Property 

The Correction published on February 

22, 2024, stated that a correction was 

needed to clarify that gas upgrading 

equipment that is necessary to 

concentrate the gas from qualified 

biogas property into the appropriate 

mixture for injection into a pipeline 

through removal of other gases such as 

carbon dioxide, nitrogen, or oxygen, 

would be energy property if it is an 

integral part of an energy property as 

defined in proposed § 1.48–9(f)(3). 

Accordingly, the Proposed Regulations 


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were corrected by revising the following 

sentence: ‘‘However, gas upgrading 

equipment necessary to concentrate the 

gas into the appropriate mixture for 

injection into a pipeline through 

removal of other gases such as carbon 

dioxide, nitrogen, or oxygen is not 

included in qualified biogas property.’’ 

to read as follows: ‘‘However, gas 

upgrading equipment necessary to 

concentrate the gas into the appropriate 

mixture for injection into a pipeline 

through removal of other gases such as 

carbon dioxide, nitrogen, or oxygen is 

not a functionally interdependent 

component (as defined in paragraph 

(f)(2)(ii) of this section) of qualified 

biogas property.’’ 

The Proposed Regulations and 

Correction requested comments 

regarding what types of components 

may be included within the definition 

of cleaning and conditioning property 

provided in the definition of qualified 

biogas property in section 48(c)(7)(B). 

The Treasury Department and the IRS 

received numerous comments regarding 

the components that should be included 

in qualified biogas property. 

Commenters universally supported 

the inclusion of upgrading equipment in 

qualified biogas property and some 

asserted that the Proposed Regulations’ 

exclusion of upgrading equipment 

conflicts with analogous provisions in 

the Proposed Regulations that allow the 

inclusion of power conditioning and 

transfer equipment such as that allowed 

in offshore wind projects. Most 

commenters asserted that upgrading 

equipment should be considered 

functionally interdependent to qualified 

biogas property and therefore, eligible 

for the section 48 credit. A commenter 

requested that biogas energy property 

include a definition of system for 

section 48(c)(7)(A) purposes that 

includes all integrated property. 

Commenters also expressed concern 

that the Proposed Regulations and the 

Correction unduly limit what would be 

included as qualified biogas property. 

For example, a commenter stated that 

property used to capture, clean, 

condition, upgrade, and perform 

‘‘chemical, mechanical, or 

thermochemical conversion’’ are all 

necessary to convert biogas into usable 

products. Commenters explained that 

the Proposed Regulations would allow 

only biogas property with limited utility 

to qualify and would exclude a majority 

of costs related to biogas property. For 

example, a commenter stated that under 

the Proposed Regulations, property used 

to produce the raw biogas from the 

landfill, remove sulfur from the biogas, 

and remove the volatile organic 

compounds from the biogas would 

appear to qualify for the section 48 

credit, whereas property used to remove 

carbon dioxide, nitrogen, and oxygen 

from biogas and to otherwise prepare 

the gas for injection into a natural gas 

pipeline would not qualify for the 

section 48 credit. The commenter 

asserted that the equipment used in 

these latter processes are essential 

components of a RNG system and 

comprise approximately 85 percent of 

overall capital investment in an RNG 

project. 

A commenter asserted that the 

Proposed Regulations read the sale or 

productive use language out of the 

statute. Another commenter stated that 

the Proposed Regulations would limit 

eligibility for the section 48 credit to 

essentially raw biogas (if it can meet the 

52 percent methane threshold). 

According to the commenter, raw biogas 

generally cannot be used without some 

treatment due to the contaminants 

present in the gas stream and even if the 

raw biogas can be used, such use is 

typically through combustion (that is, 

burned on-site for electricity or as 

process energy), which is excluded 

under the statute. The commenter 

explained that, at best, the Proposed 

Regulations may allow some mediumBTU gas, which is biogas that received 

only limited treatment to remove certain 

contaminants, to be eligible for the 

section 48 credit. However, mediumBTU gas is not as valuable as RNG and 

is typically used locally. 

Generally, many commenters agreed 

that the utility of biogas is significantly 

limited without proper cleaning and 

conditioning. These commenters stated 

that, without upgrading, the extracted 

biogas faces considerable challenges for 

marketability because its high moisture 

content and corrosive properties make it 

difficult to safely store, compress, mix 

with other gases, transport, inject into 

the natural gas system, or market. 

Consequently, the non-upgraded biogas 

is of limited utility, such as on-site 

combustion to create process heat, 

generate electricity, or to be flared into 

the atmosphere. In contrast, a 

commenter described the marketable 

uses of upgraded RNG as including, but 

not limited to, advanced electricity 

generation in fuel cells, hydrogen 

production, advanced liquid fuels for 

aviation, and RNG for use in trucking, 

industrial processes, and space heating. 

Generally, commenters requested the 

final regulations correct the treatment of 

‘‘gas upgrading equipment’’ in the 

Proposed Regulations to instead treat it 

as property that ‘‘cleans and conditions’’ 

gas, asserting that such treatment is 

consistent with the plain text of the 

statute and the intention of Congress. To 

support this position, a commenter 

asserted that the statute and legislative 

history do not contemplate any 

limitation on what property ‘‘cleans or 

conditions’’ gas. Several commenters 

cited certain congressional statements 

regarding the Agriculture 

Environmental Stewardship Act to 

support their reading of the definition of 

qualified biogas property added to 

section 48 by the IRA. 

Similarly, many commenters asserted 

there is a misunderstanding in the 

Proposed Regulations that the term 

‘‘upgrading’’ is interchangeable with the 

phrase ‘‘cleaning and conditioning.’’ For 

example, a commenter stated that the 

exclusion of upgrading equipment 

appears contradictory to the statute, 

which expressly includes cleaning and 

conditioning property. This commenter 

noted that the Proposed Regulations 

misunderstand the ‘‘upgrading’’ process, 

which is an industry verbiage, but is 

essentially part of the ‘‘cleaning and 

conditioning process’’ necessary to 

process biogas to standards that support 

its productive use or sale. Another 

commenter stated that the DOE uses 

these terms interchangeably. 

Additionally, a few commenters 

stated that the Proposed Regulations 

incorrectly implemented the 52 percent 

measurement as a ceiling rather than a 

floor. For example, a commenter 

pointed to the preamble to the Proposed 

Regulations as mistakenly interpreting 

that the statute was enacted to 

incentivize taxpayers to produce 52 

percent methane (and nothing greater). 

The commenter stated that this is 

contrary to the statute, to the relevant 

legislative history, and to an 

understanding of how the quantities of 

biogas that can be produced by RNG 

developers can be used. 

Several commenters also pointed to 

the reference to ‘‘such gas’’ in the statute 

to evidence that ‘‘such gas’’ refers to 

biogas not less than 52 percent methane 

and captured for sale or productive use. 

A commenter asserted that the reference 

to ‘‘such gas’’ provides a two-prong test. 

According to the commenter, first the 

system must convert the biomass into a 

gas that is between 52 percent and 100 

percent methane by volume and second 

the system must capture ‘‘such gas for 

sale or productive use, and not for 

disposal via combustion’’; thus, in the 

commenter’s view, the reference to 

‘‘such gas’’ is to gas described in the 

first prong. 

Another commenter stated that the 

reference to ‘‘such gas’’ includes biogas 

that is at least 52 percent methane by 

volume. The commenter concluded 

therefore, that the statute does not 

exclude from qualified biogas property 


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cleaning and conditioning equipment 

that is used to process biogas that is 

already 52 percent methane by volume. 

Another commenter stated that the 

statute uniquely and broadly defines the 

term ‘‘cleaning and condition property’’ 

not as the Proposed Regulations suggest, 

which limits its applicability to 

instances in which an otherwise 

ineligible property needs cleaning and 

conditioning to be eligible. Instead, the 

commenter noted that the Proposed 

Regulations’ interpretation of section 

48(c)(7)(B) ignores the reference to 

‘‘such gas,’’ referring to the definition in 

section 48(c)(7)(A), which clearly states 

‘‘any property which is part of such 

system which cleans or conditions such 

gas.’’ The commenter asserted that the 

term ‘‘such gas’’ refers to biogas that is 

not less than 52 percent methane and 

captured for sale or productive use, as 

confirmation that cleaning and 

conditioning equipment for gas that has 

already met the conditions set forth in 

section 48(c)(7)(A), is qualified biogas 

property. 

Commenters also objected to the 

exclusion of gas upgrading equipment 

provided in the Proposed Regulations 

because commenters assert that it could 

negatively impact investment and 

financing for biogas projects, especially 

those on small farms, agricultural 

projects, and municipal projects. A 

commenter, who works with smaller 

scale farms including dairy farms, 

asserted that the upgrading equipment 

is integral to the cleaning and 

conditioning process, and crucial for 

achieving energy output suitable for 

productive use or sale, especially for 

projects in rural and remote 

communities. The commenter 

concluded that the limitation on 

upgrading equipment provided in the 

Proposed Regulations will prevent 

projects from moving forward and 

disproportionately impact small 

agricultural projects. 

Several commenters asserted that the 

statute supports redefining the 

components of property that are 

considered functionally interdependent 

to a qualified biogas property. A 

commenter suggested redefining 

qualified biogas property as property 

that is placed in service to upgrade 

biogas for sale or a productive use 

beyond the point that such gas is 

typically vented or flared. This 

commenter explained that this 

definition properly places the focus on 

property used to convert an 

unproductive substance (such as landfill 

gas) into a productive substance (such 

as RNG). 

Another commenter agreed with the 

inclusion of the gas upgrading 

equipment as integral property but 

stated that the Correction is limited to 

technology specific to upgrading for 

pipeline injection and therefore, is out 

of line with the technology neutral 

definition in the statute. The commenter 

asserted that upgrading, processing, or 

reforming should be viewed without 

limitation to specific technology and 

that many biomass resources may not be 

close to natural gas pipelines or have 

other limitations on pipeline injection. 

The commenter further stated that the 

focus should be on the components 

required for property that captures such 

gas for sale or productive use. Therefore, 

if additional onsite steps are required to 

process raw biogas that meets the 

minimum 52 percent methane content 

threshold into a usable product, 

whatever the product may be, then the 

property necessary to take those steps 

should be considered qualified biogas 

property. 

The Treasury Department and the IRS 

agree with the commenters that the 

proposed rule addressing gas upgrading 

equipment is too restrictive. As 

commenters explained, upgrading 

equipment is used interchangeably with 

cleaning and conditioning equipment 

and such equipment may be needed to 

make the biogas suitable for sale or 

productive use. The Treasury 

Department and IRS also agree that 

specific upgrading equipment should 

not be identified for injection into a 

pipeline. Therefore, the final regulations 

provide more generally that gas 

upgrading equipment is cleaning and 

conditioning property. 

Commenters requested clarifications 

regarding what types of equipment are 

considered qualified biogas property, 

including as functionally 

interdependent components or as 

property integral to the qualified biogas 

property. For example, a commenter 

requested that a list of equipment be 

included as qualifying biogas property 

in the final regulations including gas 

removal equipment, pressure and 

temperature control equipment, 

moisture removal equipment, 

compression equipment, thermal 

oxidizer equipment, gas recycling 

equipment, and synthetic methane 

production equipment. Another 

commenter proposed revisions to the 

example in proposed § 1.48–9(e)(11)(i) 

to include as qualified biogas property 

cleaning and conditioning equipment 

used to remove toxins or any other 

impurities from raw biogas or 

concentrate the gas into the appropriate 

mixture for sale or productive use 

through removal of other gases such as 

carbon dioxide, nitrogen, or oxygen. A 

commenter requested the inclusion of 

landfill municipal solid waste as a 

renewable resource to produce 

renewable natural gas as energy 

property because such a system may 

implement thermal gasification and 

other relevant technologies. Another 

commenter suggested that qualified 

biogas property should include the 

pipeline and compression equipment 

necessary to transport the gas from the 

production plant to the common carrier 

pipeline. 

Another commenter suggested that 

the Proposed Regulations be modified to 

specifically provide that the property 

comprising a biogas conversion/ 

concentration and capture system, 

including any property that is part of 

such system and that cleans and 

conditions, is a single unit of energy 

property (collectively referred to as a 

RNG Production System). This 

commenter also suggested that the gas 

upgrading equipment necessary to 

concentrate the gas into the appropriate 

mixture for injection into a pipeline 

through the removal of other gases and 

impurities is a functionally 

interdependent component of the RNG 

Production System. This commenter 

also described a second type of 

property, a landfill gas collection system 

(LFG Collection System), and noted that 

the LFG Collection System is property 

that is an integral part of, but not 

functionally interdependent with, the 

RNG Production System because the 

placing in service of an LFG Collection 

System is not dependent upon placing 

in service the RNG Production System, 

but the LFG Collection System is used 

directly in and essential to the 

completeness of the intended function 

of the RNG Production System. While 

this commenter’s focus was on landfills, 

the commenter noted the same analysis 

would apply to other collection systems 

such as anaerobic digesters operating at 

farms. Some commenters asserted that 

anaerobic digesters were functionally 

interdependent property, while others 

asserted that anaerobic digesters were 

integral property. 

After consultation with the DOE, the 

Treasury Department and IRS 

understand that the methane content of 

biogas in an anaerobic digester can vary 

between 44% and 68%. Thus, if biogas 

processed by an anaerobic digester 

consists of not less than 52% methane 

and all other statutory requirements are 

met, an anaerobic digester would be a 

unit of energy property. Commenters 

explained that although biogas exiting 

an anaerobic digester might not be put 

to productive use, the statute requires 

that qualified biogas property capture 

the gas ‘‘for sale or productive use.’’ To 

illustrate, if a taxpayer places in service 


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an anaerobic digester, which generates 

biogas meeting the not less than 52% 

methane requirement, and sells the 

biogas to another taxpayer who in turn 

places in service cleaning and 

conditioning property to clean such 

biogas, each taxpayer has a qualified 

biogas property and may be eligible for 

the section 48 tax credit. On the other 

hand, if the biogas in the anaerobic 

digester does not meet the not less than 

52% methane requirement, then such 

digester is not, by itself, a qualified 

biogas property. Nevertheless, the 

anaerobic digester still may be an 

integral part of other qualified biogas 

property, such as a system that cleans 

and conditions the biogas. 

The Treasury Department and the IRS 

intend that the final regulations provide 

a function-oriented approach to 

determining what property is 

considered energy property, including 

qualified biogas property. The Proposed 

Regulations provided examples of types 

of property that are included as 

qualified biogas property, which were 

intended to be illustrative but not 

exclusive. Therefore, the final 

regulations do not include additional 

examples of property that is included as 

qualified biogas property but do clarify 

that property that is an integral part of 

qualified biogas property includes, but 

is not limited to, a waste feedstock 

collection system, landfill gas collection 

system, and mixing and pumping 

equipment. 

b. Flaring Allowance 

The preamble to the Proposed 

Regulations explained that a commenter 

to Notice 2022–49 stated that some 

properties that produce electricity from 

gas using a combustion process may 

flare waste or tail gas, including during 

commissioning or maintenance periods. 

This commenter recommended a de 

minimis exception. In response to this 

concern, the Proposed Regulations 

requested comments regarding whether 

such an exception is necessary and what 

should be considered de minimis for 

this purpose. 

All comments received in response to 

this request were in favor of an 

exception. Some comments pointed to 

the overarching purpose of the qualified 

biogas property and noted that nominal 

leakage should not prevent property 

from qualifying. For example, a 

commenter asserted that if the 

overarching purpose of the biogas is for 

sale or productive use, then the 

combustion of a de minimis portion 

should not prevent a property that 

produced such gas from being a 

qualified biogas property. Similarly, a 

commenter recommended allowing a de 

minimis exception for flare waste or tail 

gas so that otherwise eligible biomass 

systems will not be disqualified from 

the credit due to small amounts of 

leakage arising from normal business 

operations. 

Another commenter pointed to the 

benefit of hazard reduction associated 

with nominal flaring. This commenter 

stated that flaring in appropriate 

circumstances should not disqualify a 

facility, because ‘‘flares are often 

required as a safety and emissions 

hazard reducer to be used in case of 

emergency, accidental release, start-up 

and shut-down procedures, and other 

rare occurrences.’’ 

The Treasury Department and the IRS 

understand commenters’ concerns 

regarding whether flaring performed for 

commissioning, maintenance, safety, or 

other reasons may impact eligibility for 

the section 48 tax credit. Qualified 

biogas property is defined, in part, as 

capturing biogas ‘‘for sale or productive 

use, and not for disposal via 

combustion.’’ The Treasury Department 

and the IRS interpret this statutory 

requirement to not impact a qualified 

biogas property that combusts, or flares, 

some biogas under standard operating 

conditions, provided the primary 

purpose of the qualified biogas property 

is sale or productive use of biogas and 

any flaring complies with all relevant 

Federal, State, regional Tribal, and local 

laws and regulations. After consulting 

the DOE, the Treasury Department and 

the IRS understand that flare permits are 

specific to a given biogas facility design. 

Determining the amount of flaring 

appropriate for safety purposes is 

specific to each qualified biogas 

property and enforcing that limit is best 

left to relevant Federal, State, regional, 

local, and/or Tribal regulators. Flaring 

performed in accordance with 

applicable permits from relevant 

Federal, State, regional, local, and/or 

Tribal regulators should not jeopardize 

a qualified biogas property’s eligibility 

for the section 48 credit. Accordingly, 

the final regulations at § 1.48–9(e)(11) 

provide that while a qualified biogas 

property generally may not capture 

biogas for disposal via combustion, 

combustion in the form of flaring will 

not disqualify a qualified biogas 

property, provided the primary purpose 

of the qualified biogas property is sale 

or productive use of biogas and any 

flaring complies with all relevant 

Federal, State, regional, Tribal, and local 

laws and regulations. 

c. Point of Measurement 

Proposed § 1.48–9(e)(11)(ii) would 

provide that the methane content 

requirement described in section 

48(c)(7)(A)(i) and in the Proposed 

Regulations is measured at the point at 

which gas exits the biogas production 

system, which may include an 

anaerobic digester, landfill gas 

collection system, or thermal 

gasification equipment. This 

measurement point was described in the 

Proposed Regulations as the point at 

which a taxpayer generally must 

determine whether it will convert the 

biogas to fuel for sale or use it directly 

to generate heat or to fuel an electricity 

generation unit. 

Several commenters requested 

clarification regarding the point of 

measurement for the methane content 

requirement. A commenter specifically 

requested clarification regarding the 

point at which the gas exits the biogas 

production system. Several commenters 

noted that the point of measurement 

provided in the Proposed Regulations 

was incorrect because it is too early in 

the process. These comments responded 

to the Proposed Regulations as well as 

the Correction. This sentiment generally 

is consistent with the commenters’ view 

that biogas upgrading equipment should 

be considered eligible biogas property. 

One commenter stated that the 

Correction does not address the 

measurement point for the methane 

content requirement for purposes of 

determining whether the definition of 

‘‘qualified biogas property’’ is met. The 

commenter asserted that the final rule 

must clarify that the 52 percent methane 

content requirement is measured at the 

point at which the biogas is going to be 

sold or put to productive use, which 

would be after the biogas has been 

passed through the cleaning and 

conditioning and/or gas upgrading 

equipment. The commenter suggested 

that a change should be made regardless 

of whether gas upgrading equipment is 

considered ‘‘integral’’ or ‘‘functionally 

interdependent.’’ The commenter 

submitted another comment after the 

Correction was issued urging that the 

methane content of 52 percent should 

be measured at the point at which the 

gas is ready for sale or applicable 

productive use, that is, at the end of the 

cleaning and conditioning process. 

Several commenters supported these 

comments and incorporated them into 

their own comments. 

Another commenter similarly stated 

that the methane content should be 

measured at the end of the cleaning and 

conditioning process, which would be 

the point at which the biogas is going to 

be sold or put to a productive use, to 

ensure it consists of at least 52 percent 

methane. Many commenters have 

asserted that the 52 percent 

measurement is a floor (not a 


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ceiling).Therefore, even if the 

measurement point were to occur 

earlier, taxpayers that later upgrade the 

biogas could still satisfy the 52 percent 

requirement. 

The Treasury Department and the IRS 

agree that the point of measurement in 

the Proposed Regulations was too early 

in the biogas production process, which 

could potentially frustrate compliance 

with the ‘‘sale or productive use’’ 

requirement. Therefore, the final 

regulations adopt at § 1.48–9(e)(11)(ii) 

the rule that the methane content 

requirement described in section 

48(c)(7)(A)(i) and in the Proposed 

Regulations is measured at the point at 

which the biogas exits the qualified 

biogas property. 

6. Microgrid Controllers 

Section 48(a)(3)(A)(xi) provides that 

energy property includes microgrid 

controllers. Section 48(c)(8)(A) defines a 

microgrid controller as equipment that 

is part of a qualified microgrid and 

designed and used to monitor and 

control the energy resources and loads 

on such microgrid. Section 48(c)(8)(B) 

defines a qualified microgrid as an 

electrical system that includes 

equipment that is capable of generating 

not less than 4 kW and not greater than 

20 MW of electricity; is capable of 

operating in connection with the 

electrical grid and as a single 

controllable entity with respect to such 

electrical grid, and independently (and 

disconnected) from such electrical grid; 

and is not part of a bulk-power system 

(as defined in section 215 of the Federal 

Power Act (16 U.S.C. 824o)). 

Proposed § 1.48–9(e)(12)(i) would 

provide generally that a microgrid 

controller is equipment that is part of a 

qualified microgrid and is designed and 

used to monitor and control the energy 

resources and loads on such microgrid. 

A qualified microgrid is an electrical 

system that includes equipment that is 

capable of generating not less than 4 kW 

and not greater than 20 MW of 

electricity; is capable of operating in 

connection with the electrical grid and 

as a single controllable entity with 

respect to such electrical grid, and 

independently (and disconnected) from 

such electrical grid; and is not part of a 

bulk-power system (as defined in 

section 215 of the Federal Power Act (16 

U.S.C. 824o)). Proposed § 1.48– 

9(e)(12)(ii) would provide that for 

purposes of proposed § 1.48–9(e)(12), a 

qualified microgrid includes an 

electrical system that is capable of 

operating in connection with the larger 

electrical grid, regardless of whether a 

connection to the larger electrical grid 

exists. 

The preamble to the Proposed 

Regulations requested comments on 

whether the rules for functionally 

interdependent property as would be 

provided in proposed § 1.48–9(f)(2)(ii) 

would be sufficient to determine the 

components that should be included as 

part of a microgrid controller, or 

whether another test is needed due to 

the specific role of microgrid controllers 

and their components. A few 

commenters advocated for the 

application of the functional 

interdependence standard to microgrid 

controllers. For example, one 

commenter stated that the functional 

interdependence standard is thoughtful, 

provides direct language applicable to 

the definition of microgrid controllers, 

and creates an easy and thorough way 

to identify the multi-faceted 

infrastructure that goes into microgrid 

controllers to generate and store energy. 

However, several commenters 

requested that particular components of 

property be listed specifically in the 

definition of microgrid controllers: 

optimization software, communications 

software, communications equipment, 

incoming service, cables, wiring, 

ethernet switches, computer hardware, 

load controllers, programmable logic 

controllers, meters and relays, building 

management systems, local human 

management interface screens, 

protective relays, breakers, routers, and 

other hardware necessary to monitor 

and control the energy resources and 

loads on a qualified microgrid. 

Additionally, two commenters 

specifically requested the inclusion of 

switchgear in the definition of microgrid 

controllers. One of the commenters 

explained that switchgear is the true 

backbone of the microgrid controls 

system. However, the commenter also 

pointed out that switchgear is an 

essential part of any building’s electrical 

operations with or without a microgrid. 

This commenter also noted that because 

switchgear is a critical piece of a 

building’s infrastructure, it is usually 

also owned by the building owner. The 

commenters generally suggested that if 

switchgear is owned by the building 

owner but paid for by the taxpayer that 

owns the microgrid controller, then the 

cost of the switchgear should be 

included in the basis of the taxpayer’s 

section 48 credit for the microgrid 

controller similar to the inclusion of 

interconnection property costs in the 

credit basis of certain lower-output 

energy properties. 

The two commenters also suggested 

that if switchgear is part of an existing 

building, and a microgrid controller is 

added in a case in which a taxpayer is 

applying the 80/20 Rule, then the 

switchgear should not be taken into 

account for purposes of the 80/20 Rule. 

For example, one of the commenters 

explained that switchgear in an existing 

building may be sufficient for 

connecting microgrid controls with 

relevant distributed energy resources 

and load resources either as is or with 

some additional pieces of equipment 

and because all microgrid control 

components will connect through the 

switchgear, it is critical that the 

integrated but standalone microgrid 

control equipment is not considered as 

retrofitting of the switchgear in existing 

buildings under the 80/20 Rule. The 

other commenter likewise 

recommended that equipment 

integrated into switchgear to enable the 

installation of a microgrid controller 

should not be considered retrofitted 

equipment but a separate purchase of 

functionally interdependent energy 

property. 

The Treasury Department and the IRS 

consulted with the DOE and confirmed 

that while switchgear may be a 

necessary part of a microgrid, 

switchgear is neither functionally 

interdependent nor integral to a 

microgrid controller. Switchgear plays a 

vital role in ensuring the reliability and 

safety of microgrids by managing power 

distribution, providing protection, and 

maintaining system integrity. However, 

the microgrid controller is responsible 

for the overall management and 

optimization of a microgrid’s energy 

resources and its interaction with the 

main grid. For example, in the building 

context, technically a fuse or circuit 

breaker could be considered a 

switchgear, in which case they would 

exist in buildings with or without 

microgrid control. As a result, 

switchgear is not part of the energy 

property defined as a ‘‘microgrid 

controller’’ and is not taken into account 

for purposes of the 80/20 Rule. For 

further discussion of the 80/20 Rule see 

part III.A. of this Summary of Comments 

and Explanation of Revisions. 

After considering comments 

requesting that the final regulations add 

more examples of specific components 

eligible as part of a microgrid controller, 

the Treasury Department and the IRS 

decline to do so. The Treasury 

Department and the IRS have further 

considered the unit of energy property 

as applied to microgrid controllers and 

conclude that the proposed rule is clear. 

Commenters also requested 

clarification concerning what is 

included as a ‘‘microgrid’’ for purposes 

of section 48. Two commenters 

requested the adoption of language 

clarifying that an eligible microgrid 

includes an electrical system that is 


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capable of operating in connection with 

the larger electrical grid regardless of 

whether the microgrid is physically 

connected to the electrical grid. Another 

commenter noted that until it is 

clarified that single-family homes with 

systems greater than 4 kW are eligible 

‘‘microgrids,’’ tax equity investors likely 

will be reluctant to finance the 

installation of load controllers 

associated with rooftop solar, storage, 

and residential microgrid installations. 

Similarly, another commenter asserted 

that the term ‘‘qualified microgrid’’ 

applies both to microgrids as they are 

conventionally known, which could 

involve many households or businesses, 

and to ‘‘nanogrids,’’ which usually 

involve a single household. Regarding 

the request for clarification about a 

microgrid needing to be physically 

connected to the electrical grid, 

proposed § 1.48–9(e)(12)(ii) already 

provides that a qualified microgrid 

includes an electrical system that is 

capable of operating in connection with 

the larger electrical grid, regardless of 

whether a connection to the larger 

electrical grid exists. Regarding the 

other comments, proposed § 1.48– 

9(e)(12)(i) adopts the statutory 

definition of a qualified microgrid as an 

electrical system that includes 

equipment that is capable of generating 

not less than 4 kW and not greater than 

20 MW of electricity. This definition 

encompasses a wide range of 

technologies. To the extent that such 

‘‘nanogrids’’ used in single family 

homes meet the definition under the 

statute and proposed § 1.48–9(e)(12)(i), 

it is unnecessary to change the 

definition to identify this certain 

technology. The proposed rule is 

adopted without change. 

C. Definition of Energy Property and 

Scope of Included Components 

Since shortly after the enactment of 

section 48, energy property eligible for 

the section 48 credit has been 

interpreted by the Treasury Department 

and the IRS to include, in addition to 

energy generation property, costs related 

to components such as power 

conditioning equipment, transfer 

equipment, and parts related to the 

functioning of that equipment. 

On November 9, 1978, the Energy Tax 

Act of 1978, amended section 48 by 

adding a new subsection (then section 

48(l)) to define ‘‘energy property.’’ 

Public Law 95–816, 92 Stat. 2174. On 

January 23, 1981, the Treasury 

Department and the IRS promulgated 

T.D. 7765, 46 FR 7287–01, to provide 

additional guidance regarding the 

definition of energy property. The 

preamble to T.D. 7765 states that ‘‘[i]n 

response to comments, the definition of 

solar energy property was expanded to 

make it clear that it includes storage 

devices, power conditioning equipment, 

transfer equipment, and property solely 

related to the functioning of those items. 

However, such equipment does not 

include transmission equipment.’’ 

The preamble to T.D. 7765 also states 

that ‘‘[a] number of comments cited 

specific legislative history to the effect 

that wind energy property includes 

’transfer equipment.’ ’’ T.D. 7765 defines 

‘‘transfer equipment’’ as including 

equipment that permits the aggregation 

of electricity generated by several 

windmills and equipment that alters 

voltage in order to permit transfer to a 

transmission line. T.D. 7765 adds 

transfer equipment, but not 

transmission lines, to the definition of 

wind energy property. 

Former § 1.48–9(d)(3) defines ‘‘solar 

energy property’’ as equipment that uses 

solar energy to generate electricity, and 

includes storage devices, power 

conditioning equipment, transfer 

equipment, and parts related to the 

functioning of those items. This 

provision also provides that solar energy 

property used to generate electricity 

includes only equipment up to (but not 

including) the stage that transmits or 

uses electricity. 

Former § 1.48–9(e) defines ‘‘wind 

energy property’’ as consisting of a 

windmill, wind-driven generator, 

storage devices, power conditioning 

equipment, transfer equipment, and 

parts related to the functioning of those 

items. Section 48(a)(3) no longer 

includes wind energy property as a type 

of energy property. However, qualified 

wind facilities (including qualified 

offshore wind facilities) may be 

qualified investment credit facilities 

that a taxpayer may elect to treat as 

energy property if they meet all the 

requirements provided in section 

48(a)(5). 

While not specifically addressed in 

section 48, guidance published in the 

Internal Revenue Bulletin interpreting 

section 48 has provided that 

functionally interdependent 

components are considered components 

of energy property eligible for the 

section 48 credit. In Notice 2018–59, 

2018–28 I.R.B. 196, the Treasury 

Department and the IRS clarified 

components that are considered part of 

an energy property. Section 7.01(1) of 

Notice 2018–59 states that an energy 

property generally includes all 

components of property that are 

functionally interdependent (unless 

such equipment is an addition or 

modification to an energy property). 

Notice 2018–59 also provides that 

components of property are functionally 

interdependent if the placing in service 

of each component is dependent upon 

the placing in service of each of the 

other components in order to generate 

electricity. Further, Notice 2018–59 

cites Revenue Ruling 94–31, 1994–1 

C.B. 16, in stating that functionally 

interdependent components of property 

that can be operated and metered 

together and can begin producing 

electricity separately from other 

components of property within a larger 

energy project will be considered an 

energy property. 

In the context of defining ‘‘section 38 

property,’’ § 1.48–1(d)(4) provides that 

‘‘section 38 property’’ is ‘‘used as an 

integral part of one of the specified 

activities [for which section 38 property 

may function] if it is used directly in the 

activity and is essential to the 

completeness of the activity.’’ Section 

1.48–1(d)(4) also provides that 

‘‘[p]roperty shall be considered used as 

an integral part of one of the specified 

activities if so used either by the owner 

of the property or by the lessee of the 

property.’’ Notice 2018–59 incorporates 

the concept of integral property from 

§ 1.48–1(d) to provide that certain 

property that is an integral part of an 

energy property is included in energy 

property for purposes of the section 48 

credit. 

Notice 2018–59 also explains that 

property that is ‘‘functionally 

interdependent’’ to the generation of 

electricity is treated as a unit of energy 

property. Further, Notice 2018–59 

provides that certain other property 

integral to the production of electricity 

is included in determining what costs to 

include in the basis of energy property 

and the date on which construction of 

the energy property began. Section 

7.02(1) of Notice 2018–59 includes an 

example illustrating that, while a 

transmission tower located at a site 

where energy property is located is not 

energy property because transmission is 

not an integral part of the activity 

performed by the energy property, a 

custom-designed transformer that steps 

up the voltage of electricity produced at 

an energy property to the voltage 

needed for transmission is power 

conditioning equipment, which is an 

integral part of the activity performed. 

In addition, section 7.02(2) of Notice 

2018–59 explains that onsite roads used 

to operate and maintain the energy 

property are integral to the production 

of electricity, but not roads used 

primarily to access the site or primarily 

for employee or visitor vehicles. 

Similarly, section 7.02(3) and (4) of 

Notice 2018–59 explain that fences are 

not integral to the production of 


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electricity nor are buildings, unless the 

building is essentially an item of 

machinery or equipment, or a structure 

that houses property that is integral to 

the activity of an energy property if the 

use of the structure is so closely related 

to the use of the housed energy property 

that the structure clearly can be 

expected to be replaced if the energy 

property it initially houses is replaced. 

One challenge in defining 

components that are included in energy 

property is determining the components 

that are common to all energy property, 

without limiting or constraining future 

technological advances. To avoid 

limiting future energy technologies, the 

Treasury Department and the IRS 

consulted with the DOE and determined 

that the best option is to adopt a 

function-oriented approach to describe 

the types of components that are 

considered energy property. 

Accordingly, proposed § 1.48–9(f) 

would adopt the concepts of functional 

interdependence and property that is an 

integral part of an energy property as 

provided in guidance published in the 

Internal Revenue Bulletin issued 

previously by the Treasury Department 

and the IRS. 

Further, consistent with prior 

guidance, proposed § 1.48–9(f)(1) would 

provide the general rule that an energy 

property includes a unit of energy 

property that meets the requirements for 

energy property, is not excluded from 

energy property, and is of a type of 

energy property included in section 

48(a)(3). Property owned by the 

taxpayer that is an integral part of an 

energy property is treated as energy 

property. Energy property does not 

include any electrical transmission 

equipment, such as transmission lines 

and towers, or any equipment beyond 

the electrical transmission stage. With 

the exception of the modification of 

energy storage technology (as provided 

in proposed § 1.48–9(e)(10)(iii)) and the 

application of the 80/20 Rule (as 

provided in proposed § 1.48–14(a)(1)), 

energy property does not include 

equipment that is an addition or 

modification to an existing energy 

property. 

1. Unit of Energy Property 

Proposed § 1.48–9(f)(2)(i) would 

provide, in part, that the term unit of 

energy property means all functionally 

interdependent components of property 

(as defined in proposed § 1.48– 

9(f)(2)(ii)) owned by the taxpayer that 

are operated together and that can 

operate apart from other energy 

properties within a larger energy project 

(as defined in proposed § 1.48–13(d)). 

For rooftop solar energy property, all 

components of property that are 

installed on a single rooftop would also 

be considered a single unit of energy 

property under the Proposed 

Regulations. 

A commenter requested additional 

examples regarding the ‘‘unit of energy 

property’’ with respect to electrical 

energy storage and other energy 

property. For example, the commenter 

requested an example illustrating that 

an individual battery capable of 

operating on its own or with other 

batteries is a ‘‘unit of energy property.’’ 

The commenter asserted that this 

should be the clear result if such a 

battery can ‘‘operate apart from other 

energy properties,’’ including, for 

example, a single storage container with 

multiple battery packs. The commenter 

noted that this is also consistent with 

prior guidance published in the Internal 

Revenue Bulletin regarding wind farms. 

The commenter asserted that if under 

this prior guidance, the addition of a 

new wind turbine is treated as the 

addition of a new unit of energy 

property, then the same rule should 

apply to batteries. A definitive response 

to such comments would require the 

Treasury Department and the IRS to 

conduct a complete factual analysis of 

the property in question, which may 

include information beyond that which 

was provided by the commenters. 

Because more information is needed to 

make the determinations requested by 

the commenters, the requested 

clarifications are not addressed in these 

final regulations. 

With respect to solar energy property, 

some commenters suggested that the 

Proposed Regulations did not clearly 

draw the line between the unit of energy 

property and property integral to the 

unit of energy property. For example, a 

commenter stated that the final 

regulations need to clarify that a unit of 

solar energy property includes all solar 

panels, racks, wires, cables, and 

equipment connected through a single 

inverter (rather than all property 

through the transformer). This 

commenter referred to Example 1 in 

proposed § 1.48–9(f)(5)(i) and 

recommended adding an example (or 

modifying the existing example) to 

clarify the components in the unit of 

solar energy property. This commenter 

explained that this is necessary to 

comport with the definition of a unit of 

energy property as all functionally 

interdependent components, since each 

group of components connected through 

an inverter may be operated 

independently. Similarly, a commenter 

requested that the final regulations 

clarify that a solar project may have 

multiple units of energy property 

connected through a single inverter. 

Another commenter also requested a 

new or revised example to illustrate that 

for a larger-scale ground-mounted solar 

array, a ‘‘unit of energy property’’ is a 

single string or block of panels 

connected to each other and through a 

common inverter. 

As highlighted by commenters, solar 

energy property may be configured in 

different ways. The Treasury 

Department and IRS agree with 

commenters that clarity on how the 

definition of a unit of energy property 

is applied to solar energy property is 

warranted. Under the Proposed 

Regulations, a unit of energy property 

means all functionally interdependent 

components of property (as defined in 

proposed § 1.48–9(f)(2)(ii)) owned by 

the taxpayer that are operated together 

and that can operate apart from other 

energy properties within a larger energy 

project (as defined in proposed § 1.48– 

13(d)). In applying this definition to a 

solar energy property, the Treasury 

Department and IRS view the unit of 

energy property as all the solar panels 

that are connected to a common 

inverter, which would be considered an 

integral part of the energy property, or 

connected to a common electrical load, 

if a common inverter does not exist. 

Accordingly, a large, ground-mounted 

solar energy property may be comprised 

of one or more units of energy property 

depending upon the number of 

inverters. The example in the final 

regulations is updated to reflect this. 

The final regulations adopt the 

definition of unit of energy property as 

proposed. 

For rooftop solar energy property, all 

components of property that are 

installed on a single rooftop would also 

be considered a single unit of energy 

property under the Proposed 

Regulations. The final regulations adopt 

this rule as proposed. 

2. Functional Interdependence 

Proposed § 1.48–9(f)(2)(ii)(A) would 

provide that except as provided in 

proposed § 1.48–9(f)(2)(ii)(B), with 

respect to components of a unit of 

energy property, the term functionally 

interdependent means that the placing 

in service of each component is 

dependent upon the placing in service 

of each of the other components in order 

to generate or store electricity, thermal 

energy, or hydrogen as provided by 

section 48(c) and as described in 

proposed § 1.48–9(e). 

Proposed § 1.48–9(f)(2)(ii)(B) would 

provide that in the case of solar process 

heat equipment, fiber-optic solar energy 

property, electrochromic glass property, 

GHP property, qualified biogas property, 


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and microgrid controllers, with respect 

to components of such property, the 

term functionally interdependent means 

that the placing in service of each 

component is dependent upon the 

placing in service of each of the other 

components in order to perform the 

intended function of the energy 

property as provided by section 48(c) 

and as described in proposed § 1.48– 

9(e). 

Many commenters requested that 

taxpayers be permitted to claim a credit 

for a functionally interdependent piece 

of property without owning the entire 

unit of energy property. These 

comments addressing ownership are 

discussed in part III.D. of this Summary 

of Comments and Explanation of 

Revisions. 

Other commenters asserted that the 

statute does not require ownership of a 

unit of energy property; instead, the 

taxpayer must only own something that 

fits the relevant definition of ‘‘energy 

property.’’ These commenters stated 

that the proposed definitions of the unit 

of energy property based on ‘‘functional 

interdependence’’ and integral property 

have no basis in section 48. A 

commenter stated that section 48 does 

not require or permit the Treasury 

Department or the IRS to discriminate 

between types of energy property, 

whether based on functionality, 

ownership, or otherwise. This 

commenter referred to the flush 

language at section 48(a)(3)(D): ‘‘[energy 

property] shall not include any property 

which is part of a facility the production 

from which is allowed as a credit under 

section 45 for the taxable year or any 

prior taxable year.’’ The commenter said 

this language clearly signals that 

Congress recognizes that property may 

be part of a facility, but that the term 

‘‘property’’ represents something less 

than a facility. The commenter also 

referred to Technical Advice 

Memorandum 8528001 (January 8, 

1985) for the principle that components 

of property that may function together 

can also retain their separate identity for 

tax purposes. Lastly, the commenter 

stated that section 48 is focused on 

capitalized expenditures on items of 

property that are tangible personal 

property for Federal income tax 

purposes that are used in a trade or 

business. As a result, the commenter 

asserted that to define the types of 

property that qualify for the section 48 

credit, taxpayers should focus on items 

of property that are integral to a process 

that Congress has chosen to incentivize, 

for example, the production of energy 

using certain inputs. This commenter 

requested the removal of the functional 

interdependence standard at proposed 

§ 1.48–9(f) and asserted that while this 

standard is needed for section 45 to 

determine a qualified facility and for 

beginning of construction purposes, this 

standard is not needed for purposes of 

section 48. 

Another commenter stated that the 

Proposed Regulations contradict the 

language and intent of the IRA by 

distinguishing between ‘‘functionally 

interdependent’’ components and 

‘‘integral parts’’ of energy property to 

determine the owner or owners of 

energy property who may claim the 

section 48 credit. The commenter noted 

that this distinction contravenes the 

plain text of section 48, which permits 

the section 48 credit to be claimed by 

the owner of energy property if the 

original use of that energy property 

began with such owner. 

The concept of a unit of energy 

property also is intertwined with the 

discussion of the 80/20 Rule in part 

III.A. of this Summary of Comments and 

Explanation of Revisions. In the context 

of the 80/20 Rule, a few commenters 

also did not agree with this concept. For 

example, a commenter highlighted the 

statutory language and pointed out that 

certain definitions of energy property 

use the word ‘‘equipment’’ as opposed 

to ‘‘system.’’ A commenter explained 

that some energy properties are defined 

as equipment that serves a function, 

such as solar energy property defined in 

section 48(a)(3)(A)(i) and GHP property 

defined in section 48(a)(3)(A)(vii). This 

commenter contrasted those definitions 

with statutory definitions of other types 

of energy property as comprising a 

system, such as the definition of CHP 

property in section 48(c)(3), thermal 

energy storage property as defined in 

section 48(c)(6)(C)(i), and qualified 

biogas property as defined in section 

48(c)(7). The commenter concluded that 

the ‘‘unit of energy property’’ concept as 

provided in proposed § 1.48–9(f)(2)(i) is 

appropriate for energy properties 

defined as systems, but it should not be 

applied to energy properties defined as 

equipment. 

Another commenter made a similar 

point about misalignment of the ‘‘unit of 

energy property’’ concept by focusing 

specifically on its application to 

geothermal energy property. The 

commenter stated that despite the 

statute defining ‘‘energy property’’ at the 

equipment level, ‘‘equipment used to 

produce, distribute, or use energy 

derived from a geothermal deposit,’’ the 

Proposed Regulations use the term ‘‘unit 

of energy property,’’ a term defined 

more expansively, such that it could be 

interpreted to be equivalent to an entire 

facility in the case of geothermal energy 

property. By using the term ‘‘unit of 

energy property,’’ the commenter 

asserted that the Proposed Regulations 

give a misleading appearance that the 

rules comport with the statutory text of 

section 48 but define that term so that 

it is functionally equivalent to the term 

‘‘facility’’ as applied in section 45. 

In the context of microgrid 

controllers, some commenters agreed 

with the application of the functional 

interdependence standard. A 

commenter stated that microgrids are 

highly customizable, and the functional 

interdependence standard as proposed 

would allow accommodation of the 

different engineering requirements of 

qualified microgrids to future-proof the 

definition and allow for technological 

advances. This commenter agreed that 

the functional interdependence 

standard is sufficiently flexible for 

microgrid controllers. 

The statute supports the Proposed 

Regulations’ definition and use of the 

terms ‘‘functionally interdependent’’ 

and ‘‘unit of energy property.’’ 

Additionally, these concepts have been 

adopted in previous guidance published 

in the Internal Revenue Bulletin under 

section 48, particularly Notice 2018–59, 

which provides guidance regarding the 

beginning of construction rules for the 

section 48 credit. 

There are three key reasons for 

requiring an energy property to include 

all functionally interdependent 

components that are part of a unit of 

energy property. First, the statutory 

definition of each type of energy 

property as provided in section 48(a)(3) 

and (c) is included at proposed § 1.48– 

9(e). The unit of energy property 

definition at § 1.48–9(e)(2) aligns with 

these statutory definitions by 

encompassing the property required to 

generate electricity or perform the 

required function as described in the 

statute. If a taxpayer owns merely a 

component of property within a larger 

unit of energy property and is not 

required to place in service the entire 

unit of energy property, then in some 

cases there would be no certainty that 

the generation of electricity or other 

statutorily required function would be 

satisfied when the taxpayer claims the 

credit. 

Some commenters suggested that this 

uncertainty could be eliminated or 

reduced by a coordinated operating plan 

among separate taxpayers. However, 

section 48 provides a credit only if a 

taxpayer places in service ‘‘energy 

property’’ as defined by statute. It does 

not provide a credit for placing in 

service a mere component of energy 

property, regardless of whether it is 

subject to an operating plan. In addition, 

taxpayers claim the section 48 credit by 


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filing Form 3468, Investment Credit, 

with their Federal income tax return. 

The IRS has no authority to compel 

taxpayers to coordinate tax credit claims 

or share tax return information with 

other taxpayers. Any taxpayer claiming 

a section 48 credit must satisfy the 

statutory requirements, as described by 

Congress, for each type of energy 

property, and the functional 

interdependence standard provided in 

the Proposed Regulations would ensure 

that the statutory requirements are met. 

Second, focusing on the statutory 

language in section 48(a)(1), which 

provides that ‘‘the energy credit for any 

taxable year is the energy percentage of 

the basis of each energy property placed 

in service during such taxable year,’’ the 

definition of the unit of energy property 

using a functional interdependence 

standard is consistent with how the 

term ‘‘placed in service’’ has been 

interpreted by the courts and developed 

in various forms of guidance. Proposed 

§ 1.48–9(b)(5) largely incorporates the 

general rules provided by § 1.46–3(d)(1) 

for determining when a taxpayer has 

placed a property in service for the 

section 48 credit. An energy property is 

considered ‘‘placed in service’’ in the 

earlier of the taxable year in which, 

under the taxpayer’s depreciation 

practice, the depreciation of such energy 

property begins or the taxable year in 

which the property is ‘‘placed in a 

condition or state of readiness and 

availability for a specifically assigned 

function.’’ See §§ 1.46–3(d)(1) and 

1.167(a)–11(e)(1)(i). 

To determine the taxable year in 

which depreciation begins, it is the 

energy property described in section 

48(a)(3)(A) that must be depreciable. See 

section 48(a)(3)(C). As stated earlier, this 

energy property cannot be a mere 

component that would be depreciated in 

isolation from the rest of the 

components that would make up a unit 

of energy property. Treating individual 

components within a unit of energy 

property as an energy property would 

make it practically impossible to 

determine the taxable year in which the 

depreciation of components that 

comprise an energy property begins. 

The Tax Court has said that ‘‘when an 

individual component that is designed 

to operate as a part of a larger system is 

incapable of contributing to the system 

in isolation, it is not regarded as placed 

in service until the entire system 

reaches a condition of readiness and 

availability for its specifically assigned 

function.’’ Green Gas Del. Statutory Tr. 

v. Commissioner, 147 T.C. 1, 52 (2016), 

aff’d, 903 F.3d 138 (D.C. Cir. 2018). The 

Tax Court further explained that 

components ‘‘are not to be considered 

placed in service separately from the 

system of which they are an essential 

part.’’ Olsen v. Commissioner, T.C. 

Memo 2021–41, aff’d 52 F.4th 889 (10th 

Cir. 2022). See also Sealy Power, Ltd. v. 

Commissioner, 46 F.3d 382, 390 (5th 

Cir. 1995), aff’g in part, rev’g in part on 

other grounds T.C. Memo. 1992–168; 

see Pub. Serv. Co. v. United States, 431 

F.2d 980, 984 (10th Cir. 1970) (holding 

that individual components of a power 

plant could not be considered separately 

because no component ‘‘would serve 

any useful purpose’’ on its own). As 

demonstrated by these rulings, courts 

have long interpreted the placed in 

service requirement to apply to all of the 

functionally interdependent 

components of a unit of property that 

must be placed in service collectively. 

Lastly, in amending section 48 for 

taxable years after the enactment of the 

IRA, Congress did not contradict or 

displace these concepts, which had 

already been established in guidance 

published in the Internal Revenue 

Bulletin. In Notice 2018–59, the 

Treasury Department and the IRS 

clarified what components are 

considered part of an energy property. 

Section 7.01(1) of Notice 2018–59 states 

that an energy property generally 

includes all components of property 

that are functionally interdependent 

(unless such equipment is an addition 

or modification to an energy property). 

Further, Notice 2018–59 provides that 

components of property are functionally 

interdependent if the placing in service 

of each component is dependent upon 

the placing in service of each of the 

other components to generate 

electricity. Notice 2018–59 relies upon 

the rationale provided in Revenue 

Ruling 94–31, 1994–1 C.B. 16, that 

functionally interdependent 

components of property that can be 

operated and metered together and can 

begin producing electricity separately 

from other components of property 

within a larger energy project will be 

considered an energy property. 

3. Integral Part of an Energy Property 

Proposed § 1.48–9(f)(3)(i) would 

provide that for purposes of the section 

48 credit, property owned by a taxpayer 

is an integral part of an energy property 

owned by the same taxpayer if it is used 

directly in the intended function of the 

energy property as provided by section 

48(c) and as described in proposed 

§ 1.48–9(e) and is essential to the 

completeness of the intended function. 

Property that is an integral part of an 

energy property is energy property. A 

taxpayer may not claim the section 48 

credit for any property not owned by the 

taxpayer that is an integral part of the 

taxpayer’s energy property. Multiple 

energy properties (whether owned by 

one or more taxpayers) may include 

shared property that may be considered 

an integral part of each energy property 

so long as the cost basis for the shared 

property is properly allocated to each 

energy property. The total cost basis of 

such shared property divided among the 

energy properties may not exceed 100 

percent of the cost of such shared 

property. In addition, property that is an 

integral part of an energy property that 

is also shared by a qualified facility (as 

defined in section 45(d)) will not be 

considered property that is not energy 

property under proposed § 1.48–9(d). 

This means that property that is also 

used by a qualified facility (as defined 

in section 45(d)) may still be energy 

property. 

Proposed § 1.48–9(f)(3)(ii) would 

provide that property that is an integral 

part of energy property includes power 

conditioning equipment and transfer 

equipment used to perform the intended 

function of the energy property as 

provided by section 48(c) and as 

described in proposed § 1.48–9(e). 

Power conditioning equipment 

includes, but is not limited to, 

transformers, inverters, and converters, 

which modify the characteristics of 

electricity or thermal energy into a form 

suitable for use or transmission or 

distribution. Parts related to the 

functioning or protection of power 

conditioning equipment are also treated 

as power conditioning equipment and 

include, but are not limited to, switches, 

circuit breakers, arrestors, and hardware 

and software used to monitor, operate, 

and protect power conditioning 

equipment. 

Transfer equipment includes 

equipment that permits the aggregation 

of energy generated by components of 

energy properties and equipment that 

alters voltage to permit transfer to a 

transmission or distribution line. 

Transfer equipment does not include 

transmission or distribution lines. 

Examples of transfer equipment include, 

but are not limited to, wires, cables, and 

combiner boxes that conduct electricity. 

Parts related to the functioning or 

protection of transfer equipment are also 

treated as transfer equipment and may 

include items such as current 

transformers used for metering, 

electrical interrupters (such as circuit 

breakers, fuses, and other switches), and 

hardware and software used to monitor, 

operate, and protect transfer equipment. 

Power conditioning equipment and 

transfer equipment that are integral to 

an energy property may be integral to 

another energy property or used by a 

qualified facility (as defined in section 


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45(d)), so long as the total cost basis of 

the integral property is not exceeded for 

purposes of the section 48 credit 

claimed with respect to any energy 

property or qualified facility that share 

such property. 

Proposed § 1.48–9(f)(3)(iii) would 

provide that roads that are an integral 

part of an energy property are integral 

to the activity performed by the energy 

property such as onsite roads that are 

used for equipment to operate and 

maintain the energy property. Roads 

primarily for access to the site, or roads 

used primarily for employee or visitor 

vehicles, are not integral to the activity 

performed by an energy property. 

Proposed § 1.48–9(f)(3)(iv) would 

provide that fencing is not an integral 

part of an energy property because it is 

not integral to the activity performed by 

the energy property. A commenter 

disagreed that fencing is not integral 

and asserted that concerns of national 

security dictate the fences, along with 

security systems and monitoring 

devices, be treated as integral to 

electricity generation. Fencing is not 

considered property integral to an 

energy property because it is not 

essential to the completeness of the 

intended function of an energy property, 

whether electricity generation or 

another specific function of energy 

property. This rule originally was 

provided in Notice 2018–59 and was 

included in the Proposed Regulations. 

The proposed rule is adopted without 

change. 

For the various section 48 energy 

properties, commenters requested 

confirmation that certain property is an 

integral part of an energy property. A 

commenter requested clarification that 

an HVDC (high-voltage direct current) 

power system is either a ‘‘unit of energy 

property’’ or a ‘‘functionally 

interdependent component’’ of an 

offshore wind facility. If the HVDC 

power system is used directly in the 

intended function of the energy 

property and is essential to the 

completeness of the intended function, 

then the HVDC power system would be 

an integral part to an energy property, 

and thus, treated as part of that energy 

property. However, because the 

generation or storage of electricity or 

thermal energy is not dependent upon 

the placing in service of an HVDC 

power system, it is not a functionally 

interdependent component of an energy 

property and not a separate ‘‘unit of 

energy property.’’ Further, the Proposed 

Regulations included an offshore wind 

example, retained in these final 

regulations, that illustrates the 

application of the energy property rules 

and addresses this commenter’s 

concern. 

Another commenter requested that 

the final regulations clarify that software 

that operates, monitors, or protects the 

project applies more broadly than power 

conditioning and transfer equipment 

and may be considered property integral 

to an energy property. The commenter 

asserted that certain types of software 

used as a part of energy management 

systems, battery management systems, 

and microgrid controllers should be 

considered property integral to an 

energy property. This commenter also 

requested that software that optimizes 

and automates integral parts also be 

eligible. Finally, this commenter 

believed that the final regulations 

should clarify that a taxpayer who owns 

an energy property can include software 

costs in the basis of the energy property 

to compute the section 48 credit. 

Another commenter stated that the 

definition of power conditioning 

equipment expressly includes software 

used to ‘‘monitor, operate, and protect’’ 

such equipment and requested this 

definition be modestly expanded. As 

discussed in this part I.B.6. of the 

Summary of Comments and Explanation 

of Revisions, software may be integral to 

different types of energy property, 

including microgrid controllers. 

Therefore, software that optimizes and 

automates may be integral if it meets the 

integral property rule in § 1.48–9(f)(3). 

To the extent the commenter is asking 

whether software costs may be 

capitalized, that issue is beyond the 

scope of these regulations. The 

proposed rules are adopted without 

change. 

In the context of qualified biogas 

property, commenters requested 

additional examples of what 

components may be integral property. 

Specifically, a commenter asked for 

clarification that mobile trailers or 

containers used to transfer biogas are 

integral to biogas energy property. The 

final regulations do not adopt these 

comments, as these regulations are 

meant to apply to all energy properties 

and do not provide an exclusive list of 

components of property that may be 

included in energy property. The final 

regulations do provide certain examples 

of property that is an integral part of 

qualified biogas property including, but 

not limited to, a waste feedstock 

collection system, a landfill gas 

collection system, and mixing or 

pumping equipment. 

Additionally, a few commenters 

requested clarification regarding the 

determination of when construction 

begins in cases in which two or more 

energy properties share integral 

property. The commenters proposed 

that the beginning of construction on 

one energy property does not determine 

when construction begins on another 

energy property, even if they share 

property integral to both energy 

properties. The Treasury Department 

and the IRS have addressed the 

beginning of construction rules in 

several pieces of Internal Revenue 

Bulletin guidance. The Proposed 

Regulations do not address these rules 

and they are beyond the scope of the 

final regulations. 

In the context of solar energy 

property, a commenter requested that 

the Treasury Department and the IRS 

confirm that power conditioning 

equipment, including transformers, is 

not considered a component of a unit of 

energy property; rather, power 

conditioning equipment is an ‘‘integral 

part’’ of energy property. This 

commenter noted that the example 

included in proposed § 1.48–9(f)(5)(i) 

says this, but requested that the 

Treasury Department and the IRS clarify 

that the language in this example, ‘‘[a]ll 

components of the Property, up to and 

including the transformer are either 

functionally interdependent 

components of the Property or are 

integral parts of the Property,’’ means it 

is the transformer that is the ‘‘integral 

part’’ and the other solar components 

that are the functionally interdependent 

components of the property. This same 

commenter also requested that gen-tie 

lines be clarified as integral property. 

The final regulations, at § 1.48– 

9(f)(3)(ii), provide that power 

conditioning and transfer equipment is 

considered an integral part of an energy 

property and provide a nonexclusive list 

of types of property that are considered 

power conditioning equipment, 

including transformers, and transfer 

equipment. 

Another commenter requested 

confirmation that offshore generating 

assets and components of island-based 

hydropower facilities qualify for the 

section 48 credit. This commenter also 

requested that similar rules and 

examples as those provided in the 

Proposed Regulations for offshore wind 

facilities apply to marine and 

hydrokinetic energy property. As 

discussed in more detail in part III.F. of 

this Summary of Comments and 

Explanation of Revisions, offshore wind 

facilities and qualified hydropower 

facilities are both qualified facilities 

under section 45(d) for which a taxpayer 

may make an election to claim the 

section 48 credit in lieu of the section 

45 credit. Whether certain assets are 

included in an offshore wind facility or 

qualified hydropower facility as defined 


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in section 45(d) is beyond the scope of 

these final regulations. 

4. Property Excluded From Energy 

Property 

Proposed § 1.48–9(d)(2) would 

provide that energy property does not 

include power purchase agreements, 

goodwill, going concern value, or 

renewable energy certificates. A 

commenter requested additional 

clarification and examples of the 

potential bifurcation of tax basis 

between renewable energy certificates 

and an associated energy property. A 

definitive response to this comment 

would require the Treasury Department 

and the IRS to conduct a complete 

factual analysis of the renewable energy 

certificates and associated energy 

property, which may include 

information beyond that which was 

provided by the commenters. Because 

more information is needed to provide 

the clarification requested by the 

commenters, the requested clarification 

is not addressed in these final 

regulations. The final regulations adopt 

the rule as proposed. 

II. Rules Relating to the Increased 

Credit Amount for Satisfying Certain 

Prevailing Wage and Apprenticeship 

Requirements and the Energy Project 

Rule 

Section 48(a)(9) provides for an 

increased credit amount for energy 

projects for taxpayers who satisfy 

certain requirements. Section 

48(a)(9)(A)(i) provides a general rule 

that in the case of any energy project 

that satisfies the requirements of section 

48(a)(9)(B), the amount of the credit 

determined under section 48(a) 

(determined after the application of 

section 48(a)(1) through (8) and (15), 

and without regard to section 

48(a)(9)(A)(i)) is equal to such amount 

multiplied by 5. 

Section 48(a)(9)(A)(ii) provides that 

for purposes of section 48(a), the term 

‘‘energy project’’ means a project 

consisting of one or more energy 

properties that are part of a single 

project. 

Section 48(a)(9)(B) provides that a 

project meets the requirements of 

section 48(a)(9)(B) if it is one of the 

following: (i) a project with a maximum 

net output of less than 1 megawatt of 

electrical (as measured in alternating 

current) or thermal energy (One 

Megawatt Exception); (ii) a project the 

construction of which begins before the 

date that is 60 days after the Secretary 

publishes guidance with respect to the 

requirements of section 48(a)(10)(A) and 

(11) (BOC Exception); and (iii) a project 

that satisfies the requirements of section 

48(a)(10)(A) and (11) (PWA 

requirements). 

Section 48(a)(10) provides rules with 

respect to the prevailing wage 

requirements (Prevailing Wage 

Requirements) under section 48, 

including the special recapture 

provision under section 48(a)(10)(C). 

Section 48(a)(10)(B) provides that rules 

similar to the correction and penalty 

procedures for a failure to satisfy the 

Prevailing Wage Requirements under 

section 45(b)(7)(B) apply, and those 

rules generally apply prior to a 

recapture event under section 

48(a)(10)(C). Section 48(a)(11) provides 

that rules similar to the rules of section 

45(b)(8) apply with respect to the 

apprenticeship requirements 

(Apprenticeship Requirements). 

Under the BOC Exception in section 

48(a)(9)(B)(ii), taxpayers may claim the 

amount of the increased credit without 

satisfying the PWA requirements if 

construction ‘‘begins before the date that 

is 60 days after the Secretary publishes 

guidance with respect to the [PWA 

requirements].’’ The Treasury 

Department and the IRS published 

Notice 2022–61, 2022–52 I.R.B. 560, on 

November 30, 2022, providing initial 

guidance with respect to the PWA 

requirements and starting the 60-day 

period described in those sections. To 

qualify for the BOC Exception, a 

taxpayer must begin construction of a 

section 48 energy project before January 

29, 2023. Unless the One Megawatt 

Exception applies, taxpayers who do not 

meet the BOC Exception under section 

48 would need to satisfy the applicable 

PWA requirements to claim the 

increased amount of credit. 

A. PWA Requirements 

Comments on the general PWA 

requirements (including comments that 

referenced section 48 but addressed the 

PWA requirements more generally) were 

addressed in the PWA Final 

Regulations. Comments received 

regarding the specific PWA 

requirements under section 48, the One 

Megawatt Exception under section 48, 

and the recapture rules contained in 

section 48(a)(10)(C) were not addressed 

in the PWA Final Regulations and are 

addressed in this Summary of 

Comments and Explanation of 

Revisions. 

To the extent consistent with this 

Summary of Comments and Explanation 

of Revisions section of these final 

regulations, the Summary of Comments 

and Explanation of Revisions section of 

the PWA Final Regulations is 

incorporated in these final regulations. 

Therefore, general comments addressed 

in the preamble to the PWA Final 

Regulations are not addressed again in 

this Summary of Comments and 

Explanation of Revisions. 

The PWA Final Regulations provide 

generally applicable rules on the PWA 

requirements. These final regulations 

generally adopt by cross-reference those 

rules in the PWA Final Regulations 

promulgated under section 45(b)(7) and 

(8); specifically, in § 1.45–7 (Prevailing 

Wage Requirements), § 1.45–8 

(Apprenticeship Requirements), and 

§ 1.45–12 (recordkeeping and reporting). 

Consistent with the PWA Final 

Regulations, the PWA requirements 

under section 48 apply with respect to 

the creditable portion of an energy 

project within the meaning of section 

48(a)(9)(A) and these final regulations. 

As stated in the preamble to the PWA 

Final Regulations, the Treasury 

Department and the IRS have 

determined that given the complexity of 

the PWA requirements, the uncertainty 

regarding the potential retroactive 

effects of the PWA requirements, and 

the benefits to tax administration gained 

with consistency across the various 

Code sections containing PWA 

requirements, a transition rule is 

appropriate. The PWA Final Regulations 

provide that any work performed before 

January 29, 2023 (that is, the date that 

is 60 days after the publication of Notice 

2022–61) is not subject to the PWA 

requirements, regardless of whether 

there is an applicable BOC Exception. 

This transition rule also applies for 

taxpayers that may initially satisfy the 

BOC Exception, but later fail to meet the 

BOC Exception (for example, by failing 

to meet certain continuity 

requirements). These taxpayers must 

satisfy the PWA requirements for 

construction, alteration, or repair (as 

applicable) that occurs on or after 

January 29, 2023, but do not need to 

meet the PWA requirements for work 

that occurred prior to that date. For 

those reasons described in the preamble 

to the PWA Final Regulations, this 

transition rule also applies to the PWA 

requirements under section 48 and is 

adopted by reference into §§ 1.45–7 and 

1.45–8 in these final regulations. 

The PWA Final Regulations also 

provide a limited transition waiver for 

the penalty payment with respect to the 

correction and penalty procedures 

described in section 45(b)(7)(B) for a 

failure to satisfy the Prevailing Wage 

Requirements. The PWA Final 

Regulations provide that the penalty 

payment is waived with respect to a 

laborer or mechanic who performed 

work in the construction, alteration, or 

repair of a qualified facility on or after 

January 29, 2023, and prior to June 25, 

2024, if the taxpayer relied upon Notice 


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2022–61 or the PWA Proposed 

Regulations for determining when the 

obligation to pay prevailing wages 

began, provided the taxpayer makes the 

appropriate correction payments to the 

impacted workers within 180 days of 

June 25, 2024. These final regulations 

clarify that this limited transition 

waiver applies to section 48 provided 

the taxpayer makes the appropriate 

correction payments to the impacted 

workers within 180 days of the 

publication of these final regulations. 

Similarly, these final regulations also 

allow taxpayers to use Notice 2022–61 

for determining when construction 

begins for purposes of the applicable 

percentage of labor hours performed by 

qualified apprentices required under 

section 48(a)(11) (by reference to section 

45(b)(8)) in satisfying the Labor Hours 

Requirement described in § 1.45–8. 

These transition rules are explained 

further in the preamble to the PWA 

Final Regulations. 

The PWA Final Regulations provide 

special rules applicable to Indian Tribal 

governments. These final regulations 

also adopt by cross-reference the special 

rules with respect to Indian Tribal 

governments under § 1.45–7 for 

purposes of the Prevailing Wage 

Requirements. 

B. Section 48(a)(10)(C) Recapture Rules 

Section 48(a)(10)(C) authorizes the 

Secretary, by regulations or other 

guidance, to provide for recapturing the 

benefit of any increase in the credit 

allowed under section 48(a) by reason of 

section 48(a)(10) with respect to any 

project that does not satisfy the 

requirements under section 48(a)(10)(A) 

(after application of section 48(a)(10)(B)) 

for the period described in section 

48(a)(10)(A)(ii) but that does not cease 

to be investment credit property within 

the meaning of section 50(a). The period 

and percentage of such recapture is to 

be determined under rules similar to the 

rules of section 50(a). 

Proposed § 1.48–13(c)(9) provides a 

rule to coordinate the recapture of an 

increase credit amount in a prior taxable 

year with recapture under section 50(a) 

in a current taxable year. These final 

regulations do not adopt proposed 

§ 1.48–13(c)(9) because the proposed 

rule may have resulted in an inaccurate 

calculation of the amount of the 

‘‘aggregate decrease in credit allowed’’ 

calculated under section 50(a). Section 

50(a) and §§ 1.47–1, 1.47–2, and 1.50–1 

provide rules governing recapture of the 

investment credit, including the section 

48 credit. 

Proposed § 1.48–13(c)(3)(i) would 

provide generally that the increased 

credit amount under proposed § 1.48– 

13(b)(3) is subject to recapture for any 

project that does not satisfy the 

Prevailing Wage Requirements in 

§ 1.45–7(b) through (d) and proposed 

§ 1.48–13(c)(1) for any period with 

respect to an alteration or repair of such 

project during the five-year period 

beginning on the date such project is 

originally placed in service (five-year 

recapture period) (but that does not 

cease to be investment credit property 

within the meaning of section 50(a)). 

Further, proposed § 1.48–13(c)(7) would 

provide that, in addition to the general 

reporting requirements described in 

§ 1.45–12, a taxpayer that has claimed 

an increased credit amount under 

proposed § 1.48–13(b)(3) or transferred a 

specified credit portion under section 

6418 that includes an increased credit 

amount under proposed § 1.48–13(b)(3) 

is required to provide to the IRS, 

information on the payment of 

prevailing wages with respect to any 

alteration or repair of the project during 

the five-year 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. 

Commenters requested more detail on 

the ‘‘annual prevailing wage compliance 

report’’ because the Proposed 

Regulations do not specify what 

information is required to be reported to 

the IRS. A commenter noted that the 

Proposed Regulations do not provide 

any applicable procedures if the IRS 

should disagree with the completeness 

of the information or provide detail on 

the scope of prevailing wages for an 

alteration or repair. The commenter 

further asserted that the guidance 

should avoid imposing any additional 

burdens on the taxpayer and creating 

any further uncertainty with respect to 

the already substantial compliance 

obligations created by the PWA 

Proposed Regulations. 

The details requested by these 

commenters were addressed in the PWA 

Final Regulations. The PWA Final 

Regulations provided definitions of 

terms, including what constitutes an 

alteration or repair, and detail on the 

required recordkeeping and reporting 

for the purposes of the PWA 

requirements. Further, as provided in 

the Proposed Regulations, information 

on the payment of prevailing wages 

with respect to any alteration or repair 

of the project during the five-year 

recapture period is to be provided in the 

form and manner as described in IRS 

instructions or in publications or 

guidance published in the Internal 

Revenue Bulletin. Accordingly, these 

comments are not addressed again in 

this Summary of Comments and 

Explanation of Revisions. These final 

regulations do clarify that if there is no 

alteration or repair that occurs during 

the relevant year during the five-year 

recapture period, then the taxpayer is 

deemed to satisfy the Prevailing Wage 

Requirements for that year. 

Proposed § 1.6418–5(f) would provide 

rules addressing the notification 

requirements and the impact of 

recapture under section 48(a)(10)(C). 

The final regulations update the rules in 

proposed § 1.6418–5(f) because the 6418 

Final Regulations, which included 

updated recapture rules in § 1.6418–5, 

were published after publication of 

proposed § 1.6418–5(f). Thus, it is 

necessary to update § 1.6418–5(f), which 

was reserved in the 6418 Final 

Regulations, in these final regulations to 

ensure consistency with the updated 

recapture rules in the 6418 Final 

Regulations. 

C. Definition of Energy Project 

Section 48(a)(9)(A)(ii) defines the 

term ‘‘energy project’’ as a project 

consisting of one or more energy 

properties that are part of a single 

project. Proposed § 1.48–13(d)(1) would 

provide that, for purposes of the 

increased credit amount under section 

48(a)(9) and proposed § 1.48–13(b) and 

(c), the domestic content bonus credit 

amount under section 48(a)(12), and the 

increase in credit rate for energy 

communities provided in section 

48(a)(14), the term ‘‘energy project’’ 

means one or more energy properties 

(multiple energy properties) that are 

operated as part of a single energy 

project. Proposed § 1.48–13(d)(1) would 

provide that multiple energy properties 

will be treated as one energy project if, 

at any point during the construction of 

the multiple energy properties, they are 

owned by a single taxpayer (subject to 

the related taxpayer rule provided in 

proposed § 1.48–13(d)(2)) and any two 

or more of the following factors are 

present: 

(i) The energy properties are 

constructed on contiguous pieces of 

land; 

(ii) The energy properties are 

described in a common power purchase, 

thermal energy, or other off-take 

agreement or agreements; 

(iii) The energy properties have a 

common intertie; 

(iv) The energy properties share a 

common substation, or thermal energy 

off-take point; 

(v) The energy properties are 

described in one or more common 

environmental or other regulatory 

permits; 


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(vi) The energy properties are 

constructed pursuant to a single master 

construction contract; or 

(vii) The construction of the energy 

properties is financed pursuant to the 

same loan agreement. 

Proposed § 1.48–13(d)(2) would 

define the term ‘‘related taxpayers’’ and 

provide a related taxpayer rule. 

Proposed § 1.48–13(d)(3) would require 

consistent treatment as an energy 

project. 

1. Challenges for Project Structures 

The Treasury Department and the IRS 

received several comments regarding 

the energy project definition, and 

commenters raised concerns regarding 

the single project rule. Emblematic of 

commenters’ views, a commenter 

summarized its concerns that the 

Proposed Regulations would expand the 

definition of a ‘‘project’’ by potentially 

grouping energy properties that would 

not commonly be considered as a single 

energy project if those energy properties 

were paid for under the same 

construction contract or financing 

agreement, even if the properties were 

operated separately. The commenter 

explained that the problems caused by 

the grouping of multiple energy 

properties as a single project are 

particularly acute for behind the meter 

solar facilities in different locations that 

are typically sized to provide power for 

their respective dedicated sites. This 

commenter described several concerns 

including geographic and time 

disparity, the impact on small bidders, 

the ability to plan around the proposed 

definition’s factors, and the impact on 

domestic content bonus credit amount 

requirements. Another commenter 

stated that the single project rule in the 

Proposed Regulations would capture 

energy properties located on contiguous 

parcels that are owned by the same tax 

equity partnership (which is 

overinclusive and does not take into 

account projects for which the owner of 

each project is a disregarded special 

purpose entity), yet the energy 

properties are subject to separate 

permits, separate power purchase 

agreements, separate substations and 

gen-tie lines, separate construction 

contracts, and separate construction 

loans and permanent debt, and 

ownership of the underlying real estate 

is separate. 

A commenter explained that 

typically, each project partnership will 

have a separate engineering, 

procurement, and construction (EPC) 

agreement. If, for example, project 

partnerships A, B, C, and D hold four 

separate energy properties and four 

separate EPC agreements are entered 

into on four separate dates, that would 

create four distinct prevailing wage rates 

that need to be tracked for prevailing 

wage purposes. If all four energy 

properties owned by the four project 

partnerships are deemed to be a single 

energy project, then each project 

partnership would still have to 

determine separately whether it met the 

PWA requirements due to the differing 

prevailing wage rates from the various 

dates the EPC contracts were signed. 

The commenter suggested that if any 

one of the four energy properties 

comprising the single energy project 

does not meet the PWA requirements, 

then none would be treated as meeting 

the requirements. 

Another commenter explained that 

the single project rule would make 

thousands of separate residential 

rooftop systems one ‘‘energy project,’’ 

because two of the factors (common 

construction and loan agreements) 

always will be met. This commenter 

explained that these systems generally 

are constructed under the same EPC 

contract and financed via the same debt 

facility purely as a matter of 

convenience and not because the 

systems are intended to be operated 

together as a single project. Therefore, 

the commenter explained that all 

rooftop photovoltaic (PV) solar systems 

installed by any individual EPC 

contractor (even if installed years apart 

and in separate States) potentially could 

be treated as one energy project under 

the Proposed Regulations. This 

commenter also raised concerns that 

this approach creates uncertainty and is 

thus administratively unworkable with 

regard to the timing of credit claims. 

Several commenters had concerns and 

requested clarification regarding the 

application of the single project rule to 

co-located energy property and energy 

storage technology (such as solar energy 

property and battery storage). A 

commenter explained that battery 

storage co-located within the solar array 

would meet the criteria that the projects 

be contiguous to one another (indeed 

integrated), and other criteria could 

apply as well, for example, that both 

types of energy property are part of the 

same construction contract and subject 

to the same permits. This commenter 

explained that the listed criteria in the 

Proposed Regulations appear to be 

focused on traditional energy generating 

projects, which makes sense if there are 

multiple energy properties that should 

be treated as a single energy project but 

could inadvertently bring energy storage 

technology under the umbrella of a 

section 45 credit solar project. 

Additionally, several commenters 

requested that if the single project rule 

is adopted in final regulations, such 

regulations should confirm that 

‘‘[s]ection 45 qualified facilities that are 

co-located with section 48 energy 

property will not be considered part of 

an energy project (unless they elect 

under section 48(a)(5) to be treated as 

energy property),’’ as stated in the 

preamble to the Proposed Regulations. 

Another commenter provided an 

example of a project in a school district 

(District) for which potentially varying 

PWA requirements must be met. The 

District installs solar energy properties 

on a school, district offices, and a 

supply warehouse located across 

separate non-contiguous locations 

within the District boundaries. The 

District issues a single series of taxexempt bonds to finance construction 

costs at all properties. After a single 

request for proposal, the District selects 

a single contractor to construct the 

energy properties at each location. Even 

if the District were to send out requests 

for proposals for each separate property, 

the same contractor may be selected for 

all sites. In addition, although the 

District could issue separate series of 

bonds for each site, those bonds may be 

considered a single issue under § 1.150– 

1. Under the Proposed Regulations, the 

various solar energy properties would 

be considered a single energy project 

even though the energy properties are 

distinct and located miles apart. 

Many commenters proposed 

alternatives to the Proposed 

Regulations’ definition of energy 

project. Several commenters 

recommended re-instituting the facts 

and circumstances single project test 

from Notice 2018–59. A commenter also 

suggested allowing taxpayers an option, 

but not a requirement, to elect to have 

multiple energy properties be ‘‘treated 

as one energy project’’ if they meet the 

single project rule with two factors and 

common ownership found in the 

Proposed Regulations. This commenter 

stated that if the Proposed Regulations’ 

definition of energy project is retained, 

the rule should change the timing for 

analyzing common ownership from ‘‘at 

any point during the construction’’ to 

‘‘when the energy property is placed in 

service.’’ This commenter also suggested 

removing the related taxpayer rule and 

instead providing an option to elect to 

be treated as one taxpayer. Another 

commenter proposed that the final 

regulations could instead create a 

rebuttable presumption under which 

taxpayers can avoid having multiple 

energy properties treated as a single 

energy project by demonstrating that the 

project covers multiple technologies, 

taxpayers, taxable years, or 

interconnection agreements. 


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A commenter proposed that to the 

extent that the Treasury Department and 

the IRS are concerned with the potential 

for abuse, the final regulations could 

require meeting three or four factors 

before mandating single project 

treatment. Alternatively, consistent with 

the approach taken in regulations under 

section 48(e) (T.D. 9979, 88 FR 55506 

(Aug. 15, 2023), corrected in 88 FR 

59446 (Aug. 29, 2023), corrected in 88 

FR 87903 (Dec. 20, 2023)), these final 

regulations could limit the application 

of the facts and circumstances 

determination to smaller projects (that 

is, under five megawatts). Another 

commenter offered as an alternative that 

the final regulations add a requirement 

for satisfaction of an additional factor or 

factors (that is, more than two) and 

provide that aggregation will only occur 

if the projects are clearly operated 

together. Another commenter similarly 

suggested that three factors should be 

met. 

Additionally, one commenter 

suggested that, if the rule were retained, 

further clarification is needed regarding 

what qualifies as a loan agreement and 

whether the definition of ‘‘energy 

project’’ applies to projects of any size. 

This commenter requested that the final 

regulations clarify that the definition 

does not include tax equity positions. 

This commenter also recommended that 

the final regulations align the effective 

date of the new energy project definition 

with the construction of an energy 

property or an energy project beginning 

on or after January 29, 2023, to 

eliminate any confusion regarding the 

new definition and to mitigate 

additional risk to taxpayers. 

A commenter supported the Proposed 

Regulations’ definition of energy project 

in a comment submitted in response to 

the PWA Proposed Regulations stated 

that the Treasury Department and the 

IRS should make clear that a taxpayer 

seeking the increased credit rate for 

satisfying the PWA requirements cannot 

subdivide projects and construction 

contracts to evade the PWA 

requirements. The commenter stated 

that certain factors, including 

ownership and proximity, should 

determine whether multiple qualified 

facilities or units of equipment 

constitute one single qualified facility 

for purposes of determining whether the 

One Megawatt Exception applies. For 

example, with respect to solar projects, 

the commenter suggested that multiple 

energy properties should be treated as 

one single project if they are owned by 

a single legal entity, or the energy 

properties are constructed and/or 

installed in the same general geographic 

location or on adjacent or contiguous 

pieces of land. The same general 

geographic location may include more 

than one State, provided that the 

multiple energy properties are on 

adjacent or contiguous pieces of land. 

Overall, commenters expressed a view 

that the single project rule as drafted in 

the Proposed Regulations would apply 

to an overly broad range of energy 

properties and lead to illogical 

groupings and practical difficulties in 

complying with various bonus credit 

amounts and increased credit rates 

under section 48. Based on the concerns 

raised in these comments, the Treasury 

Department and the IRS acknowledge 

that additional flexibility is warranted. 

See part II.C. 4 of this Summary of 

Comments and Explanation of 

Revisions. 

2. Facts and Circumstances Approach 

Commenters asserted that a facts and 

circumstances approach should be 

applied to the definition of energy 

project. Several commenters raised 

concerns about inconsistency with prior 

guidance published in the Internal 

Revenue Bulletin with regard to the 

beginning of construction rules 

applicable to section 48. Commenters 

also stated that the Proposed 

Regulations would implement the 

energy project definition differently 

than a similar rule provided in the 

beginning of construction guidance and 

Notice 2022–61 (which addresses the 

application of PWA requirements), by 

mandating single-project treatment if 

common ownership and any two factors 

are met, rather than applying a facts and 

circumstances test. Similarly, 

commenters stated that regulations 

under section 48(e) for the Low-Income 

Communities Bonus Credit Program 

provide a single project definition that 

uses a facts and circumstances test. 

The Treasury Department and the IRS 

confirm that the definition of energy 

project in the Proposed Regulations 

adopts a different approach than the 

facts and circumstances test used in 

other tax guidance. These comments 

requesting alternatives to the Proposed 

Regulations’ definition of energy project 

are not adopted because the increased 

credit rate for satisfying the PWA 

requirements, the domestic content 

bonus credit amount, and the increase 

in the credit rate for energy 

communities under section 48 require a 

greater degree of certainty for taxpayers 

and the IRS. Further, the Low-Income 

Communities Credit Program is a 

competitive, allocated credit program 

which requires an application; the 

section 48 credit does not. This 

difference in the process for claiming 

the section 48 tax credit supports the 

need for a more specific approach for 

the credit. Accordingly, the definition of 

energy project in these final regulations 

provides particular and specific 

requirements rather than a facts and 

circumstances approach. 

3. Interaction With Domestic Content 

Bonus Credit Amounts 

Several commenters asserted that the 

definition of ‘‘energy project’’ in 

proposed § 1.48–13(d) is inconsistent 

with the initial domestic content 

guidance set forth in Notice 2023–38, 

2023–22 I.R.B. 872. A few commenters 

stated that the application of the single 

project rule in the Proposed Regulations 

may cause any co-located energy 

properties to be aggregated for domestic 

content bonus credit amount purposes. 

The commenters suggested that this 

aggregation of different classes or 

categories of energy property as a single 

project is inappropriate and may create 

significant issues in qualifying for the 

domestic content bonus credit amount, 

including potentially distorting the 

domestic content calculation by 

overinclusion of costs for energy storage 

technology. 

Commenters provided specific 

examples with domestic content bonus 

credit amount implications. In one such 

example, a taxpayer places a solar array 

in service in 2023 and then places a 

battery energy storage system (BESS) 

associated with the array in service in 

2026. Construction of the BESS began, 

for example, by clearing and grading at 

the site of the BESS in 2023. The solar 

array and the BESS are on contiguous 

parcels and share a common substation. 

Under the proposed rule, the array and 

the BESS would be treated as a single 

energy project. The array would qualify 

for the domestic content bonus credit 

amount, but the addition of the BESS 

would put the energy project below the 

applicable percentage calculation for 

domestic content purposes, despite the 

‘‘project’’ involving different 

technologies and different tax years. The 

taxpayer may be unable to avoid this 

result for projects with limited access to 

substations or if required upgrades 

would exceed the value of the domestic 

content bonus credit amounts, and thus 

may choose not to add new BESS to the 

grid, in clear contravention of 

Congressional intent. However, 

assuming no other factors under the 

single project rule are present, the 

taxpayer could avoid this result simply 

by placing the BESS on a noncontiguous parcel, a result that is likely 

to be technically inefficient, and more 

importantly, is inconsistent with the 

intent of the domestic content bonus 


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credit as set forth by Congress in the 

IRA. 

Another commenter provided 

additional feedback on domestic content 

issues arising from placing different 

types of energy property in service in 

different taxable years. This commenter 

explained that if multiple energy 

properties were treated as a single 

project for purposes of the domestic 

content bonus credit amount, then the 

energy properties would be tested on a 

combined basis for the steel, iron, and 

manufactured components 

requirements. This could affect 

situations in which different types of 

energy properties are co-located, and the 

domestic content bonus credit amount 

could be pursued for one type of energy 

property but not for the other type of 

energy property. According to the 

commenter, the result likely would be 

that foreign products would be sourced 

for both types of energy property. 

Further, the commenter noted that 

combined testing would raise questions 

regarding the impact to energy 

properties that are placed in service 

years apart. For example, the 

commenter noted that if an earlier phase 

of an energy project did not qualify for 

the domestic content bonus credit 

amount, then it would likely be 

impossible for a later phase of the 

project to qualify if tested on a 

combined basis. Alternatively, the 

commenter noted that if an earlier phase 

of an energy project qualified for the 

domestic content bonus credit amount, 

then it could later become ineligible for 

the domestic content bonus credit 

amount if a later phase of that energy 

project caused the project to fail to meet 

the domestic content requirements. 

Another commenter stated that the 

Proposed Regulations’ definition of 

energy project would deter many 

taxpayers from attempting to satisfy the 

domestic content bonus credit amount 

requirements and disqualify otherwise 

qualifying energy properties. This 

commenter explained that, increasingly, 

procurement decisions are made earlier 

in the project life cycle due to long lead 

times. Therefore, the commenter noted 

that a developer might be able to secure 

enough domestic equipment or steel to 

allow one energy property to satisfy the 

domestic content bonus credit amount 

requirements but not enough for 

additional energy properties. However, 

the commenter stated that if these 

multiple energy properties were 

aggregated and treated as a single energy 

project, that energy project likely would 

not qualify for the domestic content 

bonus credit amount since the 

combined domestic cost percentage 

would be unlikely to satisfy the adjusted 

percentage rule as defined in Notice 

2023–38. 

Some commenters asserted that the 

Proposed Regulations’ definition of 

energy project should apply only to 

energy properties that are within the 

same category for purposes of section 

48. These commenters also requested 

clarification that energy storage 

technology such as a BESS is treated as 

an ‘‘energy project’’ separate from solar 

energy property and other categories of 

energy property for purposes of the 

domestic content bonus credit amount. 

For example, a commenter highlighted 

the concern that ‘‘energy project’’ may 

be read broadly to apply to all energy 

properties that are owned by the same 

taxpayer and co-located, even if the 

energy properties are of different classes 

or categories and have separate 

pathways to eligibility. This commenter 

requested that the final regulations 

clarify the ‘‘energy project’’ definition 

by providing that the reference to ‘‘one 

or more energy properties’’ in section 

48(a)(9)(A)(ii) should be properly 

interpreted to refer only to the same 

class or category of energy property. The 

commenter concluded that a better 

approach to the definition of ‘‘energy 

project’’ would be to treat specific types 

of energy property, such as solar, wind, 

and other categories, as separate from 

energy storage technology property even 

if co-located, owned by the same 

taxpayer, and sharing common facilities 

and infrastructure. 

Section 48 applies the domestic 

content bonus credit amounts to an 

entire energy project defined as one or 

more energy properties that are part of 

a single project. As a result, all types of 

energy property, including energy 

storage technologies that meet the 

criteria as would be provided in 

proposed § 1.48–13(d) are included 

within an energy project for purposes of 

the domestic content bonus credit 

amount. As noted earlier, the Treasury 

Department and the IRS recognize that 

additional flexibility is warranted with 

respect to the definition of energy 

project. The final regulations revise the 

definition of energy project to allow the 

taxpayer to choose when to assess the 

factors of an energy project, either at any 

point during construction or during the 

taxable year energy properties are 

placed in service. However, multiple 

types of energy property may be 

appropriately treated as a single energy 

project in certain situations. 

Accordingly, the final regulations do not 

adopt comments requesting that an 

energy project must be limited to energy 

properties of the same type. 

4. Revisions to Definition of Energy 

Project 

The Treasury Department and the IRS 

agree with commenters that the 

Proposed Regulations’ definition of 

energy project, described as ownership 

plus two factors, is too rigid and could 

have unintended impacts, such as 

preventing small rooftop solar 

installations from being eligible for the 

One Megawatt Exception and treating 

multiple energy properties that are 

located in different States as a single 

energy project. Further, the Treasury 

Department and the IRS understand that 

the ‘‘at any point during construction’’ 

language in the Proposed Regulations 

may be problematic for taxpayers, 

potentially grouping energy properties 

that will be placed in service in 

different taxable years. 

In response to the concerns raised by 

commenters, the definition of energy 

project is modified in the final 

regulations. The Proposed Regulations 

would have required two or more 

factors to be present. In the case of 

multiple energy properties owned by a 

taxpayer, the final regulations require 

that four or more factors be present and 

that the factors may be assessed, at the 

taxpayer’s choice, either at any point 

during construction or during the 

taxable year the energy properties are 

placed in service. The Treasury 

Department and the IRS understand that 

taxpayers require flexibility given the 

varied landscape of energy property 

development and financing structures. 

However, the Treasury Department and 

the IRS disagree that a facts and 

circumstances analysis should be 

applied to the definition of energy 

project. Energy project is the statutory 

term for the unit of property to which 

the PWA requirements, the domestic 

content bonus credit amount, and the 

increase in credit rate for energy 

communities are applied. In addition, in 

promulgating these final regulations 

pursuant to the express delegation of 

authority in section 48(a)(16), the 

Treasury Department and the IRS 

determined that using particular and 

specific factors in the definition of 

energy project will increase certainty for 

taxpayers and the IRS. That increased 

certainty will promote sound tax 

administration and help to carry out the 

purposes of section 48(a). 

Separately, a commenter requested 

confirmation that an energy project will 

be deemed placed in service when the 

final energy property within the energy 

project is placed in service. Section 

48(a)(9)(A)(ii) defines an ‘‘energy 

project’’ as a project consisting of one or 

more energy properties that are part of 


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a single project. Because the PWA 

requirements, the domestic content 

bonus credit amount, and the increase 

in credit rate for energy communities 

are each applied at the energy project 

level, the determination of whether an 

energy project meets any of these 

requirements cannot be made before the 

last of the multiple energy properties 

within such energy project are placed in 

service. Accordingly, the final 

regulations clarify the definition of 

energy project consistent with this 

comment. 

Further, the final regulations do not 

adopt proposed § 1.48–13(d)(3). The 

Proposed Regulations would have 

provided that, if multiple energy 

properties are treated as a single energy 

project for beginning of construction 

purposes with respect to the section 48 

credit, then the multiple energy 

properties also will be treated as a single 

energy project for purposes of the PWA 

requirements, the domestic content 

bonus credit amount, and the increase 

in credit rate for energy communities. 

The Treasury Department and the IRS 

recognize that this proposed rule may 

conflict with existing BOC guidance and 

the definition of ‘‘energy project’’ that is 

being adopted in these final regulations. 

Accordingly, the final regulations do not 

adopt this proposed rule. 

D. One Megawatt Exception 

1. Nonapplication to Certain Energy 

Properties 

Proposed § 1.48–13(e) would provide 

rules for nameplate capacity for 

purposes of the One Megawatt 

Exception. Proposed § 1.48–13(e) would 

provide that for purposes of proposed 

§ 1.48–13(b)(1), the determination of 

whether an energy project has a 

maximum net output of less than one 

MW of electrical (as measured in 

alternating current) or thermal energy is 

determined based on the nameplate 

capacity. Proposed § 1.48–13(e) would 

provide that if applicable, taxpayers 

should use the International Standard 

Organization (ISO) conditions to 

measure the maximum electrical 

generating output or usable energy 

capacity of an energy project. Lastly, 

proposed § 1.48–13(e) would provide 

that because electrochromic glass 

property (as defined in proposed § 1.48– 

9(e)(2)(ii)), fiber-optic solar energy 

property (as defined in proposed § 1.48– 

9(e)(2)(i)), and microgrid controllers (as 

defined in proposed § 1.48–9(e)(12)) do 

not generate electricity or thermal 

energy, these energy properties are not 

eligible for the One Megawatt 

Exception. 

Two commenters supported the rule 

as proposed, including disallowing the 

exception for certain properties. One of 

the commenters stated that the proposed 

rules for the One Megawatt Exception 

will provide certainty with respect to 

the applicability of labor standards and 

prevent fraud. Both commenters 

requested the Treasury Department and 

the IRS to retain the nameplate capacity 

rule for maximum net output in the 

final regulations. 

One commenter asserted that the One 

Megawatt Exception, as proposed, is too 

broad, undermining the PWA 

requirements, and should not apply to 

any energy properties that do not 

generate or produce electrical or thermal 

energy. This commenter disagreed with 

the alternatives provided for some types 

of energy property and requested clarity 

that others also should not be eligible, 

including GHP property, energy storage 

technology, clean hydrogen production 

facilities, and qualified biogas property. 

Conversely, most commenters 

asserted that the One Megawatt 

Exception should be available for nonenergy generating property. Some 

commenters suggested that the final 

regulations provide a de minimis 

threshold to the One Megawatt 

Exception. A commenter suggested 

consideration of a basis dollar threshold 

with respect to prevailing wage 

exemptions for types of energy property 

that do not generate electricity, namely 

electrochromic glass, fiber-optic solar 

energy property, and microgrid 

controllers. 

Another commenter stated that these 

excluded types of energy property 

should be included if part of an ‘‘energy 

project.’’ Commenters explained that the 

One Megawatt Exception in section 

48(a)(9)(B)(i) applies to ‘‘energy 

projects’’ and therefore, can apply to 

microgrid controllers, fiber-optic solar 

energy property, or electrochromic glass 

that are combined with other types of 

energy property (for example, solar 

energy property) as part of an ‘‘energy 

project.’’ 

Several commenters made the same 

point specifically regarding microgrid 

controllers. For example, a commenter 

stated that the final regulations should 

include microgrid controllers within the 

One Megawatt Exception. This 

commenter said that a strict statutory 

interpretation would mean that if the 

sum capacity of all energy properties 

within an energy project is below one 

MW, then the One Megawatt Exception 

is satisfied. The commenter asserted 

that this statutory interpretation is 

simple, straightforward, and accurately 

reflects the IRA. Similarly, a commenter 

suggested that to ensure small microgrid 

projects can take advantage of the One 

Megawatt Exception, the rule should 

allow microgrid controllers used in a 

microgrid for which the cumulative 

nameplate capacity value of the 

electrical generating distributed energy 

resources is less than one MW to be 

eligible for the One Megawatt 

Exception. 

Another commenter noted that the 

ineligibility of microgrid controllers for 

the One Megawatt Exception contradicts 

the definition of a qualified microgrid, 

which requires that a qualified 

microgrid includes equipment capable 

of generating not less than 4 kW and not 

greater than 20 MW of electricity. This 

commenter asserted that if the aggregate 

of the nameplate capacity of the assets 

managed by a qualified microgrid is 

under one MW, or if there are other 

physical limitations built into the 

microgrid that limit generation to one 

MW, then the microgrid controller 

should qualify for the One Megawatt 

Exception. 

Another commenter stated that 

because microgrid controllers do not 

generate energy, they should be 

considered to generate under one MW 

and thus should qualify for the One 

Megawatt Exception. This commenter 

asserted that because Congress did not 

specifically exclude energy properties 

with a maximum net output of less than 

one MW of electrical energy (and could 

have)—even if that output is zero— 

microgrid controllers should qualify 

under the plain language of the statute. 

A similar suggestion was raised by 

several commenters in the context of 

electrochromic glass. One commenter 

stated that nothing in section 

48(a)(9)(B)(i) suggests that the One 

Megawatt Exception is limited to 

generating property; the statute simply 

looks to the output of the project, if any. 

This commenter concluded that the 

simplest and clearest reading of section 

48(a)(9)(B)(i) is that an energy property 

that does not generate electricity is 

eligible for the One Megawatt 

Exception. 

Similarly, another commenter stated 

that section 48(a)(9)(B)(i)’s focus on an 

energy project’s energy output 

capability indicates that properties not 

producing any output could be 

considered for the One Megawatt 

Exception. This commenter asserted 

that the essence of the law was not to 

create a hierarchy favoring energy 

producers over non-producers but to 

encourage a broad spectrum of energy 

efficiency and conservation measures. 

Another commenter stated that the 

Proposed Regulations’ interpretation of 

the One Megawatt Exception is highly 

counterintuitive as it runs contrary to 


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obvious mathematical logic. This 

commenter stated that the One 

Megawatt Exception should be 

considered in light of the clear 

legislative intent behind it, which is that 

PWA requirements are 

disproportionately burdensome for 

smaller projects. This commenter 

alleged that, most troublingly, the 

interpretation is not merely prospective, 

from the date of publication of either the 

Proposed Regulations or the final 

regulations, but also retroactive, and 

that applying this interpretation 

retroactively will harm market actors 

who made good faith, logical decisions 

in the absence of any IRS guidance. This 

commenter requested that, at a 

minimum, the Treasury Department and 

the IRS apply rules regarding the One 

Megawatt Exception on a prospective 

basis. 

In addition to these comments, 

commenters also provided feedback on 

methods to measure the maximum net 

output of microgrid controllers to allow 

them to qualify for the One Megawatt 

Exception. One commenter proposed 

that a measurement of the maximum net 

generation that a microgrid controller 

can provide via interconnection to the 

grid be used to determine whether a 

microgrid controller is eligible for the 

One Megawatt Exception, and that the 

maximum net output be calculated as 

the nameplate capacity of the microgrid 

generation less the minimum historical 

microgrid load. 

Commenters also provided methods 

for electrochromic glass to qualify for 

the One Megawatt Exception. Two 

commenters suggested using anticipated 

energy savings for a building on which 

electrochromic windows are installed. 

For example, a commenter suggested 

that a taxpayer should be able to 

measure the amount of energy expected 

to be saved by use of the electrochromic 

glass property and compare that amount 

to one MW. The commenter noted that 

this approach is similar to the approach 

used to determine whether energy 

efficient investments in a commercial 

building qualify for a deduction under 

section 179D of the Code; this 

commenter recommended that final 

regulations provide that the DOE 

program ‘‘Energy Plus’’ model be used 

to determine the amount of anticipated 

energy savings. Two commenters also 

proposed a safe harbor that would deem 

any electrochromic glass property 

installed in any building to meet the 

One Megawatt Exception if no more 

than 60,000 square feet of 

electrochromic glass is installed in the 

building. Another commenter 

highlighted administrative concerns 

with the non-application of the One 

Megawatt Exception to electrochromic 

glass. The commenter explained that 

electrochromic glass is one of many 

structural components installed in a 

building, and laborers who are involved 

in the construction, alteration or repair 

of electrochromic glass may also be 

involved in the construction, alteration 

or repair of other building components 

that are not qualified energy property, 

creating an additional recordkeeping 

burden for taxpayers. 

The Treasury Department and the IRS 

have considered these comments on the 

One Megawatt Exception. The Treasury 

Department and the IRS appreciate the 

suggestions made by commenters in 

response to the request for comments in 

the Proposed Regulations regarding 

whether other methods of measurement 

may allow electrochromic glass 

property, fiber-optic solar energy 

property, and microgrid controllers to 

be eligible for the One Megawatt 

Exception. However, after considering 

the statute further as well as the intent 

of the rules in the context of the PWA 

requirements, the Treasury Department 

and the IRS have determined that the 

One Megawatt Exception applies only to 

the generation of electricity or thermal 

energy. The statutory language in 

section 48(a)(9)(B)(i) providing the 

increased credit amount for a project 

with a maximum net output of less than 

one MW of electrical (as measured in 

alternating current) or thermal energy, 

means that there must be output, and 

that output must be under one MW. The 

proposed conversion formulas for 

certain types of energy property, such as 

GHP property and energy storage 

property, do not undermine the PWA 

requirements. Rather, the proposed 

formulas provide clarity across various 

energy properties that generate output. 

Because electrochromic glass property, 

fiber-optic solar energy property, and 

microgrid controllers do not generate 

electrical or thermal energy, these types 

of energy property are not eligible for 

the One Megawatt Exception. These 

final regulations adopt this proposed 

rule without change. 

2. Determination of Nameplate Capacity 

As explained in the preamble to the 

Proposed Regulations, the DOE has 

advised the Treasury Department and 

the IRS that for energy projects that 

generate electrical or thermal energy, 

the determination of an energy project’s 

nameplate capacity will provide the 

necessary guidance to determine the 

maximum electrical generating output 

in megawatts of electrical (as measured 

in alternating current) or thermal energy 

that the unit is capable of producing on 

a steady state basis and during 

continuous operation under standard 

conditions. Accordingly, proposed 

§ 1.48–13(e) would provide that the 

determination of whether an energy 

project has a maximum net output of 

less than 1 MW of electrical (as 

measured in alternating current) or 

thermal energy is based on nameplate 

capacity. Proposed § 1.48–13(e)(1) 

would provide that in the case of an 

electrical generating energy property, 

the nameplate capacity is the maximum 

electrical generating output in MW that 

the unit of energy property 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. 

Proposed § 1.48–13(e)(2) would 

provide that in the case of electrical 

energy storage property (as defined in 

proposed § 1.48–9(e)(10)(ii)), the 

nameplate capacity is the storage 

device’s maximum net output. 

Proposed § 1.48–13(e)(3) would 

provide that in the case of thermal 

energy storage property (as defined in 

proposed § 1.48–9(e)(10)(iii)) and other 

energy property that generates thermal 

energy for productive use (for example, 

direct geothermal use, GHP property, 

solar process heating), a taxpayer must 

use the equivalent of 3.4 million British 

Thermal Units per hour (mmBtu/hour) 

for heating and 284 tons for cooling (Btu 

per hour/3,412,140 = MW) to determine 

if the thermal energy storage property 

satisfies the One Megawatt Exception. 

For projects delivering thermal energy 

to a building or buildings, this 

determination can be made with respect 

to either the aggregate maximum 

thermal output of all individual heating 

or cooling elements within the building 

or buildings, or as the maximum 

thermal output that the entire project is 

capable of delivering to a building or 

buildings at any given moment. 

Proposed § 1.48–13(e)(4) would 

provide that a hydrogen energy storage 

property (as defined in proposed § 1.48– 

9(e)(10)(iv)) or a specified clean 

hydrogen production facility (as defined 

in section 48(a)(15)(C)) must have a 

maximum net output of less than 3.4 

mmBtu/hour of hydrogen or 

equivalently 10,500 scf per hour of 

hydrogen to satisfy the One Megawatt 

Exception. 

Proposed § 1.48–13(e)(5) would 

provide that in the case of qualified 

biogas property, 3.4 mmBtu/hour can be 

used as equivalent to the One Megawatt 

Exception. Taxpayers may convert the 

maximum net output of 3.4 mmBtu/ 

hour into an equivalent maximum net 

volume flow in scf per hour using the 


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appropriate high heat value conversion 

factors found in the Environmental 

Protection Agency (EPA) Greenhouse 

Gas Reporting Rule (GHGRR) at table C– 

1 to subpart C of part 98 (40 CFR part 

98). Otherwise, taxpayers may calculate 

their own equivalent volumetric flow if 

the heat content of the gas is known. 

Commenters provided feedback on 

the proposed conversion factors specific 

to certain types of property. For 

example, a commenter recommended 

that for thermal energy storage property 

and other property generating thermal 

energy, the conversion from mmBtu/hr 

to tons for cooling should be 3–5 times 

higher than proposed § 1.48–13(e)(3), 

which refers to 284 tons for cooling to 

determine if thermal energy property 

meets the One Megawatt Exception. 

This commenter said that the 

conversion factor provided by the 

Proposed Regulations is too low at a 

quarter of the conversion factor for 

electrical generating property, and 

instead the final regulations should use 

an electrical equivalent. This 

commenter stated that for buildings 

cooled by chilled-water systems, it is 

widely accepted that the electrical 

power (in kW) required to generate 

cooling (in ton) by chillers is 

approximately 0.6–0.7 kW/ton for 

water-cooled chillers, and 1.1–1.2 kW/ 

ton for air-cooled chillers, and cited a 

few sources. This commenter proposed 

replacing the conversion factor with 

1,550 tons for water-cooled systems or 

870 tons for air-cooled systems. 

Similarly, for qualified biogas 

property, a commenter stated that the 

proposed conversion factor of 3.4 

mmBtu/hr in proposed § 1.48–13(e)(5) 

for the One Megawatt Exception should 

be increased. The commenter stated that 

this conversion factor for qualified 

biogas property is theoretical and not 

based in practical applications. The 

commenter also noted that any biogas 

plant producing onsite power typically 

does not produce more than 10 mmBtu/ 

hr, and that a plant of this size would 

be very small and likely face economic 

constraints even with the section 48 

credit. 

In consultation with the DOE, the 

Treasury Department and the IRS have 

determined that the conversion 

formulas in the Proposed Regulations 

provide a direct and accurate 

conversion and that no changes are 

needed to the conversion factors for 

thermal energy property, thermal energy 

storage property, and other energy 

property that generates thermal energy 

for productive use, or for qualified 

biogas property. By providing a broadlyapplicable rule, these conversion 

formulas should provide accurate 

results for a broad set of applications 

and technologies. The commenters’ 

requests for specific formulas applicable 

to specific technologies conflict with the 

approach of these regulations to provide 

general rather than narrow rules. 

Therefore, the final regulations adopt 

these rules as proposed. 

Other commenters stated general 

concerns regarding lack of clarity with 

the measurement methods included in 

the Proposed Regulations. These 

commenters focused their concerns on 

thermal energy storage property and 

property generating thermal energy. For 

example, a commenter stated that it is 

unclear whether the One Megawatt 

Exception applies with respect to the 

thermal energy generated from the 

thermal energy source for the thermal 

energy storage (TES) (for example, a 

chiller or heat pump), or to the 

nameplate capacity of the TES property 

itself (for example, peak discharge rate 

from TES). The commenter then asked 

what conditions govern the discharge 

rate of TES if the One Megawatt 

Exception refers to the nameplate 

capacity of the TES property itself. This 

commenter suggested that, alternatively, 

perhaps either could be used. 

The Treasury Department and the IRS 

recognize that demonstrating the 

nameplate capacity of thermal energy 

storage property may be technically 

impractical for some types of thermal 

energy storage property such as 

commercial heat pump storage systems. 

The Treasury Department and the IRS, 

following consultation with the DOE, 

revise the rule in the final regulations to 

provide an option when nameplate 

capacity for the thermal energy storage 

property is not available, to use the 

nameplate capacity of the equipment 

that delivers thermal energy. For 

example, the nameplate capacity of the 

heat pump to a thermal energy storage 

property would be converted to 

megawatts based on the conversion 

factors set forth in § 1.48–13(e). For 

thermal energy storage property, as well 

as for other energy property that 

generates or distributes thermal energy 

for productive use, the final regulations 

clarify that the maximum thermal 

output that the entire system is capable 

of delivering is calculated as the greater 

of the maximum instantaneous rate of 

cooling or the rate of heating of the 

aggregate of all the equipment 

distributing energy for productive use, 

which for thermal energy storage is 

distributing the thermal energy from the 

thermal energy storage to the building or 

buildings. Alternatively, for purposes of 

thermal energy storage property only, 

when the nameplate capacity for the 

thermal energy storage property is 

unavailable, the maximum thermal 

output may 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. Based on the 

comments, the Treasury Department 

and the IRS conclude that the revised 

rule will provide a clear, administrable 

standard of measurement. 

Several commenters had similar 

concerns regarding the measurement 

standard for geothermal energy 

property. A commenter explained that 

by design, a distributed GHP property’s 

maximum net output is always less than 

the total nameplate capacity. These 

commenters asserted that, for 

equipment generating thermal energy, it 

is not clear how nameplate capacity is 

defined. Commenters recommended 

that nameplate capacity be defined as 

either the published rating data on the 

Air Conditioning, Heating, and 

Refrigeration Institute (AHRI) 

Certification Directory or project 

specific selections at design 

temperatures. Commenters also stated 

that many buildings require redundant 

equipment to ensure consistent 

operating conditions within the 

building if a piece of equipment fails, 

but that because the redundant 

equipment is not used during normal 

operation it should be excluded from 

the calculation of the one-MW 

threshold. These commenters also 

suggested the final regulations provide 

an example illustrating the method of 

assessment based on the use of thermal 

output from a full year. 

As previously explained, the final 

regulations provide that the discharge 

rate of a thermal energy source is based 

on the nameplate capacity of the 

equipment, which would be converted 

to megawatts based on the conversion 

factors set forth in § 1.48–13(e). 

Therefore, taxpayers must use the 

nameplate capacity of the equipment. 

Commenters’ concerns for geothermal 

energy property appear to be more 

focused on how to determine that 

nameplate capacity if not all equipment 

will be used or will only be used to a 

specific temperature. Proposed § 1.48– 

13(e)(3) would provide that, for projects 

delivering thermal energy to a building 

or buildings, the measurement can be 

assessed as either the aggregate 

maximum thermal output of all 

individual heating or cooling elements 

within the building or buildings, or as 

the maximum thermal output that the 

entire project is capable of delivering to 

a building or buildings at any given 

moment. The Treasury Department and 

the IRS consulted with the DOE, and the 


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final regulations clarify that the 

maximum thermal output an entire 

project 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. The determination of 

maximum thermal output is intended to 

reflect normal operating conditions for 

the energy project. 

Another commenter requested 

clarification regarding the measurement 

method for electrical energy storage 

property. The commenter asserted that 

it is unclear at what stage to determine 

maximum electrical generating output 

for the One Megawatt Exception, and 

that the definition of ‘‘nameplate 

capacity’’ is ambiguous because it turns 

on the phrase ‘‘maximum electrical 

generating output’’ but does not provide 

a method for determining such output. 

The commenter stated that for inverterbased resources, like solar and energy 

storage technologies, ‘‘maximum 

electrical generating output’’ could be 

determined at different stages. It could 

be measured as the initial output from 

PV modules (as measured in direct 

current), the subsequent output from 

associated storage (usually measured in 

direct current), or the final output after 

the inverter (measured in alternating 

current). 

In response to these comments, the 

Treasury Department and the IRS 

consulted with the DOE to provide a 

method of measuring nameplate 

capacity for an energy property that 

generates electricity in direct current. 

The final regulations provide a rule 

limited to energy properties that 

generate electricity in direct current. 

Under this rule, a taxpayer may choose 

to determine the maximum net output 

of each energy property that is part of 

the energy project (in alternating 

current) by using the lesser of (i) the 

sum of the nameplate generating 

capacities within the unit of energy 

property in direct current, which is 

deemed the nameplate generating 

capacity of the unit of energy property 

in alternating current; or (ii) the 

nameplate capacity of the first 

component of property that inverts the 

direct current electricity generated into 

alternating current. This rule provides 

flexibility for taxpayers while ensuring 

that the maximum net output (in 

alternating current) can be determined 

in an administrable and reasonably 

accurate manner for energy properties 

that generate electricity in direct 

current. 

III. Rules Applicable to Energy 

Property 

A. Retrofitted Energy Property (80/20 

Rule) 

Proposed § 1.48–14(a)(1) would 

provide generally that for purposes of 

section 48(a)(3)(B)(ii), (5)(D)(iv), and 

(8)(B)(iii), a retrofitted energy property 

may be originally placed in service even 

though it contains some used 

components of the unit of energy 

property only if the fair market value of 

the used components of the unit of 

energy property is not more than 20 

percent of the total value of the unit of 

energy property taking into account the 

cost of the new components of property 

plus the value of the used components 

of the unit of energy property (80/20 

Rule). Only expenditures paid or 

incurred that relate to the new 

components of the unit of energy 

property are taken into account for 

purposes of computing the section 48 

credit with respect to the unit of energy 

property. The cost of new components 

of the unit of energy property includes 

all costs properly included in the 

depreciable basis of the new 

components. If the taxpayer satisfies the 

80/20 Rule with regard to the unit of 

energy property and the taxpayer pays 

or incurs new costs for property that is 

an integral part of the energy property, 

then the taxpayer may include the new 

costs paid or incurred for property that 

is an integral part of the energy property 

in the basis of the energy property for 

purpose of the section 48 credit. 

Further, in the case of an energy project, 

the 80/20 Rule is applied to each unit 

of energy property comprising an energy 

project. 

Proposed § 1.48–14(a)(2) would 

provide that costs incurred for new 

components of property added to used 

components of a unit of energy property 

may not be taken into account for 

purposes of the section 48 credit unless 

the taxpayer satisfies the 80/20 Rule by 

placing in service a unit of energy 

property 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 energy property 

taking into account the cost of the new 

components of property plus the value 

of the used components of property. 

Proposed § 1.48–14(a)(3) would provide 

examples illustrating the 80/20 Rule. 

1. General Comments Regarding the 80/ 

20 Rule 

Several commenters provided 

comments regarding the 80/20 Rule. 

Some commenters favored retaining the 

80/20 Rule for application in limited 

circumstances. Generally, commenters 

that opposed the use of the 80/20 Rule 

expressed similar concerns regarding 

the ownership rules in the context of 

certain types of energy property. 

Commenters that opposed the 80/20 

Rule asserted that it is inconsistent with 

previous Internal Revenue Bulletin 

guidance. Multiple commenters asserted 

that under current law, capital 

improvements to energy property are 

eligible for the section 48 credit without 

regard to the 80/20 Rule. These 

commenters pointed to existing § 1.48– 

2(b)(7) and the examples in existing 

§ 1.48–2(c) to support this assertion. 

Existing § 1.48–2(b)(7) provides, in 

relevant part: ‘‘The term ‘original use’ 

means the first use to which the 

property is put, whether or not such use 

corresponds to the use of such property 

by the taxpayer.’’ A commenter noted 

that the examples in existing § 1.48–2(c) 

illustrate the difference between a 

reconditioned or rebuilt unit of energy 

property previously in service and the 

addition of ‘‘some used parts,’’ on the 

one hand, and the addition of new 

property or capital improvements, on 

the other. Additionally, the commenter 

asserted that Example 5 in existing 

§ 1.48–2(c) establishes that capitalized 

costs are included in computing the 

section 48 credit. Importantly, existing 

regulations under § 1.48–2 do not reflect 

the current version of section 48 and are 

not informative to the extent those 

regulations do not take into account 

subsequent amendments to section 48, 

such as amendments made by the IRA. 

Commenters also asserted that the 

purpose of the 80/20 Rule was to 

address the ‘‘original use requirement’’ 

or to achieve a new ‘‘original placed in 

service date’’ in the context of the 

production tax credit under section 45. 

These commenters explained that the 

80/20 Rule was concerned with 

ensuring that taxpayers do not qualify 

for the entirety of the section 45 credit 

over a new ten-year credit period by 

making modest investments in an 

existing facility. Commenters explained 

this issue does not exist in the section 

48 credit context, because the section 48 

credit is available only for new property 

and not for any used components of 

property. A commenter noted that the 

80/20 Rule only really matters if one is 

focused on the totality of the property 

that is used to produce energy in a 

manner incentivized by the Code. This 

is different for section 48, for which the 

proper focus is on specific items of 

energy property, not assemblages of 

energy property under common 

ownership. Commenters asserted that, 

by applying the 80/20 Rule to energy 

property under section 48 and 

excluding the cost of otherwise eligible 


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new equipment or property that does 

not satisfy the 80/20 Rule, the Proposed 

Regulations fundamentally misconstrue 

the 80/20 Rule’s purpose and are 

inconsistent with current law. 

While commenters correctly noted 

that the purpose of the 80/20 Rule was 

to address the ‘‘original use 

requirement’’ or achieve a new 

‘‘originally placed in service’’ date, the 

80/20 Rule remains relevant in the 

context of the section 48 credit. Section 

48 requires the credit to be determined 

on the basis of energy property placed 

in service during the taxable year. In 

situations in which energy property has 

already been placed in service, existing 

units of energy property cannot qualify 

for the credit without the 80/20 Rule 

(with the exception of the modification 

of energy storage technology as 

provided in proposed § 1.48– 

9(e)(10)(iii)). 

Supporters of retaining the 80/20 Rule 

noted that it should apply for purposes 

of the section 48 credit only in limited 

circumstances. First, the 80/20 Rule 

should apply to the acquisition of 

retrofitted energy property by a taxpayer 

for purposes of obtaining an original 

placed in service date for such 

retrofitted property (which commenters 

noted is the traditional application of 

the 80/20 Rule). Second, the 80/20 Rule 

should apply if it is necessary for a 

qualified facility (otherwise eligible for 

the section 45 credit) to obtain a new 

original placed in service date, such as 

a retrofitted qualified facility for which 

the taxpayer elects to claim the section 

48 credit in lieu of the section 45 credit. 

While many commenters suggested 

dropping the 80/20 Rule altogether, 

other commenters suggested a range of 

possible alternatives. For example, a 

commenter suggested excepting from 

the 80/20 Rule property that is no longer 

functional for its intended energy 

purpose such as a property that has 

fallen into disuse and has been sitting 

idle for years and that would require 

extensive renovations to return to use 

for its intended purpose; property that 

is no longer in a ‘‘condition or state of 

readiness and availability for a 

specifically assigned function’’; and 

property that has been idle for a certain 

period of time prior to rehabilitation 

and reuse such as property located in 

opportunity zones and property for 

which no tax credit has previously been 

claimed. This commenter also proposed 

requiring a reduced percentage 

threshold to meet the policy objectives 

of the 80/20 Rule and referred to the 

Dual Use percentage rules as more 

favorable than the 80/20 Rule. 

Multiple commenters suggested that, 

if the 80/20 Rule is retained, then the 

section 48 credit should apply to capital 

improvements without regard to the 80/ 

20 Rule. However, these commenters 

noted that the 80/20 Rule could 

continue to apply to individual 

components placed in service by the 

taxpayer. Commenters asserted that the 

application of the 80/20 Rule to capital 

improvements would lead to 

uneconomic decisions or waste, such as 

favoring demolition and rebuilding 

instead of investments to modify an 

existing energy property or encouraging 

many existing waste processing sites to 

continue to vent or flare methane. 

Commenters also expressed concerns 

regarding the prohibition on claiming 

the section 48 credit in respect of new 

property that is installed after other 

items of energy property have been 

placed in service in cases in which the 

80/20 Rule is not met. A commenter 

explained that such interpretation 

would disincentivize asset owners from 

upgrading their existing solar plants to 

maximize energy generation. This 

concern was shared by other 

commenters in the context of 

maintenance and upgrades performed 

on certain types of energy property such 

as GHP property. 

Commenters also stated that networks 

of GHP properties grow over time by 

design, adding additional customer 

buildings and ground loop capacity as 

needed. Therefore, commenters asserted 

that application of the 80/20 Rule would 

hinder the adoption of networked GHP 

property as additional users may be 

reluctant to link into an existing shared 

ground loop due to the unavailability of 

the section 48 credit. Another 

commenter requested reconsideration of 

the 80/20 Rule, comparing the rule for 

modification of an energy storage 

technology (which is allowed) with 

‘‘equipment that may make trash or 

biomass energy properties more 

efficient’’ (which is not allowed). This 

commenter also requested consideration 

of the 80/20 Rule in light of various 

factors such as planned versus 

unplanned improvements. 

In the context of a qualified biogas 

property, a commenter stated that the 

final regulations should clarify and 

explicitly state that any new cost paid 

or incurred by the taxpayer for property 

that is an integral part of the energy 

property may be included in the basis 

of the energy property for purposes of 

the section 48 credit, without regard to 

the application of the 80/20 Rule at the 

integral property level and regardless of 

whether the new costs paid or incurred 

would generally be eligible for the 

section 48 credit. As an example, the 

commenter noted that this approach 

would allow the section 48 credit for a 

landfill gas collection system that 

primarily serves a purpose unrelated to 

the qualified biogas property (that is, 

storage of municipal solid waste). 

Commenters also raised concerns 

regarding the use of the 80/20 Rule in 

the context of an energy project. 

Commenters generally asserted that the 

application of the 80/20 Rule 

disincentivizes new projects. A 

commenter requested that the final 

regulations clarify and explicitly state 

that the 80/20 Rule is applied separately 

with respect to each unit of energy 

property within an energy project and 

does not take into account any of the 

used property retained and used as an 

integral part of an energy project 

irrespective of whether these energy 

properties together are determined to 

satisfy any two or more of the factors 

described in proposed § 1.48–13(d)(1)(i) 

through (vii). Another commenter 

explained the commenter’s 

understanding that if a section 48 credit 

is claimed on an energy project, then the 

80/20 Rule would be applied to the 

entire project rather than to each 

component separately. The commenter 

asserted that this interpretation conflicts 

with the historical understanding of the 

80/20 Rule as it applies to the section 

48 credit, which is based on each 

component of the unit of energy 

property. Another commenter noted that 

the final rule should make clear that any 

application of the 80/20 Rule does not 

apply to the entire energy project. If 

deemed applicable, it should be limited 

to the individual energy properties 

being put into operation by the claiming 

taxpayer and should not include new or 

expanded energy projects that are added 

to existing operations. The Proposed 

Regulations already would provide that 

in the case of an energy project, the 80/ 

20 Rule is applied to each unit of energy 

property comprising an energy project 

and a taxpayer that satisfies the 80/20 

Rule with respect to an individual unit 

of energy property that is part of a larger 

energy project may be eligible for the 

section 48 credit. Additional 

clarification to ensure that the 80/20 

Rule is not applied at the energy project 

level is unnecessary. 

The Treasury Department and the IRS 

have considered the comments 

summarized earlier but decline to 

modify or abandon the 80/20 Rule as 

requested. The section 48 credit is 

available for ‘‘each energy property 

placed in service’’ during a taxable year. 

See section 48(a)(1). The 80/20 Rule is 

designed to broaden the availability of 

the section 48 credit to provide a new 

original placed in service date for an 

energy property that includes some 

components of property that have 


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already been placed in service, rather 

than requiring the entire unit of energy 

property to be composed of only new 

property. The 80/20 Rule also 

encourages retrofitting of existing 

energy property provided there is 

sufficient new investment. 

As discussed, in part III.D. of this 

Summary of Comments and Explanation 

of Revisions, the ownership rules would 

provide that the section 48 credit is 

available for an entire unit of energy 

property and not for individual 

components of property. The 80/20 Rule 

is consistent with the ownership rules 

because it ensures that an energy 

property that is retrofitted to a sufficient 

extent is considered a new energy 

property, whereas the addition of mere 

components is not eligible for the 

section 48 credit. 

The lone express rule for modification 

of existing energy property in section 48 

is found in section 48(c)(6)(B). This 

special rule is limited to modifications 

of existing energy storage technology. In 

the Proposed Regulations, the Treasury 

Department and the IRS noted the 

significance of Congress providing 

specifically for modifications to energy 

storage technology because the 

inclusion of this specific provision 

suggests that, otherwise, modifications 

of existing energy properties are 

ineligible for the section 48 credit. In 

light of this modification rule for energy 

storage technology, the structure of 

section 48 indicates that other 

modifications to existing energy 

property do not qualify for the credit. 

However, providing the 80/20 Rule is 

appropriate and consistent with its 

previous adoption for the section 48 

credit in Internal Revenue Bulletin 

guidance. As explained in the preamble 

to the Proposed Regulations, Notice 

2018–59 addresses the application of 

the 80/20 Rule to retrofitted energy 

property for purposes of applying the 

beginning of construction rules for the 

section 48 credit. Section 7.05(1) of 

Notice 2018–59 provides that retrofitted 

energy property may qualify as 

originally placed in service even though 

it contains some used components of 

property, provided it satisfies the 80/20 

Rule. Consistent with the 80/20 Rule 

provided in Notice 2018–59, the 80/20 

Rule provided in these final regulations 

requires a taxpayer to own a unit of 

energy property to claim the section 48 

credit. Additionally, § 1.48–14(a) 

specifically provides that if a taxpayer 

satisfies the 80/20 Rule, then the 

taxpayer may include the new costs 

paid or incurred for property that is an 

integral part of the energy property in 

the basis of the energy property for 

purposes of the section 48 credit. By 

allowing an existing energy property to 

be retrofitted and afterwards to be 

treated as a new energy property, the 

80/20 Rule is consistent with the 

ownership rules and is supported by the 

same rationale. Moreover, because 

modifications other than those 

described in section 48(c)(6)(B) (for 

existing energy storage technology) 

generally do not qualify for the section 

48 credit, the provision of the 80/20 

Rule is favorable to taxpayers and 

encourages substantial additional 

investment in existing energy property. 

2. Application to Specific Technologies 

Commenters raised concerns 

regarding the application of the 80/20 

Rule to certain types of energy property. 

Several commenters had concerns about 

the application of the 80/20 Rule to 

qualified biogas property, battery energy 

storage, and qualified hydropower 

facilities. These issues were largely 

intertwined with concerns raised 

regarding the ownership requirement as 

it applies to these types of energy 

property. 

a. Qualified Biogas Property 

Many commenters shared concerns 

about the application of the 80/20 Rule 

stating that the rule would prevent the 

development of most qualified biogas 

property and other RNG projects. As 

described in the discussion of qualified 

biogas property in part I.B.5. of this 

Summary of Comments and Explanation 

of Revisions, commenters explained that 

unlike many other types of energy 

property incentivized under section 48, 

components of qualified biogas property 

(as described in the Proposed 

Regulations) are likely to have been 

placed in service prior to the enactment 

of the IRA. Commenters also expressed 

concerns regarding the definition of 

‘‘qualified biogas property,’’ the 

ownership provisions, and the 80/20 

Rule, asserting that the combined 

impact of these rules provided in the 

Proposed Regulations would limit 

eligibility for qualified biogas property. 

According to a commenter, the 80/20 

Rule should be aligned with the 

‘‘original use’’ requirement. To illustrate 

this point, the commenter provided an 

example, asserting that if a taxpayer is 

building a new unit of energy property 

that is functionally interdependent with 

a pre-existing and previously placed in 

service unit of energy property 

(qualified or otherwise) that is owned by 

a separate taxpayer, the application of 

the 80/20 Rule is unnecessary. The 

commenter stated that for qualified 

biogas property, it is common for the 

entire system to be comprised of 

components of property owned by two 

different taxpayers and for the original 

use of these various components of 

property (that is, landfill gas collection 

components and cleaning and 

conditioning components, both 

compromising a qualified biogas 

property or ‘‘system’’) to be with 

different taxpayers at potentially 

different points in time. 

Several commenters expressed 

concerns that the 80/20 Rule would not 

work for the qualified biogas projects 

that Congress intended to incentivize. 

Representative of that view, a 

commenter stated that the 80/20 Rule is 

potentially problematic for RNG projects 

located at pre-existing landfills. The 

commenter proposed that the 

application of the 80/20 Rule be limited 

to the individual units put into 

operation by the claiming taxpayer and 

should not exclude new or expanded 

projects that are added to existing 

operations. 

Commenters’ concerns stem from the 

ownership issues described in part III.D. 

of this Summary of Comments and 

Explanation of Revisions. As described 

in part III.D., the final regulations clarify 

the definition of what is included in 

qualified biogas property in a manner 

that is responsive to the ownership 

structures used by the biogas industry 

and allow for new property to be added 

to pre-existing landfills. Therefore, these 

final regulations do not adopt 

commenters’ specific comments 

concerning the application of the 80/20 

Rule to qualified biogas property. 

b. Second Life Batteries 

The preamble to the Proposed 

Regulations explained that ‘‘a 

commenter requested that re-used or 

‘second life’ batteries should be 

considered ‘new energy property.’’’ 

Generally, used property cannot be 

considered ‘‘new property’’ for purposes 

of the 80/20 Rule, which is described 

earlier in part III.A. of this Summary of 

Comments and Explanation of 

Revisions. The preamble to the 

Proposed Regulations requested 

comments on whether ‘‘second life’’ 

batteries should be considered new 

components for purposes of the 80/20 

Rule. 

Commenters proposed considering 

second-life batteries that are 

disassembled substantially to the 

electric vehicle module level to be new 

energy property for purposes of the 80/ 

20 Rule. These commenters reasoned 

that such batteries go through a 

substantial transformation process 

including dissembling and 

restructuring, which is a manufacturing 

process that meets the modification 

rule. A commenter suggested that, for 


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purposes of the 80/20 Rule, second life 

batteries be considered new energy 

property if documentation is provided 

supporting the fact that the batteries 

were remanufactured. Another 

commenter asserted that ‘‘second life’’ 

batteries may be considered within the 

80 percent portion (as new property) of 

the 80/20 Rule if applied to energy 

storage technology and believed this is 

especially applicable in contexts in 

which the batteries were originally used 

for a fundamentally different purpose, 

or if in their previous iteration the 

batteries were ineligible for the section 

48 credit. 

The 80/20 Rule recognizes that a 

retrofitted energy property that contains 

only a relatively minimal amount of 

used components is essentially a new 

energy property. While ‘‘second-life’’ 

battery components may be used to 

modify an energy storage technology as 

provided in section 48(c)(6)(B) and 

addressed in part I.B.4.d. of this 

Summary of Comments and Explanation 

of Revisions, allowing primarily used 

components to be considered new 

property for purposes of applying the 

80/20 Rule would be contrary to the 

basis of the 80/20 Rule. Accordingly, the 

Treasury Department and the IRS do not 

adopt these comments. 

c. Hydropower Facilities 

Section 48(a)(3) provides and 

proposed § 1.48–9(d)(1) would provide 

that for purposes of the section 48 

credit, an energy property does not 

include any property that is part of a 

qualified facility the production from 

which is allowed a section 45 credit for 

the taxable year or any prior taxable 

year. Some commenters requested that 

the final regulations clarify the interplay 

of the 80/20 Rule under section 48 in 

the case of a property that was 

previously part of a qualified facility 

under section 45. These commenters 

requested specific confirmation that the 

80/20 Rule may be applied to a 

retrofitted pumped storage hydropower 

property for which the section 45 credit 

had previously been claimed to allow a 

section 48 credit to be claimed. 

Although the 80/20 Rule permits a 

retrofitted energy property to be treated 

as originally placed in service and 

qualify for the section 48 credit even 

though it contains some used 

components, the 80/20 Rule must be 

applied by giving effect to the statutory 

language in section 48(a)(3) that 

prohibits a section 48 credit on any 

property that is part of a facility the 

production from which is allowed as a 

section 45 credit for the taxable year or 

any prior taxable year. However, in the 

case of a retrofitted qualified facility for 

which a section 45 credit was not 

allowed, the 80/20 Rule could be used 

to obtain a new original use and placed 

in service date in order to claim a 

section 48 credit if an election under 

section 48(a)(5) is made. After 

consideration of the comments, an 

example of the application of the 80/20 

Rule to a qualified hydropower 

production facility has been added to 

the final regulations. 

B. Dual Use Rule 

Former § 1.48–9 includes a Dual Use 

Rule, which provides that a solar energy 

property, wind energy property, or 

geothermal equipment is eligible for the 

section 48 credit to the extent of the 

energy property’s basis or cost allocable 

to its annual use of energy from a 

qualified source if the use of energy 

from ‘‘non-qualifying’’ sources does not 

exceed 25 percent of the total energy 

input of the energy property during an 

annual measuring period. This version 

of the Dual Use Rule is referred to as the 

‘‘75-percent Cliff.’’ 

Proposed § 1.48–14(b)(1) would 

provide that for purposes of section 48, 

the term dual use property means 

property that uses energy derived from 

both a qualifying source (that is, from an 

energy property including a qualified 

facility for which an election has been 

made) and from a non-qualifying source 

(that is, sources other than an energy 

property including a qualified facility 

for which an election has been made). 

Proposed § 1.48–14(b)(2)(i) would 

provide that, in general, dual use 

property will qualify as energy property 

if its use of energy from non-qualifying 

sources does not exceed 50 percent of 

its total energy input during an annual 

measuring period. If the energy used 

from qualifying sources is between 50 

percent and 100 percent, only a 

proportionate amount of the basis of the 

energy property will be taken into 

account in computing the amount of the 

section 48 credit (for example, if 80 

percent of the energy used by a dual use 

property is from qualifying sources, 80 

percent of the basis of the dual use 

property will be taken into account in 

computing the amount of the section 48 

credit). 

1. Dual Use Rule and Energy Storage 

Technology 

The preamble to the Proposed 

Regulations explained that the Treasury 

Department and the IRS recognize that 

the Dual Use Rule is no longer relevant 

to determining the eligibility of energy 

storage technology placed in service 

after December 31, 2022, because the 

IRA added energy storage technology as 

an energy property effective for property 

placed in service after December 31, 

2022. However, the Dual Use Rule may 

still have other applications under 

section 48. The Proposed Regulations 

requested comments on the application 

of the Dual Use Rule to section 48 after 

its amendment by the IRA. 

A commenter suggested that the final 

regulations should eliminate the 

application of the Dual Use Rule for all 

energy storage, including energy storage 

property placed in service before 

January 1, 2023. In the alternative, the 

commenter suggested reducing the 

requirement for energy storage property 

placed in service prior to 2023 to 50 

percent charging from qualifying energy 

sources. This commenter also requested 

that final regulations eliminate any 

penalties or recapture for energy storage 

systems that charge less from qualifying 

energy sources than they did during a 

previous annual measuring period. 

Finally, the commenter recommended 

that the final regulations allow for 

exceptions to charging restrictions 

during actual or anticipated emergency 

days, particularly when there are severe 

weather conditions, which are periods 

during which storage resources are 

badly needed. The commenter 

explained that the charging limitations 

disqualify energy storage property 

placed in service before January 1, 2023, 

that is charged by grid rather than by 

solar, wind, or other qualifying property 

from the section 48 credit eligibility. 

The commenter noted that it would be 

difficult to ensure that the charge comes 

from qualifying sources during severe 

weather conditions. Because these final 

regulations apply only to property 

placed in service after December 31, 

2022, these comments are outside the 

scope of the regulations. 

Section 13102(q)(2) of the IRA 

provides that amendments to section 48 

regarding energy storage technology 

apply to properties placed in service 

after December 31, 2022. Accordingly, 

proposed § 1.48–14(i) would limit 

application of proposed § 1.48–14 ‘‘to 

property placed in service after 

December 31, 2022, and during a taxable 

year beginning after the date of 

publication of the final rule.’’ Therefore, 

the prior version of the Dual Use Rule 

referred to as the 75-percent Cliff 

continues to apply to energy properties 

placed in service prior to January 1, 

2023. These final regulations do not 

adopt the requested change to the 

applicability date provided in the 

Proposed Regulations for these 

provisions. 

2. Aggregation of Energy Inputs 

Proposed § 1.48–14(b)(2)(ii) would 

provide that the measurement of energy 


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use required for purposes of proposed 

§ 1.48–14(b)(2)(i) is made by comparing, 

on the basis of Btus, energy input to 

dual use property from all qualifying 

sources with energy input from all nonqualifying sources. The Proposed 

Regulations further would provide that 

the Commissioner may also accept any 

other method that accurately establishes 

the relative annual use of energy 

derived from all qualifying sources and 

of energy input from all non-qualifying 

sources by dual use property. 

A commenter requested clarification 

regarding the appropriate means of 

demonstrating annual energy 

consumption for an energy property, 

especially for solar water heating 

systems. The commenter noted that 

solar thermal systems have accepted 

Federal sizing guidelines for accurately 

estimating energy consumption by 

source, whether from solar, electric, gas, 

or other applicable technologies, and 

because of this, not all solar thermal 

systems may include heat meters or 

other specialized monitoring equipment 

that may be needed to determine the 

annual energy consumption by source 

requirements and, thus, requiring such 

measurement could add undue and 

unnecessary costs to comply with this 

rule. This commenter recommended 

that the final regulations specify types 

of monitoring in general, or in lieu of or 

in addition to monitoring, provide 

guidance on appropriate or acceptable 

energy consumption modeling that 

might otherwise meet this requirement. 

For example, the commenter noted 

system performance modeling that may 

be used to determine annual energy 

production for a given system that is 

situated in a specific climate and used 

in the ENERGY STAR Residential Water 

Heater Certification Program. This 

commenter also noted that clarification 

regarding the costs that can be included 

in the basis of an energy property would 

also be useful in other Dual Use 

contexts, such as for solar carports. 

The Treasury Department and the IRS 

decline to adopt additional 

measurements to determine energy 

input from qualifying and nonqualifying 

sources. The Proposed Regulations state 

that the Commissioner may accept any 

other method that accurately establishes 

the relative annual use of energy 

derived from all qualifying sources and 

of energy input from all non-qualifying 

sources by dual use property. The final 

regulations will continue to allow the 

Commissioner to accept any other 

method that accurately establishes the 

qualifying sources and energy inputs to 

an energy property during the annual 

measuring period. Additionally, the 

final regulations do not provide 

clarification regarding what costs may 

be included in the basis of energy 

property. See part I.B of this Summary 

of Comments and Explanation of 

Revisions for a discussion of the 

definitions of types of energy property. 

3. Dual Use Property and Microgrid 

Controllers 

The preamble to the Proposed 

Regulations states that certain 

equipment is necessary for a microgrid 

controller to perform its functions. 

However, such equipment may also 

have been required to be installed 

without the presence of a microgrid. An 

example is a communications system 

(for example, a local ethernet network or 

a commercial wireless network). 

Because a microgrid controller must be 

connected to a communications system 

to operate properly, such a 

communications system could be 

considered part of the microgrid 

controller itself. The communications 

system could also be used for other 

purposes and may not be dedicated to 

the microgrid system. The Treasury 

Department and the IRS consider the 

Dual Use Rule inapplicable to this 

scenario because it does not involve the 

use of energy derived from both 

qualifying and non-qualifying sources. 

A commenter asserted that it is 

necessary to create a Dual Use Rule for 

microgrid controllers because requiring 

specific equipment to be dedicated to 

the microgrid controller that could 

otherwise be used for multiple purposes 

is an inefficient use of resources. The 

commenter also noted that given the 

complexity and unique nature of 

microgrids, it is impossible to specify all 

conditions under which a Dual Use 

might arise. This commenter suggested 

that any component of property that is 

tied into the microgrid system (whether 

hardware-based or software-based) 

becomes a necessary component of 

either the operation of the microgrid or 

the monitoring/maintenance of the 

operation of the microgrid. The 

commenter noted that existing 

equipment would not be included in the 

basis of the microgrid controller for 

purposes of the credit, but if new 

equipment is needed or if existing 

equipment needs to be replaced to 

accommodate the operations of the 

microgrid, such equipment should be 

included in the basis of the microgrid 

controller for purposes of the section 48 

credit even if such equipment is 

partially used for other purposes that 

are not eligible for the section 48 credit. 

This comment poses the issue of 

whether the cost of components of 

property is included in an energy 

property’s basis even though such 

components can be used for purposes 

not intended for energy property. That 

issue is addressed in the discussion of 

the functional interdependence and 

integral property rules described in part 

I.C.2 and 3 of this Summary of 

Comments and Explanation of 

Revisions. 

C. Incremental Cost 

Former § 1.48–9(k) defines 

incremental cost as the excess of the 

total cost of equipment over the amount 

that would have been expended for the 

equipment if the equipment were not 

used for a qualifying purpose related to 

the section 48 credit. Proposed § 1.48– 

14(d)(1) would adopt a similar 

definition and allow only the 

incremental cost of energy property to 

be included in basis for purposes of 

determining the section 48 credit. 

Proposed § 1.48–14(d)(2) would 

provide as an example, a scenario in 

which the incremental cost of a 

reflective roof for the purpose of 

installing a solar energy property is 

$5,000, the difference between the costs 

of a reflective roof and a standard roof. 

A commenter suggested expanding this 

example to include other roof upgrades 

that enable the operation of energy 

property. 

The amount of incremental cost is 

determined on a case-by-case basis and 

the example is only intended to 

illustrate the general application of the 

incremental cost rule. Accordingly, this 

comment is not adopted. 

D. Ownership Rules 

Proposed § 1.48–14(e)(1) would 

provide that for purposes of section 48, 

a taxpayer that owns an energy property 

is eligible for the section 48 credit only 

to the extent of the taxpayer’s basis in 

the energy property. Further, proposed 

§ 1.48–14(e)(1) would provide that in 

the case of multiple taxpayers holding 

direct ownership in an energy property, 

each taxpayer determines its basis based 

on its fractional ownership interest in 

the energy property. 

Proposed § 1.48–14(e)(2) would 

provide that a taxpayer must directly 

own at least a fractional interest in the 

entire unit of energy property for a 

section 48 credit to be determined with 

respect to such taxpayer’s interest. 

Further, proposed § 1.48–14(e)(2) would 

provide that no section 48 credit may be 

determined with respect to a taxpayer’s 

ownership of one or more separate 

components of an energy property if the 

components do not constitute a unit of 

energy property. However, proposed 

§ 1.48–14(e)(2) would also provide that 

the use of property owned by one 

taxpayer that is an integral part of an 


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100632 Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 

1Payments for Specified Energy Property in Lieu 

of Tax Credits Under the American Recovery and 

Reinvestment Act of 2009, Frequently Asked 

Questions and Answers. 

energy property owned by a second 

taxpayer will not prevent a section 48 

credit from being determined with 

respect to the second taxpayer’s energy 

property. 

Proposed § 1.48–14(e)(3)(i) would 

provide that the term ‘‘related 

taxpayers’’ means members of a group of 

trades or businesses that are under 

common control (as defined in Treasury 

Regulations § 1.52–1(b)). Proposed 

§ 1.48–14(e)(3)(ii) would provide that 

related taxpayers are treated as one 

taxpayer in determining whether a 

taxpayer has made an investment in an 

energy property with respect to which a 

section 48 credit may be determined. 

Many commenters disagreed with the 

application of the ownership rules. 

Several commenters raised general 

arguments focused on prior 

interpretations of section 48, while 

others voiced disagreement regarding 

the application of the ownership rules 

to qualified biogas property, GHP 

property, and offshore wind facilities 

(eligible for the section 48 credit 

through an election under section 

48(a)(5)). 

1. Prior Interpretations of the 

Ownership Rules 

Some commenters raised 

interpretations of the ownership rules 

and the definition of an ‘‘energy 

property’’ in caselaw and guidance. 

These commenters assert that these 

sources demonstrate that ownership of 

individual components of energy 

property, and not of an entire unit of 

energy property, is sufficient to claim 

the section 48 credit. 

Several commenters pointed to 

Cooper v. Commissioner, 88 T.C. 84 

(1987), which was decided under prior 

versions of sections 46 and 48 and the 

regulations thereunder. In Cooper, the 

taxpayer asserted that owning specific 

components of solar water heating 

system was sufficient to claim the 

section 48 credit for solar energy 

property. While the Tax Court agreed 

that the taxpayer did not own the entire 

working solar water heating system, the 

Court held that the definition of a solar 

energy property provided in former 

section 48(l)(4) was sufficiently broad to 

provide a credit for component parts of 

a solar water heating system. Id. at 116– 

117. 

The Tax Court subsequently clarified 

the holding in Cooper, explaining that 

‘‘the property in Cooper consisted of 

integrated water-heating systems that 

were ready for installation to discharge 

their designated function’’; they just had 

not been installed yet. Olsen, T.C. 

Memo 2021–41 at *14. Conversely, in 

the Olsen case, the Tax Court found that 

‘‘[p]etitioners’ lenses were mere 

components of a system . . . .’’ and not 

a complete system and therefore unable 

to be placed in service as a system. Id. 

Stated otherwise, while commenters cite 

to Cooper to support the assertion that 

the section 48 credit is available for 

separate components of property within 

an energy property, the Tax Court 

clarified in Olsen that components that 

‘‘operate as part of a complicated . . . 

system and were incapable of 

performing any useful function in 

isolation’’ were not placed in service. Id. 

at 13. Additionally, Cooper was decided 

under former section 48(l)(4) and not 

under the current version of section 48, 

which is substantially different. 

Commenters also cited Samis v. 

Commissioner, 76 T.C. 609 (1981), for 

the proposition that ownership of an 

entire energy property is not required to 

claim the section 48 credit. However, 

Samis stands only for the proposition 

that property connected to a building is 

a part of the building regardless of 

ownership. In Samis, although the 

taxpayers owned a ‘‘total energy plant’’ 

that provided hot water and heating/ 

cooling for a residential apartment 

complex not owned by the taxpayers, 

the total energy plant was held to be a 

structural component of the apartment 

complex and therefore not ‘‘tangible 

personal property’’ or ‘‘other tangible 

property’’ qualifying for the investment 

credit. The Tax Court explained in a 

footnote that the ownership of the plant 

was irrelevant because the total energy 

plant is not eligible for the section 48 

credit. Therefore, in Samis it was clear 

only that the taxpayer could not 

separate ownership of the heating and 

cooling system from the apartment 

complex to sidestep rules that the 

property must not be part of a building. 

Commenters also pointed to Revenue 

Ruling 78–268, 1978–2 C.B. 10, to 

support the premise that components of 

an energy property may be owned by 

different taxpayers. However, in 

Revenue Ruling 78–268, the taxpayers 

did not own just a component of one 

energy property—they owned a 

fractional interest in the entire facility. 

In Revenue Ruling 78–268, four parties, 

two of which were tax-exempt, owned 

an electric generating facility through a 

tenancy in common. Revenue Ruling 

78–268 held that the presence of the taxexempt owners did not disqualify the 

other owners from claiming a credit 

because the fractional interests in the 

tenancy in common were treated as 

separate assets. The Treasury 

Department and the IRS disagree with 

commenters that the holding of Revenue 

Ruling 78–268 conflicts with the 

ownership rules in the Proposed 

Regulations. Instead, Revenue Ruling 

78–268 illustrates that a fractional 

interest in the entire energy property is 

sufficient for a taxpayer to claim a 

section 48 credit, which is the very rule 

in proposed § 1.48–14(e)(2). 

Commenters also cited PLR 

201536017 (PLR) to support the premise 

that ownership of an entire energy 

property is not required to claim the 

section 48 credit. However, private 

letter rulings are not precedential and 

cannot be relied upon by a taxpayer 

other than the taxpayer addressed in the 

PLR (see section 6110(k)(3) of the Code). 

Furthermore, the PLR does not involve 

the section 48 credit but instead section 

25D of the Code. Regardless, similar to 

Revenue Ruling 78–268, the PLR 

involves credit eligibility through 

fractional ownership of an entire energy 

property, not ownership of just certain 

components. The PLR addresses a 

factual scenario in which a taxpayer 

purchased solar PV panels in an offsite 

array (that also contains other solar PV 

panels owned by other individuals) as 

well as a partial ownership in racking 

equipment, inverter equipment, and 

wiring and other equipment and 

installation services required for the 

integration of the panels in the array 

and the interconnection of the array to 

a local utility’s electric distribution 

system. The PLR concludes that as a 

result, the taxpayer has made a 

‘‘qualified solar electric property 

expenditure’’ under section 25D(d)(2) 

and the taxpayer is eligible to claim a 

section 25D credit. To the extent this 

PLR provides any helpful analysis 

regarding the section 48 credit, it 

involves partial ownership in all the 

other equipment necessary to integrate 

the panels into the array and 

interconnect the array to a local utility’s 

electric distribution system, and not just 

certain components. 

Finally, commenters pointed to FAQs 

34 and 35 of guidance from the Treasury 

Department regarding payments under 

section 1603 of the American Recovery 

and Reinvestment Act of 2009 1 (Section 

1603 Grant Program) to support the 

premise that ownership of an entire 

energy property is not required to claim 

the section 48 credit. FAQ 34 addressed 

grant eligibility for a factual scenario 

involving an open-loop biomass facility 

owned by one taxpayer that uses off-site 

feedstock conversion equipment owned 

by another taxpayer. The FAQ provided 

that the conversion equipment may be 

considered part of the open-loop 


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biomass facility eligible for the grant if 

the conversion equipment is integrated 

into the open-loop biomass facility. 

Evidence that the conversion facility is 

integrated into the open-loop biomass 

facility includes factors such as whether 

they are placed in service 

simultaneously, the extent to which the 

conversion facility’s output is dedicated 

to the facility (for example, under an 

exclusive long-term supply contract), 

and the dependence of the open-loop 

biomass facility on the output of the 

conversion equipment (at least 75 

percent). 

Additionally, FAQ 35 addressed the 

procedural requirements of the 1603 

Grant Program as applied to the facts 

presented in FAQ 34, by providing that 

the taxpayer that owns the conversion 

equipment and taxpayer that owns the 

open-loop biomass facility must each 

submit an application filed jointly in 

order to receive Section 1603 grant 

payments. While the 1603 Grant 

Program did adopt concepts from 

sections 45 and 48, the Section 1603 

Grant Program is not based on any 

income tax provisions and thus is not a 

relevant precedent for purposes of the 

section 48 credit. 

The Proposed Regulations’ approach 

to ownership eligibility is further 

supported by the IRA’s amendments to 

section 48 and administrability 

considerations. The IRA amended 

section 48 to provide for an increased 

credit amount for energy projects 

satisfying the PWA requirements 

(section 48(a)(9) through (11)), a bonus 

credit amount for energy projects 

satisfying domestic content 

requirements (section 48(a)(12)), and an 

increase in credit rate for energy 

projects in energy communities (section 

48(a)(14)). Additionally, the IRA 

amended section 48(a)(8) to allow the 

cost of qualified interconnection 

property to be included in the basis of 

certain lower-output energy properties. 

This statutory framework indicates that 

special rules enacted by the IRA 

amendments apply to either an energy 

property or an energy project, which is 

further defined as a project consisting of 

one or more energy properties that are 

part of a single project. This statutory 

scheme requires that the section 48 

credit is available only if an entire 

energy property (or energy project) is 

placed in service. Under the alternative 

ownership rules requested by 

commenters, a taxpayer’s eligibility for 

the IRA’s bonuses could depend, in 

many cases, on whether unrelated 

parties met the requirements for the 

various bonus credits provided by the 

IRA. This uncertainty would create 

severe challenges for tax administration. 

While the Treasury Department and 

the IRS understand the concerns raised 

by commenters, the statutory language 

and administrability concerns arising 

from the overall statutory scheme 

effected by the IRA’s recent 

amendments both support a 

requirement that the taxpayer own all or 

a fraction of an entire energy property 

or energy project. Therefore, the final 

regulations do not adopt the changes to 

the ownership rules requested by the 

commenters. The rule is adopted as 

proposed. 

2. Application to Qualified Biogas 

Property 

Commenters presented practical 

reasons for disagreeing with the 

ownership rules, particularly in the 

context of the section 48 credit for 

qualified biogas property placed in 

service at dairy farms and landfills. 

Commenters provided reasons that the 

owner of biogas upgrading equipment 

cannot be the same owner of the 

functionally interdependent qualified 

biogas property, which is described in 

proposed § 1.48–9(e)(11)(i) as including, 

but not limited to, a waste feedstock 

collection system, a landfill gas 

collection system, mixing or pumping 

equipment, and an anaerobic digester. 

Commenters also explained that biogas 

upgrading equipment is often added to 

dairy farms and landfills, and those that 

engage in biogas upgrading are not the 

same owners of the underlying farms 

and landfills. 

A commenter explained that different 

types of qualified biogas property 

located at a site are almost always 

owned by different taxpayers as a result 

of regulatory constraints, financial 

capability, or other business 

considerations. Another commenter 

explained that because qualified biogas 

property is prohibitively expensive, 

farmers and ranchers often work with 

cooperatives or other organizations to 

facilitate shared ownership of such 

equipment, and the ownership rules, as 

proposed, would have an exclusionary 

effect on American agriculture and 

specifically on farmer-owned 

cooperatives. Emphasizing these same 

concerns, another commenter stated that 

often farmers and ranchers are not 

interested in an outside entity owning 

the anaerobic digester that, in addition 

to biogas, produces nutrients and water 

used within the farming operation and 

are therefore crucial for the farmers and 

ranchers to own and control. 

Commenters note that similar issues 

arise in the context of landfills. For 

example, a commenter (whose 

comments were endorsed by many 

others) explained that landfill owners 

often use collection equipment for 

compliance with regulatory 

requirements and view methane gas 

capture as a core operation. As a result, 

landfill gas collection systems are 

almost always owned and operated by 

the landfill operator, which may be a 

municipality, while the biogas 

upgrading equipment is owned by 

another taxpayer. This makes common 

ownership of both the functionally 

interdependent qualified biogas 

property as described in the proposed 

§ 1.48–9(e)(11) and the biogas upgrading 

equipment difficult to achieve. 

Moreover, those engaged in biogas 

upgrading at a landfill may not legally 

be allowed to own the landfill biogas 

equipment. For example, a commenter 

stated that the proposed treatment of a 

landfill gas collection system property 

as a functionally interdependent part of 

the qualified biogas property is 

problematic because it is very common 

for RNG production systems to be 

developed by a taxpayer at a landfill 

owned by a different taxpayer. In this 

type of arrangement, it is important for 

the owner of the landfill to retain 

ownership and control of the landfill 

gas collection property to comply with 

existing regulatory and permitting 

requirements for operation of the 

landfill. Additionally, this commenter 

noted that it is common for such landfill 

gas collection system property to have 

already been placed in service before 

biogas collected from the system is 

captured and integrated into a new RNG 

production system. 

Another commenter emphasized both 

timing issues and legal restrictions 

created by the ownership rules, stating 

that the ownership rules fail to 

recognize that most landfills have 

already installed gas capture and control 

systems (GCCS System). These systems 

are generally required under existing 

regulations, and the landfills typically 

insist on maintaining total control and 

ownership of the GCCS System to 

ensure they remain within regulatory 

requirements. This commenter 

explained that RNG developers provide 

additional equipment to further refine 

captured landfill gases into beneficial 

end use products, but that additional 

equipment may not benefit from section 

48 credits under proposed § 1.48– 

9(e)(11), which requires the split 

ownership of the GCCS System and gas 

upgrading equipment. 

The final regulations address the 

commenters’ concerns through other 

revisions to the final regulations. The 

Treasury Department and the IRS expect 

that these revisions will alleviate the 

concerns raised by the biogas industry 

without requiring changes to the 


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ownership rules. For discussion of these 

revisions to the definition of qualified 

biogas property see part I.B.5. of this 

Summary of Comments and Explanation 

of Revisions. 

3. Application to GHP Property and 

Geothermal Energy Property 

Commenters also provided feedback 

on the effect of the ownership rules in 

the context of GHP property and 

geothermal energy property. Many 

commenters asserted that the Proposed 

Regulations could cause significant 

potential harm to development of 

geothermal projects. These commenters 

stated that it is important that the 

Treasury Department and the IRS 

provide a method for split ownership of 

GHP property and geothermal energy 

property to qualify for the section 48 

credit. In support of these requests, 

commenters pointed to congressional 

correspondence urging support for the 

geothermal industry and requesting 

guidance to allow for viable third-party 

ownership business models, including 

clarifying that GHP property and 

geothermal energy property are exempt 

from the ‘‘limited use property’’ 

doctrine. 

Commenters also explained that there 

are dozens of networked geothermal 

projects currently planned or deployed 

across the country. Commenters stated 

that networked GHP property and 

geothermal energy systems almost 

always involve multiple owners by 

design, and that GHP property networks 

can serve a diverse array of customer 

buildings while those customers own 

and maintain their own GHP property. 

Commenters stated that the ground loop 

and the heating and cooling units are 

functionally interdependent yet distinct 

components of the GHP property that 

are often owned by utilities. The 

commenters also noted that in many 

instances, utilities are prohibited by 

regulators from owning their customers’ 

heating and cooling equipment. These 

commenters suggest that the delineation 

between outdoor and indoor equipment 

is sufficient to allow for clear allocation 

of the credit between taxpayers. 

Several other commenters made 

similar points about GHP property and 

the ownership rules. Some commenters 

emphasized the need for an exception 

for geothermal property and others 

focused on the reasoning for separate 

ownership. For example, a commenter 

highlighted the commonality of separate 

ownership arrangements because 

utilities are often prohibited from 

owning a customer’s heating and 

cooling equipment. Another commenter 

provided a detailed discussion on 

separate ownership of geothermal 

property and highlighted the business 

necessity for this structure. This 

commenter explained that the barrier to 

geothermal energy use is the high cost 

and expertise required for the overall 

underground system. This commenter 

said it makes perfect sense for the 

underground system to be owned by a 

specialized company with both the 

technical skills and a long-range 

investment strategy. This commenter 

explained that in other cases, it will be 

independent companies that contract to 

supply geothermal energy to the edge of 

a facility. The commenter noted that in 

both cases, the facility or building 

owner would then connect to the system 

to make use of the geothermal energy, 

and that the energy user is required 

neither to make the investment in the 

geothermal system, nor to have 

expertise in developing the system. 

This same commenter also explained 

that the Proposed Regulations ignore 

historical precedent that virtually all 

geothermal energy development was 

split ownership. This commenter 

asserted that since the 1980s and into 

the future, split ownership remains an 

important model for geothermal energy 

development and use. The commenter 

gave several examples illustrating the 

split ownership model across the United 

States. 

Commenters generally recommended 

that split ownership be allowed for 

geothermal property, including GHP 

property. One commenter (whose 

comments were endorsed by many 

others) suggested drawing the line at 

indoor/outdoor ownership. Another 

commenter asserted that property 

within a home or building should be 

considered an entire unit of energy 

property while another taxpayer owns 

the equipment underground as a 

separate unit of energy property. This 

commenter noted that the final 

regulations should define the scope of 

energy property to allow the taxpayer a 

section 48 credit based on the taxpayer’s 

basis in energy property it owns. 

Commenters also noted the use of 

‘‘equipment’’ in section 48(a)(3)(A)(iii) 

and (vii) (for example) to refer to 

geothermal energy property is different 

from the use of ‘‘system’’ used in other 

places to refer to energy property (for 

example, section 48(c)(1)(C), which 

defines a fuel cell power plant). These 

commenters noted that if the equipment 

is viewed individually as is suggested 

by the differing definitions in section 

48, then individual owners should be 

allowed to qualify in contravention of 

the coils/heat pump example included 

in the proposed rules. Commenters also 

made this point regarding use of the 

term ‘‘equipment’’ with reference to 

solar energy property. 

The statutory language does not 

support providing a special ownership 

rule for GHP property (or geothermal 

energy property) as requested by the 

commenters. In the case of GHP 

property, both the coils in the ground 

and the heat pump equipment are 

necessary for GHP property to satisfy 

the definition in section 48(a)(3)(A)(vii). 

Because both the coils and heat pump 

are necessary to perform the function of 

the GHP property, ownership of only 

the coils or only the heat pump is not 

ownership of the entire unit of energy 

property and therefore, is not ownership 

of GHP property, as statutorily defined. 

This analysis is consistent with the 

definition of ‘‘geothermal energy 

property’’ under section 48(a)(3)(A)(iii), 

which includes as energy property 

equipment used to produce, distribute, 

or use energy derived from a geothermal 

deposit (within the meaning of section 

613(e)(2)), but only, in the case of 

electricity generated by geothermal 

power, up to (but not including) the 

electrical transmission stage. That is, 

this definition encompasses production 

and disposition or use up to but not 

including electrical transmission. 

Because both the equipment that 

produces electricity from a geothermal 

deposit and equipment needed to either 

distribute or use such energy are 

necessary to perform the energy 

function of the geothermal energy 

property, ownership of only 

components of that equipment is not 

ownership of the entire unit of energy 

property and therefore, is not ownership 

of geothermal energy property, as 

statutorily defined. 

In response to these comments, the 

Treasury Department and the IRS have 

provided an example of GHP property 

in the final regulations to clarify that 

ownership of every heat pump that is 

connected to coils in the ground owned 

by the same taxpayer is not required to 

qualify, but that ownership of both coils 

and at least one heat pump is required. 

Additionally, other taxpayers may 

purchase heat pumps that attach to 

existing coil systems. While ownership 

of those heat pumps alone will not 

satisfy section 48, it is possible that the 

taxpayer may be eligible for a credit 

under section 25D. 

Commenters also requested an 

exemption for GHP property from the 

‘‘limited use property’’ doctrine. 

Property that is not commercially usable 

by anyone other than the lessee at the 

end of the lease term is considered 

‘‘limited use.’’ Section 5.02 of Revenue 

Procedure 2001–28, 2001–1 C.B. 1156, 

provides an example of a leased 


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smokestack attached to a warehouse 

owned by the lessee and concludes that 

the smokestack is limited-use property 

because it would not be commercially 

feasible to disassemble the smokestack 

at the end of the lease term and 

reconstruct it at a new location. 

Commenters expressed concern 

because, in one typical third-party 

ownership arrangement, a third-party 

owned ground loop is installed for the 

benefit of a building and leased to the 

building owner, with the building 

owner owning the heat pump. 

Under a longstanding body of case 

law and IRS guidance, if property is 

leased for substantially its entire useful 

life, then the transaction is treated more 

properly as a sale of the property for 

Federal income tax purposes than a 

lease, because the party designated as 

the lessee obtains the benefits and 

burdens of ownership of the property 

under the purported lease agreement. 

Grodt & McKay Realty, Inc. v. 

Commissioner, 77 T.C. 1221 (1981) 

(listing factors for determining whether 

the benefits and burdens of ownership 

of property have passed and a sale 

occurred); Rev. Rul. 55–541, 1955–2 

C.B. 19 (property determined to be 

leased for substantially its entire useful 

life and therefore results in a transfer of 

equitable ownership). A purported lease 

of limited-use property, therefore, may 

be treated as a sale for Federal income 

tax purposes because the lessee is 

considered to have acquired the benefits 

and burdens of ownership of the 

property for substantially its entire 

useful life. See Estate of Starr v. 

Commissioner, 274 F.2d 294 (9th Cir. 

1959) (purported lease of a fire sprinkler 

system); Mt. Mansfield Television v. 

United States, 239 F.Supp. 539 (D. 

Vermont 1964) aff’d 342 F.2d 994 (2d 

Cir. 1965) (purported lease of 

microwave equipment installed in a 

television station). 

Under this analysis, a third-party 

ownership arrangement involving a 

lease of a ground loop that cannot be 

removed at the end of the lease and 

used somewhere else may be 

characterized more properly for Federal 

income tax purposes as a sale (rather 

than a lease) of the ground loop to the 

building owner at the inception of the 

lease because the lessor must re-lease or 

sell the property to the lessee at the end 

of the lease term. 

To claim the section 48 credit, the 

taxpayer must own the energy property 

when it is placed in service. 

Consequently, the lessor of the ground 

loop in the lease financing transaction 

above may not be eligible for the section 

48 credit for the cost of the ground loop 

insofar as it is treated as having 

transferred ownership of the ground 

loop to the purported lessee for Federal 

income tax purposes at the inception of 

the lease. This would be the case even 

if the proposed regulations were 

modified to permit separate ownership 

of components of an energy property, or 

in the absence of such a modification, 

even if the nominal owner of the ground 

loop owned a fractional ownership 

interest in the other components of the 

GHP property, which taken together 

constitutes an energy property. Because 

of the ‘‘limited use property’’ doctrine, 

the lessor of the ground loop may not 

be regarded as the tax owner of the 

ground loop when it is placed in service 

and, therefore, would not be eligible for 

the section 48 credit for its basis in the 

ground loop. 

Commenters presume that it is within 

the Treasury Department and the IRS’s 

regulatory authority to revise the 

‘‘limited use property’’ doctrine 

provided in Revenue Procedure 2001– 

28, 2002–1 C.B. 1156, to provide an 

exception for GHP property. However, 

Revenue Procedure 2001–28 (and its 

predecessors, which date back to 

Revenue Procedure 75–21, 1975–1 C.B. 

715) merely provides guidelines for 

advance rulings on leveraged lease 

transactions, and notes that these 

guidelines ‘‘do not define, as a matter of 

law, whether a transaction is or is not 

a lease for [F]ederal income tax 

purposes and are not intended to be 

used for audit purposes.’’ Rather, the 

‘‘limited use property’’ doctrine reflects 

the broader Federal income tax 

principle that the characterization of a 

leasing transaction for Federal income 

tax purposes is determined by its 

substance and not its form. Helvering v. 

F. & R. Lazarus & Co., 308 U.S. 252 

(1939); Frank Lyon Co. v. United States, 

435 U.S. 561 (1978). Consequently, 

explicit statutory authorization would 

be needed to exempt leases of GHP 

property from the ‘‘limited use 

property’’ doctrine. The final 

regulations, therefore, do not exempt 

GHP property from the ‘‘limited use 

property’’ doctrine. 

4. Application to Solar Energy Property 

and Offshore Wind Facilities 

Commenters also provided feedback 

on the effect of the ownership rules in 

the context of solar energy properties 

and offshore wind facilities. A 

commenter asserted that requiring a 

taxpayer to own a direct interest in each 

component of a unit of solar energy 

property is unreasonable. This 

commenter provided an example of a 

taxpayer that constructs and places in 

service a solar facility that has 1,000 

components and qualifies for the section 

48 credit. If the taxpayer owns 999 

components of the solar facility and 

another taxpayer owns the remaining 

one component, then the same solar 

facility that qualified for the section 48 

credit because the taxpayer owned all 

components will no longer be energy 

property under the Proposed 

Regulations. This commenter said there 

does not seem to be any justification for 

this rule. This commenter highlighted 

that the facility is serving the same 

purpose and would be eligible for the 

same amount of section 48 credit. The 

commenter also asserted that 

introducing and defining the term ‘‘unit 

of energy property’’ in a way that does 

not allow its components to be owned 

by more than a single taxpayer leads to 

an unreasonable result. 

This commenter requested that the 

Treasury Department and the IRS issue 

a rule enabling taxpayers to claim the 

section 48 credit for separate 

components of energy property. 

Alternatively, the commenter requested 

that the Treasury Department and the 

IRS issue a rule to limit the definition 

of unit of energy property with respect 

to a particular taxpayer to those 

components owned by that taxpayer. As 

has been discussed previously in part 

III.D.1 of this Summary of Comments 

and Explanation of Revisions, the 

statute requires the taxpayer to own an 

interest in an energy property to claim 

a section 48 credit. 

Some commenters were particularly 

concerned about the rule in the 

Proposed Regulations that a taxpayer is 

eligible to claim the credit for integral 

property only if that same taxpayer 

owns the unit of energy property. These 

commenters were specifically 

concerned about the ability of owners of 

power conditioning and transfer 

equipment to claim the section 48 in 

both the solar and offshore wind 

context. In general, the commenters 

disagreed that an integral property that 

would otherwise qualify if owned by the 

same taxpayer that owns the unit of 

energy property would not qualify if 

owned by another taxpayer. For 

example, a commenter asserted in the 

case of a single energy property in 

which energy property and integral 

parts are constructed together but 

owned by separate taxpayers, both 

taxpayers should be able to claim 

separate credits on the bases of their 

respectively owned portions. Similarly, 

the commenter noted that if a unit of 

energy property is constructed and 

placed in service by a taxpayer, and 

later another taxpayer constructs and 

places in service integral property, both 

taxpayers should be able to claim 

credits. 


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A commenter made a similar point 

specifically about offshore wind 

facilities. This commenter noted that if 

the power conditioning equipment is 

owned by a taxpayer that has no 

ownership in the offshore wind facility, 

the power conditioning equipment 

would not qualify for the section 48 

credit without changing its operation, 

character, or function but would have 

qualified had that taxpayer had an 

ownership interest in the offshore wind 

facility. The commenter stated that the 

power conditioning equipment 

continues to serve the same purpose, is 

used directly in the intended function of 

the offshore wind facility and is 

essential to the completeness of its 

intended function. This commenter 

pointed out that offshore wind facilities 

(such as those along the Atlantic coast) 

will involve multiple States, and it is 

unlikely that the same entity will own 

both the offshore wind facility and the 

integral supporting infrastructure, but 

both should be eligible for the credit. 

Another commenter made a similar 

point stating that power conditioning 

and transfer equipment has been 

established by the Proposed Regulations 

as an integral part of the production of 

electricity from an offshore wind 

facility, and that in accordance with 

precedent, the Treasury Department and 

the IRS should establish in the final 

regulations that the separate owner of 

this integral equipment may qualify for 

the section 48 credit. This commenter 

stated that this is essential to enabling 

the necessary flexibility for offshore 

wind developers to structure financially 

viable projects, and ultimately achieve 

the Administration’s goal of deploying 

30 gigawatts (GW) of offshore wind 

capacity by 2030. Another commenter 

noted that the distinction in the 

Proposed Regulations between 

functionally interdependent property 

(needed for generation of electricity) 

and other ‘‘integral’’ property for 

purposes of section 48 is arbitrary, 

illogical, and unnecessary for offshore 

wind properties involving multiple 

owners and there is no need for an 

owner of an offshore wind delivery 

system to have an artificial requirement 

to own some portion of the turbines. 

This commenter noted that permitting 

multiple owners to share the section 48 

credit would not lead to overuse or 

‘‘double counting’’ of the section 48 

credit. 

Other commenters noted that 

allowing third party ownership of 

power conditioning and transfer 

equipment would significantly decrease 

the financial burden on developers and 

ratepayers, as well as diversify 

investment in the industry. Commenters 

also stressed the benefits of separate 

ownership as a more cost effective 

model of ownership, including 

efficiencies that provide lower overall 

costs to consumers; reduced 

environmental impacts (for example, 

fewer cables traversing sensitive marine 

ecosystems); efficient use of constrained 

cable corridors; fewer disruptions to 

communities than if each offshore wind 

facility develops its own offshore wind 

power conditioning and transfer 

equipment; and incentivizing 

competitive solicitation of such 

equipment. 

Generally, these commenters 

requested that integral property, 

specifically power conditioning 

equipment, be treated as a separate unit 

of energy property that may claim the 

section 48 credit. However, section 48 

provides a credit only for property that 

satisfies the definitions of ‘‘energy 

property’’ provided at section 48(a)(3) 

and (c), and owners of only integral 

property do not own ‘‘energy property’’ 

as defined in section 48(a)(3) or (c). For 

example, power conditioning and 

transfer equipment does not alone 

generate electricity or satisfy an 

intended function provided by the 

statute. As a result, costs associated 

with integral property owned by a 

taxpayer that owns the related energy 

property may be included in basis of the 

energy property owned by the same 

taxpayer as provided in these final 

regulations because integral property is 

necessary for the intended use for an 

energy property, but integral property 

alone cannot qualify for the section 48 

credit. 

E. Calculation of Basis 

Proposed § 1.48–14(e)(1) would 

provide that for purposes of the section 

48 credit, a taxpayer that owns an 

energy property is eligible for the credit 

only to the extent of the taxpayer’s basis 

in the energy property. In the case of 

multiple taxpayers holding direct 

ownership in an energy property, each 

taxpayer determines its basis based on 

its fractional ownership interest in the 

energy property. A commenter 

supported the fractional ownership rule 

for determining a taxpayer’s basis and 

requested the extension of those rules to 

the credits under sections 30C and 45W 

of the Code. 

Other commenters, while opposing 

the ownership rules, also requested 

clarification of how to determine basis 

if the fractional ownership rule is 

retained. A commenter requested 

examples of the application of these 

ownership rules in the context of an 

animal waste-to-RNG qualified biogas 

property in which the property 

comprising the qualified biogas property 

is owned by multiple taxpayers. 

Another commenter requested 

clarification regarding the allocation of 

a section 48 credit if taxpayers own 

different fractional ownership interests 

in the unit of energy property and 

related integral property. A commenter 

requested that the final regulations 

apply similar allocation rules provided 

in proposed § 1.48–9(f)(3)(i) and (ii) to 

shared integral property in the context 

of a qualified investment credit facility 

under section 48(a)(5). 

Other commenters, while opposed to 

the ownership rules, suggested 

alternative ways to determine basis if 

there are multiple owners. Two 

commenters suggested that energy 

property that is integral to multiple 

energy projects (for example, as part of 

a ‘‘shared collector system’’ 

configuration) should be eligible for the 

section 48 credit based on the energy 

property’s capacity allocable to each 

taxpayer’s energy project. Another 

commenter supported the creation of a 

rule that can be used to determine if the 

primary use of a transmission line is for 

renewable energy generation and, if so, 

to allow it to qualify as a split 

ownership component of the qualifying 

renewable energy development 

(whether wind, solar, or geothermal). 

This commenter pointed to the use of 

the Open Access Transmission Tariff as 

a model for such test. This commenter 

also noted that the initial dedicated 

renewable connection capacity is likely 

to be oversized and so the IRS should 

be able to develop partial section 48 

credit qualification over time if deemed 

necessary. 

Proposed § 1.48–14(e)(1) would 

provide that a taxpayer determines its 

basis based on the taxpayer’s fractional 

ownership in the energy property. 

Proposed § 1.48–14(e)(4)(iii), Example 3, 

would provide an example in which 

integral property has two owners that 

each own one-half of the integral 

property with each owner including 

one-half of the basis of that property to 

determine their basis for section 48 

credit purposes. The example does not 

look to whether the use of the integral 

property for qualifying uses 

corresponded to the one-half split in 

ownership. 

Proposed § 1.48–9(f)(3) would provide 

that multiple energy properties (whether 

owned by one or more taxpayers) may 

include shared property that may be 

considered an integral part of each 

energy property so long as the cost basis 

for the shared property is properly 

allocated to each energy property. In 

that scenario, the total cost basis of such 

shared property divided among the 


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Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 100637 

energy properties may not exceed 100 

percent of the cost of such shared 

property, but there is no requirement 

that the proportion of a taxpayer’s 

ownership of the integral property must 

correspond with the proportion of the 

taxpayer’s fractional ownership of the 

energy property. 

Because the fractional ownership 

rules applicable to multiple owners of 

integral property must comport with the 

general ownership rules, the Treasury 

Department and the IRS decline to 

adopt commenters’ alternative 

suggestions on calculating the credit for 

integral property. Section 48 requires 

that the taxpayer own property that 

satisfies the statutory definition of an 

energy property, and therefore the 

determination cannot be tied to an 

alternative measure such as capacity. In 

response to the comment on 

transmission lines, proposed § 1.48– 

9(f)(3)(ii), which is adopted in these 

final regulations, makes clear that 

energy property does not include any 

electrical transmission equipment, such 

as transmission lines and towers, or any 

equipment beyond the electrical 

transmission stage. Finally, in response 

to comments requesting clarifications 

with respect to the application of 

section 30C or 45W, such clarifications 

are more appropriately addressed in 

guidance under those provisions. 

Commenters also submitted questions 

concerning the specific costs that are 

capitalized and included in basis (for 

example, consultant labor and expenses 

associated with project/construction 

management, planning, design, 

engineering, and environmental 

services, contractor costs, legal services 

and permitting services). Issues 

concerning what costs may be 

capitalized and included in the basis of 

an energy property are similarly beyond 

the scope of these final regulations. 

F. Election To Treat Qualified Facilities 

as Energy Property 

Section 48(a)(5) generally provides an 

election to treat a ‘‘qualified investment 

credit facility’’ as energy property for 

purposes of the section 48 credit. 

Section 48(a)(5)(B) provides that no 

section 45 credit is allowed for any 

taxable year with respect to any 

qualified investment credit facility. 

Section 48(a)(5)(C) provides, in part, 

that the term ‘‘qualified investment 

credit facility’’ means any qualified 

facility (within the meaning of section 

45(d)(1) through (4), (6), (7), (9), or (11)) 

with respect to which no section 45 

credit has been allowed and for which 

the taxpayer makes an irrevocable 

election under section 48(a)(5). 

Accordingly, proposed § 1.48–9(d) 

would exclude from energy property 

any property that is part of a qualified 

facility with respect to which a section 

45 credit is allowed for any taxable year, 

including any prior taxable year. 

Proposed § 1.48–14(f) would provide 

rules applicable to the election under 

section 48(a)(5)(C) to treat certain 

facilities as energy property eligible for 

a section 48 credit in lieu of a renewable 

electricity production credit under 

section 45. Proposed § 1.48–14(f)(1) 

would provide that if a taxpayer makes 

an election under section 48(a)(5)(C) to 

treat qualified property that is part of a 

qualified investment credit facility as 

energy property with respect to which a 

section 48 credit may be determined, 

such property will be treated as energy 

property for purposes of section 48. 

Proposed § 1.48–14(f)(1) would also 

provide that no section 45 credit may be 

determined with respect to any such 

qualified investment credit facility and 

that the requirements of section 45 are 

not imposed on a qualified investment 

credit facility. Additionally, proposed 

§ 1.48–14(f)(1) would provide that no 

credit under section 45Q or 45V may be 

determined with respect to either any 

carbon capture equipment included in a 

qualified investment credit facility or 

any specified clean hydrogen 

production facility. 

Proposed § 1.48–14(f)(2) would define 

the term ‘‘qualified property’’ for 

purposes of proposed § 1.48–14(f). 

Proposed § 1.48–14(f)(3) would provide 

definitions related to requirements for 

qualified property. Proposed § 1.48– 

14(f)(4) would define the term 

‘‘qualified investment credit facility.’’ 

Proposed § 1.48–14(f)(5) would provide 

that intangible property is excluded 

from the definition of qualified property 

for purposes of the election under 

section 48(a)(5). 

Several commenters asked whether a 

taxpayer may claim a section 48 credit 

for energy storage technology co-located 

with a qualified facility for which a 

taxpayer claims the section 45 credit if 

the energy storage technology is an 

integral part of the qualified facility. As 

described in the preamble to the 

Proposed Regulations, the Treasury 

Department and the IRS understand that 

energy storage technologies eligible for 

the section 48 credit are often co-located 

with qualified facilities eligible for the 

section 45 credit and may share power 

conditioning and transfer equipment. 

In consideration of this practice, 

proposed § 1.48–9(f)(3)(ii) would 

provide that power conditioning and 

transfer equipment that is shared by a 

qualified facility (as defined in section 

45(d)) and an energy property may be 

treated as an integral part of the section 

48 energy property. Proposed § 1.48– 

9(d) would also clarify that such shared 

property is not considered part of a 

qualified facility and, therefore, the 

sharing of such property will not impact 

the ability of a taxpayer to claim the 

section 48 credit for an energy property 

or the section 45 credit for a qualified 

facility. 

In the preamble to the Proposed 

Regulations, the Treasury Department 

and the IRS requested comments 

regarding whether additional guidance 

is needed on this issue. After 

considering the comments received, the 

Treasury Department and the IRS 

confirm that even though shared power 

conditioning and transfer equipment is 

integral to a qualified facility for which 

the section 45 credit is claimed, colocated energy storage technology 

remains a separate energy property 

under section 48. Therefore, a section 48 

credit may be claimed for energy storage 

technology that is co-located with a 

qualified facility and shares power 

conditioning and transfer equipment 

with the qualified facility for which a 

section 45 credit is claimed. 

In the context of the section 48(a)(5) 

election, commenters requested that the 

final regulations confirm that 

components of property within a 

qualified hydropower facility (for which 

a section 48(a)(5) election is made) are 

eligible for the section 48 credit. A 

commenter asked that regulations 

provide guidance regarding the scope of 

a ‘‘qualified investment credit facility’’ 

and ‘‘qualified property,’’ including 

examples specific to a qualified 

hydropower facility. 

Another commenter requested that 

the final regulations confirm that the 

section 48 credit for energy storage 

technology is available regardless of 

whether the energy storage technology 

is part of a qualified hydropower facility 

for which a section 45 credit is allowed. 

This commenter requested that final 

regulations confirm that any new 

investment in property with respect to 

pumped storage hydropower qualifies 

for the section 48 credit (as an energy 

storage technology) regardless of 

whether the property is shared with a 

qualified hydropower facility that 

claims or has claimed the section 45 

credit. A section 48 credit may be 

claimed for energy storage technology 

that is co-located with a qualified 

facility and shares power conditioning 

and transfer equipment with the 

qualified facility for which a section 45 

credit is claimed. These final 

regulations provide rules of general 

applicability that taxpayers can use to 

determine whether they are eligible for 

a section 48 credit. The Treasury 


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Department and the IRS are not in a 

position to determine credit eligibility 

in specific fact scenarios in this final 

regulation. Thus, the final regulations 

do not provide the requested 

clarifications. 

Commenters also requested 

clarification concerning property that is 

included in offshore wind facilities. A 

commenter requested clarification that 

qualified property in a marshaling or 

operation and maintenance port that is 

an integral part of offshore wind energy 

facility should qualify as energy 

property for the purposes of the section 

48 credit. The Proposed Regulations 

would provide a rule for location of 

energy property that addresses this 

comment. Under proposed § 1.48– 

9(f)(4), any property that meets the 

requirements of proposed § 1.48–9(f)(2) 

(unit of energy property rules) and 

proposed § 1.48–9(f)(3) (integral part 

rules) is a part of an energy property 

regardless of where such property is 

located. The final regulations adopt this 

rule as proposed. However, these final 

regulations have revised proposed 

§ 1.48–14(f) to address only the election 

to treat qualified facilities as energy 

property, and several of the provisions 

in § 1.48–14(f) have been rearranged 

under that subsection in the final 

regulations. Additionally, the 

coordination rule for the sections 42 and 

48 credits has been moved from 

proposed § 1.48–14(f)(5) to § 1.48–14(g) 

in the final regulations. 

Additionally, the final regulations 

remove the references to ‘‘software’’ 

from proposed § 1.48–14(f)(3)(iii)(B) 

because section 48(a)(5) limits 

‘‘qualified property’’ to tangible 

property. Software generally is not 

tangible property. 

G. Lower-Output Energy Properties and 

Qualified Interconnection Costs 

1. Qualified Interconnection Property 

Section 48(a)(8)(A) provides generally 

that for purposes of determining the 

credit under section 48(a), energy 

property includes amounts paid or 

incurred by the taxpayer for qualified 

interconnection property in connection 

with the installation of energy property 

that has a maximum net output of not 

greater than five MW (as measured in 

alternating current), to provide for the 

transmission or distribution of the 

electricity produced or stored by such 

property, and that are properly 

chargeable to the capital account of the 

taxpayer (qualified interconnection 

costs). 

Section 48(a)(8)(B) provides that the 

term ‘‘qualified interconnection 

property’’ means, with respect to an 

energy project that is not a microgrid 

controller, any tangible property (1) 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 energy 

project interconnects to such 

transmission or distribution system in 

order to accommodate such 

interconnection, (2) that is either (i) 

constructed, reconstructed, or erected 

by the taxpayer, or (ii) for which the 

cost with respect to the construction, 

reconstruction, or erection of such 

property is paid or incurred by such 

taxpayer, and (3) the original use of 

which, pursuant to an interconnection 

agreement, commences with a utility. 

Section 48(a)(8)(C) and (D) provide 

additional definitions for purpose of 

this rule. Section 48(a)(8)(C) provides 

that the term ‘‘interconnection 

agreement’’ means an agreement with a 

utility for the purposes of 

interconnecting the energy property 

owned by such taxpayer to the 

transmission or distribution system of 

such utility. Section 48(a)(8)(D) 

provides that for purposes of section 

48(a)(8), 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. Section 

48(a)(8)(E) provides that in the case of 

costs paid or incurred for 

interconnection property, amounts 

otherwise chargeable to capital account 

with respect to such costs must be 

reduced under rules similar to the rules 

of section 50(c). 

Proposed § 1.48–14(g)(1) would 

generally provide that for purposes of 

determining the section 48 credit, 

energy property includes amounts paid 

or incurred by the taxpayer for qualified 

interconnection property, in connection 

with the installation of energy property 

that has a maximum net output of not 

greater than five MW (as measured in 

alternating current). The qualified 

interconnection property must provide 

for the transmission or distribution of 

the electricity produced or stored by 

such energy property and must be 

properly chargeable to the capital 

account of the taxpayer as reduced by 

§ 1.48–14(g)(6). 

Proposed § 1.48–14(g)(2) would define 

the term ‘‘qualified interconnection 

property’’ to mean, with respect to an 

energy project that is not a microgrid 

controller, 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 energy 

project interconnects to such 

transmission or distribution system in 

order to accommodate such 

interconnection; is either constructed, 

reconstructed, or erected by the 

taxpayer, 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 of which, 

pursuant to an interconnection 

agreement, commences with a utility. 

Proposed § 1.48–14(g)(2) also would 

provide that qualified interconnection 

property is not part of an energy 

property and that as a result, qualified 

interconnection property is not taken 

into account in determining whether an 

energy property satisfies the 

requirements for the domestic content 

bonus credit amount referenced in 

section 48(a)(12) and the increase in 

credit rate for energy communities 

provided in section 48(a)(14). 

Some commenters requested that the 

final regulations confirm that equipment 

required to modify and upgrade 

transmission or distribution systems 

beyond the point of interconnection 

would be considered qualified 

interconnection property and eligible 

for inclusion in basis. As already noted, 

proposed § 1.48–14(g)(2) would define 

the term ‘‘qualified interconnection 

property’’ to mean, with respect to an 

energy project that is not a microgrid 

controller, 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 energy 

project interconnects to such 

transmission or distribution system in 

order to accommodate such 

interconnection. These final regulations 

adopt this definition in renumbered 

§ 1.48–14(h)(2). Therefore, the Treasury 

Department and the IRS confirm that 

tangible property required to modify 

and upgrade transmission or 

distribution systems beyond the point of 

interconnection would (provided the 

property satisfies the other requirements 

of section 48(a)(8)(B)) be considered 

qualified interconnection property and 

eligible for inclusion in basis for 

purposes of the section 48 credit. 

Some commenters requested that 

certain components or technologies be 

specifically listed as qualified 

interconnection property. For example, 

a commenter asked for clarification that 

existing technologies that can be used to 

upgrade grid infrastructure to allow for 

interconnection of energy projects 


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Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 100639 

would be considered qualified 

interconnection property. Two 

commenters recommended including 

equipment between ‘‘a customer’s 

distribution system and the utility’s 

distribution point of common coupling 

(POC).’’ These commenters listed relays, 

switchgears (including low-voltage 

assemblies, medium-voltage assemblies, 

and circuit breakers), transformers, and 

voltage regulators. 

The Proposed Regulations would 

adopt the statutory requirements for 

qualified interconnection property 

provided in section 48(a)(8)(B). The 

final regulations adopt these rules as 

proposed. Because a definitive response 

to comments requesting greater 

specificity regarding equipment that is 

considered qualified interconnection 

property would require the Treasury 

Department and the IRS to conduct a 

complete factual analysis of the 

property in question, the requested 

clarifications are not addressed in these 

final regulations. 

One commenter requested that the 

final regulations include a detailed 

definition of ‘‘point of interconnection’’ 

to distinguish between energy property 

and qualified interconnection property 

for purposes of calculating the basis of 

the energy property eligible for a section 

48 credit. After consultation with the 

DOE, the Treasury Department and the 

IRS understand that the ‘‘point of 

interconnection’’ is a term of art well 

understood by the industry and 

taxpayers seeking an interconnection 

agreement. At the transmission level, 

interconnection procedures are, in most 

of the United States, governed by the 

Federal Energy Regulatory Commission 

(FERC). Providing a further definition of 

‘‘point of interconnection’’ outside of 

the FERC context risks creating 

confusion for generators and taxpayers. 

Therefore, no additional clarifications to 

define the ‘‘point of interconnection’’ 

are included in the final regulations. 

a. Interaction With PWA Requirements 

Section 48(a)(9)(A)(i) (general rules 

for the increased credit amount for 

energy projects) provides that in the 

case of any energy project that satisfies 

the requirements of section 48(a)(9)(B), 

the amount of the credit determined 

under section 48(a) (determined after 

the application of section 48(a)(1) 

through (8) and (15), and without regard 

to this clause) is equal to such amount 

multiplied by 5. 

The Proposed Regulations did not 

address the interaction between the 

rules for qualified interconnection costs 

and the PWA requirements. A 

commenter requested that the final 

regulations confirm that the PWA 

requirements do not apply to the 

construction, alteration, or repair of 

interconnection property. 

Section 48(a)(9) provides that the 

increased credit amount (for satisfying 

the PWA requirements) is determined 

after the application of section 48(a)(8) 

(rules for interconnection property) and 

therefore, amounts paid or incurred by 

the taxpayer for qualified 

interconnection property in connection 

with the installation of energy property 

are eligible for the increased credit 

amount. However, the PWA 

requirements apply only to ‘‘energy 

projects,’’ which is defined in a way that 

excludes interconnection property. See 

section 48(a)(9)(A)(ii) (defining ‘‘energy 

project’’ as ‘‘a project consisting of one 

or more energy properties that are part 

of a single project’’); section 

48(a)(8)(B)(i) (defining ‘‘interconnection 

property’’ as required ‘‘at or beyond the 

point at which the energy project 

interconnects to’’ a transmission or 

distribution system, implying that 

interconnection property is distinct 

from the energy project). Thus, 

interconnection property is not subject 

to the PWA requirements. 

In addition to not being part of an 

energy project, interconnection property 

generally is not within the control of the 

taxpayer that owns the energy project 

because it need not be owned by the 

same taxpayer. Instead, qualified 

interconnection property may be owned 

by a utility and 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 energy project interconnects 

to such transmission or distribution 

system. It would be difficult or 

impossible in such a case for the 

taxpayer to control or monitor whether 

the construction of the interconnection 

property complies with PWA 

requirements. This may explain why the 

statute permits the increased credit 

amount for amounts paid or incurred for 

qualified interconnection property, 

without subjecting the construction of 

such property to the PWA requirements. 

2. Interaction With Other Bonus Credit 

Amounts 

Section 48(a)(12)(A) provides 

generally that in the case of any energy 

project that satisfies the domestic 

content requirements, for purposes of 

computing the section 48 credit with 

respect to such property, the energy 

percentage is to be increased by the 

applicable credit rate increase, which is 

2 percentage points in the case of an 

energy project that does not satisfy the 

requirements of section 48(a)(9)(B), and 

10 percentage points in the case of any 

energy project that satisfies those 

requirements. 

Section 48(a)(14)(A) provides that in 

the case of any energy project that is 

placed in service within an energy 

community (as defined in section 

45(b)(11)(B), as applied by substituting 

‘‘energy project’’ for ‘‘qualified facility’’ 

each place it appears), for purposes of 

computing the section 48 credit with 

respect to energy property that is part of 

such project, the energy percentage is to 

be increased by the applicable credit 

rate increase that is 2 percentage points 

in the case of any energy project that 

does not satisfy the requirements of 

section 48(a)(9)(B), and 10 percentage 

points in the case of any energy project 

that satisfies those requirements. 

A commenter requested clarification 

regarding the interaction between the 

rules for qualified interconnection costs 

and the computation of the domestic 

content bonus credit amount and the 

increased credit amount for energy 

projects located in an energy 

community. This commenter stated that 

if a community solar project seeks 

interconnection to the distribution grid, 

usually there will be upgrades or other 

investments necessary to support the 

connection to the distribution system. 

The commenter explained that the 

generator generally has little control or 

ability to determine the components or 

design of a distribution utility’s 

interconnection requirements, and as a 

result, it is entirely appropriate to 

exclude these investments for the 

eligibility determination for the 

domestic content bonus credit amount 

and the increased credit amount for 

energy projects located in an energy 

community. According to the 

commenter, however, because these 

qualified interconnection costs are paid 

by the developer, they would still be 

part of the basis not only for the section 

48 credit, but also for the domestic 

content bonus credit amount and the 

increased credit amount for energy 

projects located in an energy 

community. This commenter requested 

that the Treasury Department and the 

IRS confirm that this is the correct 

interpretation of the rule. 

As highlighted by commenter and as 

provided in proposed § 1.48–14(g)(2), 

qualified interconnection property is 

not part of an energy property and as a 

result, qualified interconnection 

property is not taken into account in 

determining whether an energy property 

satisfies the requirements for the 

domestic content bonus credit amount 

and the increased credit amount for 

energy projects located in an energy 

community. However, the commenter 

requested clarification regarding 


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whether qualified interconnection costs 

are eligible for these provisions. 

Section 48(a)(8)(A) provides that for 

purposes of determining the credit 

under section 48(a), energy property 

includes amounts paid or incurred by 

the taxpayer for qualified 

interconnection property in connection 

with the installation of certain energy 

property (subject to certain additional 

requirements). Because the credit under 

section 48(a) is calculated by 

multiplying the energy percentage— 

which includes any domestic content 

bonus credit amount and any increased 

credit amount for energy projects 

located in an energy community—by the 

basis of the energy project—which 

includes amounts paid or incurred by 

the taxpayer for qualified 

interconnection property, qualified 

interconnection costs are taken into 

account in calculating the domestic 

content bonus credit amount and the 

increased credit amount for energy 

projects located in an energy 

community to the extent included in the 

basis of the energy property. 

3. Basis Reduction 

Section 48(a)(8)(E) provides that in 

the case of costs paid or incurred for 

interconnection property, amounts 

otherwise chargeable to capital account 

with respect to such costs are to be 

reduced under rules similar to the rules 

of section 50(c). Similarly, proposed 

§ 1.48–14(g)(6) would provide that in 

the case of costs paid or incurred for 

qualified interconnection property as 

defined in proposed § 1.48–14(g)(2), 

amounts otherwise chargeable to capital 

account with respect to such costs must 

be reduced under rules similar to the 

rules of section 50(c). Neither the statute 

nor the proposed regulations specify 

whether the provisions of section 

50(c)(1) or (3) apply. Section 48(a)(8)(A) 

provides that energy property includes 

amounts paid or incurred by the 

taxpayer for qualified interconnection 

property in connection with the 

installation of energy property. 

Therefore, the special rule in section 

50(c)(3)(A), which provides for a basis 

reduction of 50 percent in the case of 

any energy credit, applies to qualified 

interconnection property the costs of 

which are included for purposes of the 

section 48 credit. 

Proposed § 1.48–14(g)(6) would also 

provide that the taxpayer must pay or 

incur qualified interconnection property 

costs; therefore, any reimbursement, 

including by a utility, must be 

accounted for by reducing taxpayers’ 

expenditure to determine eligible costs. 

As acknowledged in the preamble to the 

Proposed Regulations, and as raised by 

some commenters, uncertainty exists 

regarding the inclusion of qualified 

interconnection costs in situations in 

which the taxpayer that owns the energy 

property does not fully bear the 

qualified interconnection costs (for 

example, cases in which the taxpayer is 

reimbursed). In the preamble to the 

Proposed Regulations, the Treasury 

Department and the IRS requested 

comments on whether a payment, 

credit, or service received by the owner 

of the energy property (first taxpayer), as 

the result of subsequent payments made 

to a utility by other parties, should be 

treated as a reimbursement to the first 

taxpayer and impact the amount of the 

qualified interconnection costs that the 

first taxpayer may include in its basis 

for purposes of the section 48 credit. 

The Treasury Department and the IRS 

also requested comments on whether 

the costs paid by a second taxpayer 

should be treated as amounts paid or 

incurred for qualified interconnection 

property in connection with the 

installation of the second taxpayer’s 

energy property. Further, the Treasury 

Department and the IRS requested 

comments on industry practices 

relevant to the determination of costs 

paid or incurred for qualified 

interconnection property, including the 

accounting treatment of costs paid or 

incurred for qualified interconnection 

property. Lastly, the Treasury 

Department and the IRS requested 

comments on whether any clarifications 

are needed regarding the tax treatment 

of amounts paid or incurred for 

qualified interconnection property, 

including reimbursement of costs paid 

or incurred by a taxpayer for qualified 

interconnection property. 

In response to these requests, 

commenters confirmed that future 

unforeseeable reimbursements of 

qualified interconnection costs may 

occur. Commenters also requested 

further guidance on these issues and 

provided recommendations for 

addressing these situations. 

A commenter recommended that the 

section 48 credit avoid accounting for 

any reimbursements paid to the 

taxpayer for qualified interconnection 

costs in a later taxable year. This 

commenter also suggested that the 

Treasury Department and the IRS 

incorporate a mechanism, similar to a 

recapture mechanism, in the final 

regulations to avoid a taxpayer receiving 

a greater amount in reimbursements 

than it paid for the qualified 

interconnection costs net of the section 

48 credit. This commenter raised 

concerns with situations in which the 

owner of an energy property receives 

reimbursement or revenue for qualified 

interconnection property, despite the 

energy project being situated in a region 

of the country with a ‘‘participant 

funding’’ mechanism (for example, 

generators must fully fund network 

upgrades without reimbursement). 

Additionally, this commenter cited the 

possibility that a utility may reimburse 

the taxpayer for all or a portion of the 

qualified interconnection costs, usually 

over a 20-year period. Additionally, this 

commenter noted that there are 

circumstances in which a future 

interconnection customer pays for the 

use of interconnection property by 

reimbursing the taxpayer, who is the 

initial interconnecting customer. This 

commenter noted that the first taxpayer 

would have no ability to foresee future 

payments from the second taxpayer at 

the time the first taxpayer interconnects 

to the utility’s transmission system. 

Another commenter recommended 

that the final regulations disregard 

utility reimbursements, to the extent 

includible in taxpayers’ gross income, to 

determine taxpayers’ eligible qualified 

interconnection costs. This commenter 

also stated that the final regulations 

should clarify that unforeseeable 

payments for the use of interconnection 

property that a taxpayer has funded 

with no expectation of future 

compensation should not be treated as 

a reimbursement or as amounts paid 

toward qualified interconnection costs 

but should instead be treated as 

revenue. 

The Treasury Department and the IRS 

recognize that situations may arise in 

which the cost of qualified 

interconnection property is reduced 

after the taxable year in which the 

taxpayer claims the section 48 credit. 

The Treasury Department and the IRS 

also recognize that other complicated 

situations may arise in determining 

whether a taxpayer has paid or incurred 

qualified interconnection costs. The 

comments received confirmed that these 

questions are not unique to the 

reimbursement of qualified 

interconnection costs and may also arise 

in the context of other tax credits. 

Therefore, the determination of whether 

qualified interconnection costs have 

been paid or incurred by the taxpayer 

and whether cost is reduced by virtue of 

transactions with the utility or with a 

third party should be based on generally 

applicable Federal tax principles. 

In consideration of the comments, the 

final regulations revise the rule 

regarding reduction to amounts 

chargeable to capital account to reflect 

the application of Federal tax principles 

to such transactions in determining the 

amount a taxpayer paid or incurred for 

qualified interconnection costs. The 


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final regulations, which are now at 

§ 1.48–14(h)(1) (previously proposed 

§ 1.48–14(g)(6)), explain that if the costs 

borne by the taxpayer are reduced by 

utility or non-utility payments, Federal 

tax principles may require the taxpayer 

to reduce the amount treated as paid or 

incurred for qualified interconnection 

property to determine a section 48 

credit. The final regulations also include 

two examples. 

4. Leases 

A commenter requested clarification 

regarding the treatment of qualified 

interconnection costs if an energy 

property is subject to a lease. This 

commenter questioned the availability 

of the section 48 credit for qualified 

interconnection costs incurred by small 

projects in a sale-leaseback or any 

transaction in which the taxpayer that 

initially incurred the qualified 

interconnection costs is different than 

the taxpayer that claims the section 48 

credit. The commenter noted that the 

Proposed Regulations do not address 

this question and made the issue worse 

in cases in which the ‘‘three-month saleleaseback’’ rule or the ‘‘lease passthrough’’ rule is combined with the 

section 48 credit rules regarding 

qualified interconnection costs. 

The commenter also requested that 

the final regulations address how the 

rule that the ‘‘energy property shall 

include amounts paid or incurred by the 

taxpayer for qualified interconnection 

property’’ operates if one taxpayer pays 

the interconnection costs, then sells the 

project to another taxpayer, and the 

second taxpayer claims the section 48 

credit. The commenter stated that the 

language in the Proposed Regulations 

seems to effectively deny companies 

using the three-month sale-leaseback 

and the lease-passthrough rules from 

claiming a section 48 credit for qualified 

interconnection costs. The commenter 

suggested that the final regulations 

should add language that expands the 

original use rule to take into account the 

principles of section 50(d)(4), with 

original use determined on the date of 

the sale-leaseback or lease. The 

commenter also recommended that the 

definition of ‘‘interconnection 

agreement’’ in the final regulations be 

revised to include an acknowledgement 

that energy property can be leased if 

there is an election under section 

50(d)(5). Finally, the commenter 

proposed designating and identifying 

specifically a portion of the purchase 

price for the sale of an energy project as 

a reimbursement for qualified 

interconnection costs. 

The Treasury Department and the IRS 

acknowledge that developers and 

operators of energy properties may 

utilize the existing sale-leaseback or 

lease-passthrough structures in cases in 

which they are seeking the section 48 

credit. Nothing in these final regulations 

prohibits the application of general 

principles, including those in section 

50(d). The specific applications of the 

sale-lease back or lease-passthrough 

rules, however, are beyond the scope of 

these regulations. 

The Treasury Department and the IRS 

recognize that the section 48 credit 

attributable to interconnection costs for 

qualified interconnection property is 

allowed to a purchaser of energy 

property that bears those costs in 

connection with the purchase (for 

example, by adjusting the purchase 

price or making a separate payment to 

account for them). Thus, in the case of 

a purchase of energy property (or a 

deemed purchase of energy property in 

the case a pass-through lease 

transaction), any amount paid or 

incurred by the buyer attributable to the 

value of interconnection costs 

associated with that energy property is 

an amount paid or incurred with respect 

to the construction, reconstruction, or 

erection of that qualified 

interconnection property. 

Further, in the case of a sale-leaseback 

transaction subject to the ‘‘three-month 

rule’’ provided in section 50(d)(4), the 

original use of the energy property is 

deemed to commence with the buyerlessor not earlier than the date on which 

the property is used under the saleleaseback transaction, and in the case of 

a pass-through lease transaction, with 

the lessee as if the lessee actually 

purchased the property in accordance 

with § 1.48–4. 

Accordingly, these final regulations 

revise § 1.48–14(h)(2) (previously 

proposed § 1.48–14(g)(2)) to provide 

‘‘[f]or 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) must be taken into 

account, as applicable, with such 

original use determined on the date of 

the sale-leaseback or lease.’’ Likewise, 

these final regulations revise § 1.48– 

14(h)(4) (previously proposed § 1.48– 

14(g)(4)) to provide ‘‘[i]n the case of the 

election provided under section 50(d)(5) 

(relating to certain leased property), the 

term includes an agreement regarding 

energy property leased by such 

taxpayer.’’ 

5. Five-Megawatt Limitation 

Proposed § 1.48–14(g)(3)(i) would 

provide that the Five-Megawatt 

Limitation is measured at the level of 

the energy property in accordance with 

section 48(a)(8)(A). Further, proposed 

§ 1.48–14(g)(3)(i) would provide that the 

maximum net output of an energy 

property is measured by the nameplate 

generating capacity of the unit of energy 

property at the time the energy property 

is placed in service. 

Proposed § 1.48–14(g)(3)(ii) would 

describe nameplate capacity for 

purposes of the Five-Megawatt 

Limitation. The Proposed Regulations 

would provide that the determination of 

whether an energy property has a 

maximum net output of not greater than 

five MW (as measured in alternating 

current) is based on the nameplate 

capacity for purposes of proposed 

§ 1.48–14(g)(1). If applicable, taxpayers 

should use the ISO conditions to 

measure the maximum electrical 

generating output or usable energy 

capacity of an energy property. 

Proposed § 1.48–14(g)(3)(ii)(A) and (B) 

would provide rules for applying the 

Five-Megawatt Limitation (as provided 

in proposed § 1.48–14(g)(1)) to electrical 

generating energy property and 

electrical energy storage property, 

respectively. 

Proposed § 1.48–14(g)(3)(ii)(A) would 

provide that in the case of an electrical 

generating energy property, the FiveMegawatt Limitation is based on the 

maximum electrical generating output 

in MW that the unit of energy property 

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. 

Proposed § 1.48–14(g)(3)(ii)(B) would 

provide that in the case of electrical 

energy storage property, the FiveMegawatt Limitation is determined by 

the storage device’s maximum net 

output, which is its nameplate capacity. 

Generally, commenters agreed that the 

Five-Megawatt measurement should be 

done at the level of underlying energy 

property, not the energy project. The 

final regulations (now found in § 1.48– 

14(h)(3)) retain the proposed rule that 

the Five-Megawatt Limitation is 

measured at the level of the energy 

property in accordance with section 

48(a)(8)(A). 

Other commenters expressed 

concerns with applying the FiveMegawatt Limitation based on 

nameplate capacity and by the reference 

to alternating current output. A 

commenter stated that the 

interchangeable use of two distinct 

electrical concepts, maximum net 

output in alternating current and 

nameplate generating capacity, in the 

Proposed Regulations could lead to 

misinterpretation and unintentionally 


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exclude otherwise qualifying 

interconnection property. A commenter 

stated that proposed § 1.48–14(g)(3) 

must be modified to clarify that 

interconnection property eligible for the 

credit is measured at the point of 

output, that is, five MW (measured in 

alternating current) at the inverter, and 

not determined by the nameplate 

generation capacity. This commenter 

stated that section 48(a)(8) does not 

contain the words ‘‘nameplate’’ or 

‘‘capacity’’ and instead, it refers to 

‘‘output . . . measured in alternating 

current,’’ which, for solar systems, can 

only be measured after the inverter. This 

commenter also stated that the 

definition of ‘‘qualified interconnection 

property’’ at proposed § 1.48– 

14(g)(3)(ii)(A), as applied to property 

that generates electricity in direct 

current, such as solar panels, would 

result in a nullity, with only energy 

property that generates electricity in 

alternating current able to qualify for the 

credit. 

Similarly, a commenter stated that for 

purposes of claiming the section 48 

credit for qualified interconnection 

property, the final regulations should 

refer only to energy property output in 

alternating current, without presuming 

that nameplate capacity perfectly 

corresponds to alternating current 

output. This commenter asserted that 

the final regulations should clarify that 

energy property is defined at the 

inverter level (that is, the source of 

alternating current output) for the 

purposes of determining eligibility of 

upstream network upgrades as qualified 

interconnection property. 

The Treasury Department and the IRS 

understand commenters’ concerns and 

agree that the rule provided in the 

Proposed Regulations should be revised. 

Section 48(a)(8) refers to a maximum net 

output of not greater than five MW (as 

measured in alternating current). The 

Proposed Regulations provide for 

nameplate capacity in alternating 

current, without addressing types of 

energy property, such as solar energy 

property, that generate electricity in 

direct current. Nameplate capacity for 

these types of energy property is 

measured before the property’s output is 

converted to alternating current by an 

inverter. Because an inverter would be 

considered property that is an integral 

part of the energy property and not part 

of the unit of property itself, measuring 

the nameplate capacity of an energy 

property that generates electricity in 

direct current would be difficult under 

the Proposed Regulations. 

In consultation with the DOE, the 

Treasury Department and the IRS 

conclude that nameplate generating 

capacity is the best and most practical 

measure of the maximum net output of 

an energy property. Therefore, the 

Treasury Department and the IRS do not 

adopt comments suggesting changes to 

the use of nameplate capacity. The final 

regulations at § 1.48–14(h)(3)(ii) 

(previously proposed § 1.48–14(g)(3)(ii)) 

retain the rule that the determination of 

whether an energy property has a 

maximum net output of not greater than 

five MW (as measured in alternating 

current) is based on the nameplate 

capacity of the energy property. 

However, in response to comments, 

the Treasury Department and the IRS 

coordinated with the DOE to provide a 

method of measuring nameplate 

capacity for an energy property that 

generates electricity in direct current. 

The final regulations at § 1.48– 

14(h)(3)(iii) (previously proposed 

§ 1.48–14(g)(3)(iii)) provide that, for 

energy properties that generate 

electricity in direct current, the taxpayer 

may choose to determine whether an 

energy property has a maximum net 

output of not greater than five MW (in 

alternating current) by using the lesser 

of: (i) the sum of the nameplate 

generating capacities within the unit of 

energy property in direct current, which 

is deemed the nameplate generating 

capacity of the unit of energy property 

in alternating current; or (ii) the 

nameplate capacity of the first 

component of property that inverts the 

direct current electricity generated into 

alternating current. This rule provides 

flexibility for taxpayers while ensuring 

that the maximum net output (in 

alternating current) of an energy 

property can be determined in an 

administrable and reasonably accurate 

manner for energy properties that 

generate electricity in direct current. 

A commenter recommended that the 

Treasury Department and the IRS clarify 

the size limitation for eligible properties 

with a nameplate capacity exceeding 

five MW. This commenter asserted that 

further clarification is needed to ensure 

that there is no gaming by projects that 

attempt to get around the Five-Megawatt 

Limitation, and to safeguard against the 

possibility of multiple energy properties 

being improperly treated as a single 

energy property. The commenter noted 

that this has been done effectively in 

many States by limiting the amount of 

capacity that can be installed on a 

parcel of land and precluding 

subdivisions that are performed for the 

purpose of circumventing a rule. The 

commenter also referenced guidelines 

developed by the Massachusetts 

Department of Energy Resources, which 

outline particular scenarios that would 

qualify for an exception allowing 

flexibility in the event that (i) there are 

multiple energy properties that are 

owned by separate regarded taxpayers; 

(ii) the energy properties are placed in 

service in a different tax year from other 

portions of the project; or (iii) there is 

a gap in time (for example, 6 to 12 

months) between different properties 

being placed in service. As described in 

the preamble to the Proposed 

Regulations, the addition of amounts 

paid or incurred by the taxpayer for 

qualified interconnection property in 

section 48(a)(8)(A) is tied to the 

installation of ‘‘energy property.’’ Since 

the statute clearly ties the FiveMegawatt Limitation to the energy 

property, as long as an energy property 

is five MW or less, the statute is 

satisfied. 

A few commenters requested greater 

clarity or examples regarding the 

application of the Five-Megawatt 

Limitation. For example, a commenter 

requested that the final regulations 

confirm that multiple energy properties 

each with a nameplate capacity of less 

than five MW could utilize common 

interconnection agreements (versus 

separate agreements). Other commenters 

requested clarification for cases in 

which multiple properties share 

interconnection property. Another 

commenter requested clarification or an 

example of multiple energy properties 

sharing interconnection property and 

the application of the Five-Megawatt 

Limitation with respect to various 

technologies and specifically solar 

energy property. 

In response to commenters that 

requested additional clarification of the 

Five-Megawatt Limitation, the final 

regulations add an additional example 

as well as provide clarifications to the 

existing examples. These clarifications 

illustrate the revised method of 

measuring nameplate capacity for an 

energy property that generates 

electricity in direct current. The 

clarifications also demonstrate the 

application of the Five-Megawatt 

Limitation in cases in which the 

nameplate capacity differs from the 

maximum output provided in the 

interconnection agreement. Specifically, 

the newly added example describes the 

application of the Five-Megawatt 

Limitation to an interconnection 

agreement for multiple energy 

properties owned by a single taxpayer. 

In that example, although the taxpayer 

has an interconnection agreement with 

the utility that allows for a maximum 

output of 10 MW (as measured in 

alternating current), the taxpayer may 

include the costs taxpayer paid or 

incurred for qualified interconnection 

property, subject to the terms of the 


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interconnection agreement, to calculate 

the taxpayer’s section 48 credits for each 

of the energy properties because each 

has a maximum net output of not greater 

than five MW (alternating current). 

A commenter proposed that the final 

regulations treat interconnection 

property as integral property by stating 

that in circumstances in which multiple 

energy properties (each with alternating 

current output at or below five MW) 

utilize higher-capacity interconnection 

property, such interconnection property 

should be deemed integral to multiple 

energy properties. Section 48(a)(8)(A) 

provides that energy property includes 

amounts paid for qualified 

interconnection property; it does not 

provide that energy property includes 

qualified interconnection property. 

Because the statute makes clear that 

interconnection property is distinct 

from energy property, it also cannot be 

property that is integral to an energy 

property. The preamble to the Proposed 

Regulations explains that qualified 

interconnection property, which is most 

similar in function to transmission and 

distribution property, is neither 

property that is a functionally 

interdependent component of an energy 

property nor an integral part of an 

energy property. 

6. Non-Application to Certain Types of 

Energy Properties 

The preamble to the Proposed 

Regulations clarified that the definition 

of qualified interconnection property 

specifically would exclude 

interconnection property installed with 

respect to an energy project that is a 

microgrid controller. Additionally, 

taxpayers may not include the costs of 

qualified interconnection property in 

the basis of electrochromic glass 

property and fiber optic solar energy 

property because these types of energy 

property do not require additions, 

modifications, or upgrades to a 

transmission or distribution system. 

Similarly, in the case of energy 

properties that generate thermal energy, 

such as certain geothermal property and 

qualified biogas property, this provision 

is inapplicable. Excluding certain 

properties from including 

interconnection costs is required by the 

statute and the fact that interconnection 

property is irrelevant to these 

technologies. The rule, therefore, is 

adopted as proposed. 

However, the Treasury Department 

and the IRS did receive a comment 

regarding qualified interconnection 

property and the application of the 

proposed rules to microgrid controllers. 

Section 48(a)(8)(B)(i) defines ‘‘qualified 

interconnection property’’, with respect 

to an energy project that is not a 

microgrid controller. The commenter 

noted that section 48(a)(8)(B)(i) is not 

intended to disqualify an energy project 

from including interconnection property 

costs solely because such project 

includes a microgrid controller. The 

Treasury Department and the IRS agree 

with this commenter’s view that if an 

energy project includes both a microgrid 

controller and another type of energy 

property, then interconnection property 

costs for the energy project may be 

included in calculating the section 48 

credit for the other energy property. 

IV. Severability 

If any provision in this rulemaking is 

held to be invalid or unenforceable 

facially, or as applied to any person or 

circumstance, it shall be severable from 

the remainder of this rulemaking, and 

shall not affect the remainder thereof, or 

the application of the provision to other 

persons not similarly situated or to 

other dissimilar circumstances. 

Effect on Other Documents 

Notice 2009–52, 2009–25 I.R.B. 1094, 

will be obsoleted for tax years beginning 

after the date of publication of the final 

regulations in the Federal Register. 

Notice 2009–52, in relevant part, 

provides procedures for taxpayers to 

make an irrevocable election under 

section 48(a)(5) to treat qualified 

property that is part of a qualified 

investment credit facility as energy 

property eligible for a section 48 credit 

in lieu of a section 45 credit. 

Applicability Dates 

The provisions of §§ 1.48–9 and 1.48– 

14 apply with respect to property that 

is placed in service during a taxable 

year beginning after December 12, 2024. 

Section 1.6418–5(f) applies to taxable 

years ending on or after December 12, 

2024. Taxpayers may choose to apply 

§§ 1.48–9, 1.48–14, and 1.6418–5(f) with 

respect to property that is placed in 

service after December 31, 2022, and 

during a taxable year beginning on or 

before December 12, 2024, provided 

taxpayers follow §§ 1.48–9, 1.48–14, and 

1.6418–5(f) in their entirety and in a 

consistent manner. 

Section 1.48–13 applies to energy 

projects placed in service in taxable 

years ending after December 12, 2024, 

and the construction of which begins 

after December 12, 2024. Taxpayers may 

choose to apply § 1.48–13 to energy 

projects placed in service in taxable 

years ending on or before December 12, 

2024, and energy projects placed in 

service in taxable years ending after 

December 12, 2024, the construction of 

which begins before December 12, 2024, 

provided that taxpayers apply § 1.48–13 

in its entirety and in a consistent 

manner. 

Special Analyses 

I. Regulatory Planning and Review— 

Economic Analysis 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

II. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520) (PRA) requires 

that a Federal agency obtain the 

approval of Office of Management and 

Budget (OMB) before collecting 

information from the public, whether 

such collection of information is 

mandatory, voluntary, or required to 

obtain or retain a benefit. A Federal 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless the 

collection of information displays a 

valid control number. 

The collections of information in 

these final regulations contain reporting 

and recordkeeping requirements that are 

required to verify the eligibility of the 

property for the credit. These 

collections of information generally are 

used by the IRS for tax compliance 

purposes and by taxpayers to facilitate 

proper reporting and compliance. 

The reporting requirement mentioned 

within these final regulations with 

respect to section 48 are in § 1.48– 

14(f)(5), which provides the time and 

manner for a taxpayer to make a section 

48(a)(5)(C) election to have qualified 

investment credit facility property that 

was placed in service after December 31, 

2008, treated as a qualified investment 

credit facility for purposes of claiming 

the section 48 credit. These 

requirements are considered general tax 

records under § 1.6001–1. 

A taxpayer must make a section 

48(a)(5)(C) election on a completed 

Form 3468, Investment Credit, (or 

successor forms, or pursuant to 

instructions and other guidance) with 

the taxpayer’s timely filed return 

(including extensions) for the taxable 

year in which the energy property is 

placed in service. The taxpayer must 

make a separate section 48(a)(5)(C) 

election for each qualified facility that is 

to be treated as a qualified investment 

credit facility. These collections are 

included on Form 3468, which is 


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already approved in OMB Control 

Numbers 1545–0155 for trust and estate 

filers, 1545–0074 for individual filers, 

and 1545–0123 for business filers. These 

final regulations do not change the 

collection requirements already 

approved by OMB. 

These final regulations also include 

reporting requirements, in addition to 

the general reporting requirements set 

forth in § 1.45–12, for taxpayers that 

claim an increased credit amount under 

section 48(a)(9)(B)(iii). These final 

regulations require taxpayers to verify 

compliance with the Prevailing Wage 

Requirements by providing information 

that includes the aggregate information 

detailed in § 1.45–12 during the fiveyear recapture period after an energy 

project is placed in service. The 

Secretary may issue forms and 

instructions in future guidance for the 

purpose of meeting these reporting 

requirements. As set forth in the 

preamble to § 1.45–12, these reporting 

requirements are covered under OMB 

control numbers 1545–0074 for 

individuals/sole proprietors, 1545–0123 

for business entities, and 1545–2315 for 

trust and estate filers. These final 

regulations are not changing or creating 

new collection requirements not already 

approved by OMB for § 1.45–12. 

These final regulations also describe 

recapture procedures as detailed in 

§ 1.6418–5. The reporting of a section 

48(a)(10)(C) recapture event will still be 

required to be reported using Form 

4255, Recapture of Investment Credit. 

This form is approved under OMB 

control numbers 1545–0074 for 

individuals, 1545–0123 for business 

entities, and 1545–0166 for trust and 

estate filers. These final regulations are 

not changing or creating new collection 

requirements not already approved by 

OMB. 

III. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) imposes 

certain requirements with respect to 

Federal rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

Procedure Act (5 U.S.C. 551 et seq.) and 

that are likely to have a significant 

economic impact on a substantial 

number of small entities. Unless an 

agency determines that a proposal is not 

likely to have a significant economic 

impact on a substantial number of small 

entities, section 604 of the RFA requires 

the agency to present a final regulatory 

flexibility analysis (FRFA) of the final 

regulations. 

These final regulations affect 

taxpayers, including small entities, that 

claim section 48 credits. Although data 

is not readily available about the 

number of small entities that are 

potentially affected by these rules, it is 

possible that a substantial number of 

small entities may be affected. 

In connection with the Proposed 

Regulations, the Treasury Department 

and the IRS presented an IRFA to invite 

comments on both the number of 

entities affected and the economic 

impact on small entities. No comments 

were received specific to these areas of 

inquiry. In the absence of comments in 

response to the Proposed Regulations, 

this FRFA is presented with the final 

regulations. 

In addition, pursuant to section 

7805(f), the Proposed Regulations 

preceding these final regulations were 

submitted to the Chief Counsel for the 

Office of Advocacy of the Small 

Business Administration for comment 

on its impact on small business, and no 

comments were received from the Chief 

Counsel for the Office of Advocacy of 

the Small Business Administration. 

A. Need for and Objectives of the Rule 

The final regulations will provide 

greater clarity to taxpayers for purposes 

of claiming the section 48 credit for 

energy property. These final regulations 

are expected to encourage taxpayers to 

invest in developing new energy 

properties, including qualified facilities 

otherwise eligible for the section 45 

credit for which a taxpayer makes a 

section 48(a)(5)(C) election. Thus, the 

Treasury Department and the IRS intend 

and expect that the final regulations will 

deliver benefits across the economy that 

will beneficially impact various 

industries. 

B. Affected Small Entities 

The Small Business Administration 

estimated in its 2018 Small Business 

Profile that 99.9 percent of United States 

businesses meet its definition of a small 

business. The applicability of these final 

regulations does not depend on the size 

of the business, as defined by the Small 

Business Administration. As described 

more fully in the preamble to the 

Proposed Regulations and in this FRFA, 

these rules may affect a variety of 

different businesses across several 

different industries. 

The section 48 credit incentivizes the 

development of energy property. 

Because the potential credit claimants 

can vary widely, it is difficult to 

estimate at this time the impact of these 

final regulations, if any, on small 

businesses. 

The Treasury Department and the IRS 

expect to receive more information on 

the impact on small businesses once 

taxpayers start to claim the section 48 

credit using the guidance and 

procedures provided in these final 

regulations. 

1. Impact of the Rules 

The final regulations will allow 

taxpayers to plan investments and 

transactions based on the ability to 

claim the section 48 credit. The 

increased use of the section 48 credit 

will incentivize the development of 

technologies for energy generation and 

storage. The use of the section 48 credit 

may also lead to additional investment 

in electrical grid infrastructure to 

transport electricity. 

Because the statutory changes that are 

reflected in the final regulations have 

already been accounted for by Form 

3468, the recordkeeping and reporting 

requirements should not increase for 

taxpayers that already claim the section 

48 credit. The Form 3468 already 

provides the procedures for taxpayers to 

make a section 48(a)(5)(C) election. To 

make the election, a taxpayer must 

claim the section 48 credit with respect 

to a qualified investment credit facility 

property on a completed Form 3468, 

Investment Credit (or successor forms, 

or pursuant to instructions and other 

guidance) and file such form with the 

taxpayer’s timely filed return (including 

extensions) for the taxable year in which 

the property is placed in service. 

Although the Treasury Department and 

the IRS do not have sufficient data to 

precisely determine the likely extent of 

the increased costs of compliance, the 

estimated burden of complying with the 

recordkeeping and reporting 

requirements are described in the 

Paperwork Reduction Act section of this 

Special Analyses. 

2. Alternatives Considered 

The Treasury Department and the IRS 

considered alternatives to these final 

regulations. Significant alternatives 

considered include the definition of 

energy project in § 1.48–13(d). As 

described in more detail in part II.C of 

the Summary of Comments and 

Explanation of Revisions section of this 

preamble, the Treasury Department and 

the IRS considered comments 

explaining that the energy project 

definition was too broad with only two 

factors required to cause energy 

properties to be considered an energy 

project. Commenters suggested instead 

providing that three or four factors 

should be met. Revising the definition 

of energy project to require three factors 

would resolve challenges for most 

commenters on this issue, which were 

represented by solar developers. 

However, section 48 encompasses many 

different technologies in addition to 


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solar photovoltaic energy property. 

Accordingly, to provide taxpayers 

flexibility across the various 

technologies eligible for the tax credit, 

§ 1.48–13(d) requires that four factors be 

met for energy properties to be 

considered an energy project. 

3. Duplicative, Overlapping, or 

Conflicting Federal Rules 

The final regulations would not 

duplicate, overlap, or conflict with any 

relevant Federal rules. As discussed 

above, these final regulations would 

merely provide procedures and 

definitions to allow taxpayers to claim 

the section 48 credit. 

IV. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million (updated annually for 

inflation). These final regulations do not 

include any Federal mandate that may 

result in expenditures by State, local, or 

Tribal governments or by the private 

sector in excess of that threshold. 

V. Executive Order 13132: Federalism 

Executive Order 13132 (Federalism) 

prohibits an agency from publishing any 

rule that has federalism implications if 

the rule either imposes substantial, 

direct compliance costs on State and 

local governments, and is not required 

by statute, or preempts State law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

Executive order. These final regulations 

do not have federalism implications and 

do not impose substantial, direct 

compliance costs on State and local 

governments or preempt State law 

within the meaning of the Executive 

order. 

VI. Executive Order 13175: 

Consultation and Coordination With 

Indian Tribal Governments 

Executive Order 13175 (Consultation 

and Coordination With Indian Tribal 

Governments) prohibits an agency from 

publishing any rule that has Tribal 

implications if the rule either imposes 

substantial, direct compliance costs on 

Indian Tribal governments, and is not 

required by statute, or preempts Tribal 

law, unless the agency meets the 

consultation and funding requirements 

of section 5 of the Executive order. 

These final regulations do not have 

substantial direct effects on one or more 

Federally recognized Indian Tribes and 

does not impose substantial direct 

compliance costs on Indian Tribal 

governments within the meaning of the 

Executive order. 

VII. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs 

designated this rule as a major rule as 

defined by 5 U.S.C. 804(2). Under 

section 801(3) of the CRA, a major rule 

takes effect 60 days after the rule is 

published in the Federal Register. 

Notwithstanding this requirement, 

section 808(2) of the CRA allows 

agencies to specify a different effective 

date when the agency for good cause 

finds that such procedure would be 

impracticable, unnecessary, or contrary 

to the public interest and the rule shall 

take effect at such time as the agency 

promulgating the rule determines. 

Pursuant to section 808(2) of the CRA, 

the Treasury Department and the IRS 

find, for good cause, that a 60-day delay 

in the effective date is unnecessary and 

contrary to the public interest. 

The IRA amended section 48 in 

several ways, including by making 

additional types of energy property 

eligible for the section 48 credit and 

provided, for many such technologies, 

that construction must begin before 

January 1, 2025. Further, the IRA 

amendments included a special rule to 

allow certain lower-output energy 

properties to include amounts paid for 

qualified interconnection property in 

connection with the installation of 

energy property, and provided an 

increased credit amount for energy 

projects that satisfy prevailing wage and 

apprenticeship requirements, a 

domestic content bonus credit amount, 

and an increase in credit rate for energy 

communities. 

Following the IRA’s amendments to 

section 48, the Treasury Department and 

the IRS published the Proposed 

Regulations. In response to the Proposed 

Regulations, commenters continued to 

express uncertainty regarding the proper 

application of the statutory rules under 

section 48 and the need for timely final 

regulations because in many cases 

taxpayers must begin construction 

before January 1, 2025, in order to be 

eligible to claim the section 48 credit. 

Consistent with Executive Order 

14008 (January 27, 2021), letters from 

Members of Congress urging expeditious 

publication of final regulations, and 

commenters’ request for finalized rules, 

the Treasury Department and the IRS 

have determined that an expedited 

effective date of the final regulations is 

appropriate here to provide certainty to 

taxpayers placing in service energy 

property before provisions expire and 

taxpayers seeking to begin construction 

before January 1, 2025 to maintain 

eligibility for the section 48 credit. The 

final regulations provide needed rules 

on what the law requires for taxpayers 

to begin job-generating construction of 

capital-intensive projects qualifying for 

section 48 credits. Accordingly, the 

Treasury Department and the IRS have 

determined that the rules in this 

Treasury decision will take effect on the 

date of publication in the Federal 

Register. 

Statement of Availability of IRS 

Documents 

IRS notices and other guidance cited 

in this preamble are published in the 

Internal Revenue Bulletin (or 

Cumulative Bulletin) and are available 

from the Superintendent of Documents, 

U.S. Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at https://www.irs.gov. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Amendments to the Regulations 

Accordingly, the Treasury Department 

and the IRS amend 26 CFR part 1 as 

follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by: 

■ a. Revising the entry for § 1.48–9; 

■ b. Removing the entry for §§ 1.6418– 

0–1.6418–5; and 

■ c. Adding entries in numerical order 

for §§ 1.48–13, 1.48–14, and 1.6418–1 

through 1.6418–5. 

The revision and additions read in 

part as follows: 

Authority: 26 U.S.C. 7805 * * * 

* * * * * 

Section 1.48–9 also issued under 26 U.S.C. 

48(a)(3)(D)(i) and (16). 

Section 1.48–13 also issued under 26 

U.S.C. 48(a)(10)(C) and (16). 

Section 1.48–14 also issued under 26 

U.S.C. 48(a)(16). 

* * * * * 

Section 1.6418–1 also issued under 26 

U.S.C. 6418(g) and (h). 

Section 1.6418–2 also issued under 26 

U.S.C. 6418(g) and (h). 

Section 1.6418–3 also issued under 26 

U.S.C. 6418(g) and (h). 

Section 1.6418–4 also issued under 26 

U.S.C. 6418(g) and (h). 

Section 1.6418–5 also issued under 26 

U.S.C. 48(a)(10)(C) and 6418(g) and (h). 

* * * * * 

■ Par. 2. Section 1.48–9 is revised to 

read as follows: 


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100646 Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 

§ 1.48–9 Definition of energy property. 

(a) In general. For purposes of the 

credit determined under section 48 of 

the Internal Revenue Code (Code), the 

term energy property means property 

that, taking into account the definition 

of the term unit of energy property 

(defined in paragraph (f)(2)(i) of this 

section) and of other terms defined in 

paragraph (b) and other provisions of 

this section, meets the requirements of 

paragraph (c) of this section and is of a 

type of energy property set forth in 

paragraph (e) of this section. If a 

property is described more than once in 

the types of energy property set forth in 

paragraph (e), only a single section 48 

credit is allowed. Paragraph (d) of this 

section provides rules for property 

excluded from energy property. 

Paragraph (f) of this section provides 

rules for components included in an 

energy property. Paragraph (g) of this 

section provides the applicability date 

for this section. 

(b) Definitions related to requirements 

for energy property. For purposes of 

section 48, this section, §§ 1.48–13 and 

1.48–14, and any provision of the Code 

or this chapter that expressly refers to 

any of the foregoing, the definitions in 

this paragraph (b) apply: 

(1) Construction, reconstruction, or 

erection of energy property. The term 

construction, reconstruction, or erection 

of energy property means work 

performed to construct, reconstruct, or 

erect energy property either by the 

taxpayer or for the taxpayer in 

accordance with the taxpayer’s 

specifications. 

(2) Acquisition of energy property. 

The term acquisition of energy property 

means a transaction by which a taxpayer 

acquires the rights and obligations to 

establish tax ownership of an energy 

property for Federal income tax 

purposes. 

(3) Original use of energy property— 

(i) In general. The term original use of 

energy property means the first use to 

which a unit of energy property is put, 

whether or not such use is by the 

taxpayer. 

(ii) Retrofitted units of energy 

property. A retrofitted unit of energy 

property acquired by the taxpayer will 

be treated as not being put to original 

use by the taxpayer unless the rules in 

§ 1.48–14(a) regarding retrofitted energy 

property (80/20 Rule) or paragraph 

(e)(10)(v) of this section regarding 

modifications of certain energy storage 

technology apply. The question of 

whether a unit of energy property meets 

the 80/20 Rule or is modified (as 

described in paragraph (e)(10)(v) of this 

section) is a facts and circumstances 

determination. 

(4) Allowable—(i) In general. For 

purposes of applying paragraph (c)(1)(ii) 

of this section, depreciation or 

amortization in lieu of depreciation 

(collectively, depreciation) is allowable 

with respect to energy property if such 

property is of a character subject to the 

allowance for depreciation under 

section 167 of the Code and the basis or 

cost of such property is recovered using 

a method of depreciation (for example, 

the straight line method), which 

includes any additional first year 

depreciation deduction method of 

depreciation (for example, under section 

168(k) of the Code). Further, if an 

Internal Revenue Service adjustment 

with respect to the Federal income tax 

or information return for such taxable 

year requires the basis or cost of such 

energy property to be recovered using a 

method of depreciation, depreciation is 

allowable to the taxpayer with respect to 

energy property. 

(ii) Exclusions from allowable. For 

purposes of paragraph (b)(4)(i) of this 

section, depreciation is not allowable 

with respect to energy property if the 

basis or cost of such property is not 

recovered through a method of 

depreciation but, instead, such basis or 

cost is recovered through a deduction of 

the full basis or cost of the energy 

property in one taxable year (for 

example, under section 179 of the 

Code). 

(5) Placed in service—(i) In general. 

Energy property is considered placed in 

service in the earlier of: 

(A) The taxable year in which, under 

the taxpayer’s depreciation practice, the 

period for depreciation with respect to 

such energy property begins; or 

(B) The taxable year in which the 

energy 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. Energy property 

in a condition or state of readiness and 

availability for a specifically assigned 

function includes, but is not limited to, 

components that are acquired and set 

aside during the taxable year for use as 

replacements for a particular energy 

property (or energy properties) to avoid 

operational time loss and equipment 

that is acquired for a specifically 

assigned function and is operational but 

is undergoing testing to eliminate any 

defects. However, components acquired 

to be used in the construction of an 

energy property will not be considered 

in a condition or state of readiness and 

availability for a specifically assigned 

function. 

(ii) Energy property subject to § 1.48– 

4 election to treat lessee as purchaser. 

Notwithstanding paragraph (b)(5)(i) of 

this section, energy property with 

respect to which an election is made 

under § 1.48–4 to treat the lessee as 

having purchased such energy property 

is considered placed in service by the 

lessor in the taxable year in which 

possession is transferred to such lessee. 

(6) Unit of energy property. The term 

unit of energy property is defined in 

paragraph (f)(2)(i) of this section. No 

provision of this section or § 1.48–13 or 

§ 1.48–14 uses the term unit in respect 

of energy property with any meaning 

other than that provided in paragraph 

(f)(2)(i) of this section. 

(7) Claim. With respect to a section 48 

credit determined with respect to energy 

property of a taxpayer, the term claim 

means filing a completing Form 3468, 

Investment Credit, or any successor 

form(s) with the taxpayer’s timely filed 

(including extensions) Federal income 

tax return for the taxable year in which 

the energy property is placed in service, 

and includes the making of an election 

under section 6417 or 6418 of the Code 

and corresponding regulations with 

respect to such section 48 credit and 

made on the taxpayer’s Federal income 

tax return or annual information return. 

(c) Requirements for energy 

property—(1) In general. Energy 

property must satisfy each of the 

requirements of paragraphs (c)(1)(i) 

through (v) of this section: 

(i) The taxpayer constructs, 

reconstructs, or erects the property, or, 

if the original use of the property 

commences with the taxpayer, acquires 

the property; 

(ii) Depreciation (or amortization in 

lieu of depreciation) is allowable with 

respect to the property; 

(iii) The property meets the 

performance and quality standards as 

provided in paragraph (c)(2) of this 

section; 

(iv) The construction of the property 

begins before the date provided in 

section 48 (if any such date is provided); 

and 

(v) The property is placed in service 

by the taxpayer by the date provided in 

section 48 (if any such date is provided). 

(2) Performance and quality 

standards—(i) In general. Energy 

property must meet performance and 

quality standards, if any, that have been 

prescribed by the Secretary of the 

Treasury or her delegate (after 

consultation with the Secretary of 

Energy) and are in effect at the time of 

acquisition of the energy property. 

(ii) Special rules for performance and 

quality standards—(A) Small wind 

energy property—(1) Small wind energy 

property must meet one of the following 

performance and quality standards in 


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effect at the time of acquisition of the 

small wind turbine: 

(i) American Wind Energy 

Association Small Wind Turbine 

Performance and Safety Standard 9.1 

(AWEA standards); 

(ii) International Electrotechnical 

Commission standards 61400–1, 61400– 

2, 61400–11, 61400–12 (IEC standards); 

or 

(iii) ANSI/ACP Small Wind Turbine 

Standard 101–1 (ACP standards). 

(2) Taxpayers may rely on a 

certification that the performance and 

quality standards set forth in this 

paragraph (c)(2)(ii)(A)(1) are met. 

Guidance published in the Internal 

Revenue Bulletin sets forth the 

requirements to certify that the 

performance and quality standards 

provided in this paragraph 

(c)(2)(ii)(A)(1) are met. See § 601.601 of 

this chapter. 

(B) Electrochromic glass property. To 

be eligible for the section 48 credit, 

electrochromic windows must be rated 

in accordance with the National 

Fenestration Rating Council (NFRC) and 

secondary glazing systems must be rated 

in accordance with the Attachments 

Energy Rating Council (AERC) Rating 

and Certification Process, or subsequent 

revisions. See paragraph (e)(2)(ii) of this 

section for the definition of 

electrochromic glass property. 

(iii) Time of acquisition. For purposes 

of applying performance and quality 

standards, the time of acquisition is the 

date the taxpayer enters into a binding 

contract (defined in paragraph (c)(2)(iv) 

of this section) to acquire the property, 

or, in the case of property constructed, 

reconstructed, or erected by the 

taxpayer, the earlier of the date that— 

(A) The taxpayer begins construction, 

reconstruction, or erection of the 

property, or 

(B) The taxpayer and another person 

enter into a binding contract (as defined 

in paragraph (c)(2)(iv) of this section) 

requiring the other person to construct, 

reconstruct, or erect property and to 

place the property in service for an 

agreed upon use. 

(iv) Binding contract. For purposes of 

this paragraph (c)(2), whether a contract 

is binding is determined based on the 

rules described in § 1.168(k)– 

2(b)(5)(iii)(A). 

(d) Property that is not energy 

property—(1) Interaction with section 

45. Energy property does not include 

any property that is part of a qualified 

facility the production from which is 

allowed as a credit determined under 

section 45 of the Code (section 45 

credit) for the taxable year or any prior 

taxable year. However, see paragraph 

(f)(3) of this section for rules regarding 

property that is an integral part of an 

energy property that is also used by a 

qualified facility. See § 1.48–14(f)(1) for 

rules regarding making an election 

under section 48(a)(5) to treat a 

qualified facility as an energy property. 

(2) Other property. Energy property 

also does not include power purchase 

agreements, goodwill, going concern 

value, or renewable energy certificates. 

(e) Types of energy property. The 

types of energy property eligible for a 

section 48 credit are: 

(1) Solar energy property—(i) In 

general. Solar energy property is 

equipment that uses solar energy to 

generate electricity, to heat or cool (or 

provide hot water for use in) a structure, 

or to provide solar process heat, 

excepting property used to generate 

energy for the purposes of heating a 

swimming pool. Solar energy property 

includes solar electric generation 

equipment (as defined in paragraph 

(e)(1)(ii) of this section), solar process 

heat equipment (as defined in paragraph 

(e)(1)(iii) of this section), and equipment 

that uses solar energy to heat or cool a 

structure or provide hot water for use in 

a structure, and parts related to the 

functioning of all such equipment. 

(ii) Solar electric generation 

equipment. Solar electric generation 

equipment is equipment that converts 

sunlight into electricity through the use 

of devices such as solar cells or other 

collectors. 

(iii) Solar process heat equipment. 

Solar process heat equipment is 

equipment that uses solar energy to 

generate steam at high temperatures for 

use in industrial or commercial 

processes. 

(2) Fiber-optic solar energy property 

and electrochromic glass property—(i) 

Fiber-optic solar energy property. Fiberoptic solar energy property is equipment 

that uses solar energy to illuminate the 

inside of a structure using fiber-optic 

distributed sunlight. 

(ii) Electrochromic glass property. 

Electrochromic glass energy property 

uses electricity to change its light 

transmittance properties (both visible 

and near infrared light) in order to heat 

or cool a structure. For purposes of 

section 48, windows, including 

secondary windows (also referred to as 

secondary glazings), that incorporate 

electrochromic glass are treated as 

electrochromic glass property. 

(3) Geothermal energy property—(i) In 

general. Geothermal energy property is 

equipment used to produce, distribute, 

or use energy derived from a geothermal 

deposit (within the meaning of section 

613(e)(2) of the Code), but only, in the 

case of electricity generated by 

geothermal power, up to (but not 

including) the electrical transmission 

stage. Geothermal equipment includes 

production equipment (as defined in 

paragraph (e)(3)(ii) of this section) and 

distribution equipment (as defined in 

paragraph (e)(3)(iii) of this section). 

(ii) Production equipment. For 

purposes of paragraph (e)(3)(i) of this 

section, production equipment is 

equipment necessary to bring 

geothermal energy from the 

subterranean deposit to the surface, 

including well-head and downhole 

equipment (such as screening or slotting 

liners, tubing, downhole pumps, and 

associated equipment). Production, 

injection, and monitoring wells required 

for production of the geothermal deposit 

qualify as production equipment. If 

geothermal energy is used to generate 

electricity, production equipment also 

includes the property necessary to 

produce electricity. Production 

equipment does not include equipment 

used for exploration and development 

of geothermal deposits, such as drilling 

wells. 

(iii) Distribution equipment. For 

purposes of paragraph (e)(3)(i) of this 

section, distribution equipment is 

equipment that transports geothermal 

energy from a geothermal deposit to the 

site of ultimate use. If geothermal energy 

is used to generate electricity, 

distribution equipment includes 

equipment that transports geothermal 

fluids between the geothermal deposit 

and the power plant. Distribution 

equipment also includes components of 

a building’s heating and/or cooling 

system, such as pipes and ductwork that 

distribute within a building the energy 

derived from the geothermal deposit. 

(4) Qualified fuel cell property. 

Qualified fuel cell property is a fuel cell 

power plant that has a nameplate 

capacity of at least 0.5 kilowatts (kW) (1 

kW in the case of a fuel cell power plant 

with a linear generator assembly) of 

electricity using an electrochemical or 

electromechanical process, and an 

electricity-only generation efficiency 

greater than 30 percent. For this 

purpose, electricity-only generation 

efficiency may be calculated by dividing 

the heat rate of the fuel cell (for 

example, kilowatt-hours (kWh) 

electricity produced per kilogram (kg) of 

fuel consumed) by the higher heating 

value of the fuel (for example, kWh per 

kg). A fuel cell power plant is an 

integrated system comprised of a fuel 

cell stack assembly, or linear generator 

assembly, and associated balance of 

plant components that converts a fuel 

into electricity using electrochemical or 

electromechanical means. A linear 

generator assembly does not include any 

assembly that contains rotating parts. 


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100648 Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 

(5) Qualified microturbine property. 

Qualified microturbine property is a 

stationary microturbine power plant 

that has a nameplate capacity of less 

than 2,000 kW and an electricity-only 

generation efficiency of not less than 26 

percent at International Standard 

Organization conditions. A stationary 

microturbine power plant is an 

integrated system comprised of a gas 

turbine engine, a combustor, a 

recuperator or regenerator, a generator 

or alternator, and associated balance of 

plant components that converts a fuel 

into electricity and thermal energy. A 

stationary microturbine power plant 

also includes all secondary components 

located between the existing 

infrastructure for fuel delivery and the 

existing infrastructure for power 

distribution, including equipment and 

controls for meeting relevant power 

standards, such as voltage, frequency, 

and power factors. 

(6) Combined heat and power system 

(CHP) property—(i) In general. CHP 

property is property comprising a 

system that uses the same energy source 

for the simultaneous or sequential 

generation of electrical power, 

mechanical shaft power, or both, in 

combination with the generation of 

steam or other forms of useful thermal 

energy (including heating and cooling 

applications). CHP property must 

produce at least 20 percent of its total 

useful energy in the form of thermal 

energy that is not used to produce 

electrical or mechanical power (or 

combination thereof), and at least 20 

percent of its total useful energy in the 

form of electrical or mechanical power 

(or combination thereof). The energy 

efficiency percentage of CHP property 

must exceed 60 percent (except in the 

case of CHP systems that use biomass 

within the meaning of section 45). CHP 

property does not include any property 

comprising a system if such system has 

a capacity in excess of 50 MW or a 

mechanical energy capacity in excess of 

67,000 horsepower or an equivalent 

combination of electrical and 

mechanical energy capacities. 

(ii) Components excluded. CHP 

property does not include property used 

to transport the energy source to the 

generating facility or to distribute 

energy produced by the facility. 

(7) Qualified small wind energy 

property. Qualified small wind energy 

property is property that uses a 

qualifying small wind turbine to 

generate electricity. A qualifying small 

wind turbine means a wind turbine that 

has a nameplate capacity of not more 

than 100 kW. 

(8) Geothermal heat pump (GHP) 

property. GHP property is equipment 

that uses the ground, ground water, or 

other underground fluids as a thermal 

energy source to heat a structure or as 

a thermal energy sink to cool a 

structure. 

(9) Waste energy recovery property 

(WERP)—(i) In general. WERP is 

property that generates electricity solely 

from heat from buildings or equipment 

if the primary purpose of such building 

or equipment is not the generation of 

electricity. Examples of buildings or 

equipment the primary purpose of 

which is not the generation of electricity 

include, but are not limited to, 

manufacturing plants, medical care 

facilities, facilities on college campuses, 

pipeline compressor stations, and 

associated equipment. WERP does not 

include any property that has a capacity 

in excess of 50 MW. 

(ii) Coordination with CHP property. 

Any WERP that is part of a system that 

is a CHP property is not treated as 

WERP for purposes of section 48 unless 

the taxpayer elects to not treat such 

system as a CHP property for purposes 

of section 48. 

(10) Energy storage technology—(i) In 

general. Energy storage technology 

includes electrical energy storage 

property described in paragraph 

(e)(10)(ii) of this section, thermal energy 

storage property described in paragraph 

(e)(10)(iii) of this section, and hydrogen 

energy storage property described in 

paragraph (e)(10)(iv) of this section. 

(ii) Electrical energy storage property. 

Electrical energy storage property is 

property (other than property primarily 

used in the transportation of goods or 

individuals and not for the production 

of electricity) that receives, stores, and 

delivers energy for conversion to 

electricity, and has a nameplate capacity 

of not less than 5 kWh. For example, 

subject to the exclusion for property 

primarily used in the transportation of 

goods or individuals, electrical energy 

storage property includes, but is not 

limited to, rechargeable electrochemical 

batteries of all types (such as lithium 

ion, vanadium flow, sodium sulfur, and 

lead-acid), ultracapacitors, physical 

storage such as pumped storage 

hydropower, compressed air storage, 

flywheels, and reversible fuel cells. 

(iii) Thermal energy storage 

property—(A) In general. Thermal 

energy storage property is property 

comprising a system that is directly 

connected to a heating, ventilation, or 

air conditioning (HVAC) system; 

removes heat from, or adds heat to, a 

storage medium for subsequent use; and 

provides energy for the heating or 

cooling of the interior of a residential or 

commercial building. Thermal energy 

storage property includes equipment 

and materials, and parts related to the 

functioning of such equipment, to store 

thermal energy for later use to heat or 

cool, or to provide hot water for use in 

heating, a residential or commercial 

building. It does not include property 

that transforms other forms of energy 

into heat in the first instance. Property 

that removes heat from, or adds heat to, 

a storage medium for subsequent use is 

property that is designed with the 

particular purpose of substantially 

altering the time profile of when heat 

added to or removed from the thermal 

storage medium can be used for heating 

or cooling of the interior of a residential 

or commercial building. Paragraph 

(e)(10)(iii)(B) of this section provides a 

safe harbor for determining whether a 

thermal energy storage property has 

such a purpose. Thermal energy storage 

property does not include a swimming 

pool, CHP property, or a building or its 

structural components. For example, 

thermal energy storage property 

includes, but is not limited to, a system 

that adds heat to bricks heated to high 

temperatures that later use this stored 

energy to heat a building through the 

HVAC system; thermal ice storage 

systems that use electricity to run a 

refrigeration cycle to produce ice that is 

later connected to the HVAC system as 

an exchange medium for air 

conditioning the building; heat pump 

systems that store thermal energy in an 

underground tank, an artificial pit, an 

aqueous solution, a borehole field, or a 

solid-liquid phase change material to be 

extracted for later use for heating and/ 

or cooling; and air-to-water heat pump 

systems with a water storage tank. 

However, consistent with § 1.48–14(d), 

if thermal energy storage property, such 

as a heat pump system, includes 

equipment, such as a heat pump, that 

also serves a purpose in an HVAC 

system that is installed in connection 

with the thermal energy storage 

property, the taxpayer’s basis in the 

thermal energy storage property 

includes the total cost of the thermal 

energy storage property and HVAC 

system less the cost of an HVAC system 

without thermal storage capacity that 

would meet the same functional heating 

or cooling needs as the heat pump 

system with a storage medium, other 

than time shifting of heating or cooling. 

(B) Safe harbor. A thermal energy 

storage property will be deemed to have 

the purpose of substantially altering the 

time profile of when heat added to or 

removed from the thermal storage 

medium can be used to heat or cool the 

interior of a residential or commercial 

building if that thermal energy storage 

property is capable of storing energy 


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that is sufficient to provide heating or 

cooling of the interior of a residential or 

commercial building for a minimum of 

one hour. 

(iv) Hydrogen energy storage property. 

Hydrogen energy storage property is 

property (other than property primarily 

used in the transportation of goods or 

individuals and not for the production 

of electricity) that stores hydrogen and 

has a nameplate capacity of not less 

than 5 kWh, equivalent to 0.127 kg of 

hydrogen or 52.7 standard cubic feet 

(scf) of hydrogen. Hydrogen energy 

storage property includes, but is not 

limited to, above ground storage tanks, 

underground storage facilities, and 

associated compressors. Property that is 

an integral part of hydrogen energy 

storage property includes, but is not 

limited to, hydrogen liquefaction 

equipment and gathering and 

distribution lines within a hydrogen 

energy storage property. 

(v) Modifications of energy storage 

energy property. With respect to 

electrical energy storage property and 

hydrogen energy storage property 

placed in service after December 31, 

2022, energy storage technology that is 

modified as set forth in this paragraph 

(e)(10)(v) is treated as electrical energy 

storage property described in paragraph 

(e)(10)(ii) of this section or hydrogen 

energy storage property described in 

paragraph (e)(10)(iv) of this section, 

except that the basis of any existing 

property prior to such modification is 

not taken into account for purposes of 

this section and section 48. This 

paragraph (e)(10)(v) applies to any 

electrical energy storage property and 

hydrogen energy storage property that 

either: 

(A) Was placed in service before 

August 16, 2022, and would be 

described in section 48(c)(6)(A)(i), 

except that such property had a 

nameplate capacity of less than 5 kWh 

and is modified in a manner that such 

property (after such modification) has a 

nameplate capacity (after such 

modification) of not less than 5 kWh; or 

(B) Is described in section 

48(c)(6)(A)(i) and is modified in a 

manner that such property (after such 

modification) has an increase in 

nameplate capacity of not less than 5 

kWh. 

(11) Qualified biogas property—(i) In 

general. Qualified biogas property is 

property comprising a system that 

converts biomass (as defined in section 

45K(c)(3), as in effect on August 16, 

2022) into a gas that consists of not less 

than 52 percent methane by volume 

(tested at the point described in 

paragraph (e)(11)(ii) of this section), or 

is concentrated by such system into a 

gas that consists of not less than 52 

percent methane (tested at the point 

described in paragraph (e)(11)(ii) of this 

section), and captures such gas for sale 

or productive use and not for disposal 

via combustion. Qualified biogas 

property also includes any property that 

is part of such system that cleans or 

conditions such gas, including gas 

upgrading equipment, to make the gas 

suitable for sale or productive use. For 

example, qualified biogas property 

includes, but is not limited to, an 

anaerobic digester. Property that is an 

integral part of qualified biogas property 

includes, but is not limited to, a waste 

feedstock collection system, a landfill 

gas collection system and mixing or 

pumping equipment. 

(ii) Methane content requirement. The 

methane content requirement described 

in section 48(c)(7)(A)(i) and paragraph 

(e)(11)(i) of this section is measured at 

the point at which the biogas exits the 

qualified biogas property. 

(iii) Flaring Allowance. While a 

qualified biogas property generally may 

not capture biogas for disposal via 

combustion, combustion in the form of 

flaring will not disqualify a qualified 

biogas property provided the primary 

purpose of the qualified biogas property 

is sale or productive use of biogas and 

any flaring is in compliance with all 

relevant Federal, State, regional, Tribal, 

and local laws and regulations. 

(12) Microgrid controllers—(i) In 

general. A microgrid controller is 

equipment that is part of a qualified 

microgrid and is designed and used to 

monitor and control the energy 

resources and loads on such microgrid. 

A qualified microgrid is an electrical 

system that includes equipment that is 

capable of generating not less than 4 kW 

and not greater than 20 MW of 

electricity; is capable of operating in 

connection with the electrical grid and 

as a single controllable entity with 

respect to such electrical grid, and 

independently (and disconnected) from 

such electrical grid; and is not part of a 

bulk-power system (as defined in 

section 215 of the Federal Power Act (16 

U.S.C. 824o)). 

(ii) Capable of operating in 

connection with the electrical grid. For 

purposes of this paragraph, a qualified 

microgrid includes an electrical system 

that is capable of operating in 

connection with the larger electrical 

grid, regardless of whether a connection 

to the larger electrical grid exists. 

(13) Other property included in 

section 48. Any other property specified 

by section 48 as energy property is 

energy property for purposes of this 

section and §§ 1.48–13 and 1.48–14. 

(f) Property included in energy 

property—(1) In general. An energy 

property includes a unit of energy 

property (defined in paragraph (f)(2)(i) 

of this section) that meets the 

requirements of paragraph (c) of this 

section, that is not excluded from 

energy property as provided in 

paragraph (d) of this section, and that is 

of a type of energy property included in 

paragraph (e) of this section. Property 

owned by the taxpayer that is an 

integral part of an energy property (as 

defined in paragraph (f)(3) of this 

section) is treated as part of that energy 

property. Energy property does not 

include any electrical transmission 

equipment, such as transmission lines 

and towers, or any equipment beyond 

the electrical transmission stage. Energy 

property also generally does not include 

equipment that is an addition or 

modification to an existing energy 

property. However, see § 1.48–14(a) for 

rules regarding retrofitted energy 

property (80/20 Rule) and paragraph 

(e)(10)(v) of this section for rules 

regarding modifications of certain types 

of energy storage technology. 

(2) Unit of energy property—(i) 

Definition. The term unit of energy 

property means all functionally 

interdependent components of property 

(as defined in paragraph (f)(2)(ii) of this 

section) owned by the taxpayer that are 

operated together and that can operate 

apart from other energy properties 

within a larger energy project (as 

defined in § 1.48–13(d)). For rooftop 

solar energy property, all components of 

energy property that are installed on a 

single rooftop are treated as a single unit 

of energy property. See § 1.48–13(d) for 

rules regarding the treatment of multiple 

energy properties as an energy project 

for certain purposes. 

(ii) Functionally interdependent—(A) 

In general. Except as provided in 

paragraph (f)(3)(ii)(B) of this section, 

with respect to components of a unit of 

energy property, the term functionally 

interdependent means that the placing 

in service of each component is 

dependent upon the placing in service 

of each of the other components in order 

to generate or store electricity, thermal 

energy, or hydrogen as provided by 

section 48(a)(3) and (c) and as described 

in paragraph (e) of this section. 

(B) Components of certain energy 

property. In the case of solar process 

heat equipment, fiber-optic solar energy 

property, electrochromic glass property, 

GHP property, qualified biogas property, 

and microgrid controllers, with respect 

to components of such property, the 

term functionally interdependent means 

that the placing in service of each 

component is dependent upon the 


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placing in service of each of the other 

components in order to perform the 

intended function of the energy 

property as provided by section 48(a)(3) 

and (c) and as described in paragraph (e) 

of this section. 

(3) Integral part—(i) In general. For 

purposes of the section 48 credit, 

property owned by a taxpayer is an 

integral part of an energy property 

owned by the same taxpayer if it is used 

directly in the intended function of the 

energy property as provided by section 

48(a)(3) and (c) and as described in 

paragraph (e) of this section and is 

essential to the completeness of the 

intended function. Property that is an 

integral part of an energy property is 

treated as part of that energy property. 

A taxpayer may not claim the section 48 

credit for any property not owned by the 

taxpayer that is an integral part of 

energy property owned by the taxpayer. 

Multiple energy properties (whether 

owned by one or more taxpayers) may 

include shared property that may be 

considered an integral part of each 

energy property so long as the cost basis 

for the shared property is properly 

allocated to each energy property. The 

total cost basis of such shared property 

divided among the energy properties 

may not exceed 100 percent of the cost 

of such shared property. In addition, the 

exclusion in paragraph (d)(1) of this 

section does not apply to property that 

is shared by a qualified facility (as 

defined in section 45(d)) and an energy 

property if it is an integral part of that 

energy property. The basis of any such 

property must be properly allocated 

across the energy property and qualified 

facility that share such property. 

(ii) Power conditioning and transfer 

equipment. Property that is an integral 

part of energy property includes power 

conditioning equipment and transfer 

equipment used to perform the intended 

function of the energy property as 

provided by section 48(a)(3) and (c) and 

as described in paragraph (e) of this 

section. Power conditioning equipment 

includes, but is not limited to, 

transformers, inverters, and converters, 

which modify the characteristics of 

electricity or thermal energy into a form 

suitable for use or transmission or 

distribution. Parts related to the 

functioning or protection of power 

conditioning equipment are also treated 

as power conditioning equipment and 

include, but are not limited to, switches, 

circuit breakers, arrestors, and hardware 

and software used to monitor, operate, 

and protect power conditioning 

equipment. Transfer equipment 

includes equipment that permits the 

aggregation of energy generated by 

components of energy properties and 

equipment that alters voltage to permit 

transfer to a transmission or distribution 

line. Transfer equipment does not 

include transmission or distribution 

lines. Examples of transfer equipment 

include, but are not limited to, wires, 

cables, and combiner boxes that conduct 

electricity. Parts related to the 

functioning or protection of transfer 

equipment are also treated as transfer 

equipment and may include items such 

as current transformers used for 

metering, electrical interrupters (such as 

circuit breakers, fuses, and other 

switches), and hardware and software 

used to monitor, operate, and protect 

transfer equipment. Power conditioning 

equipment and transfer equipment that 

are integral to an energy property may 

be integral to another energy property or 

used by a qualified facility (as defined 

in section 45(d)), so long as the total 

cost basis of the integral property is 

properly allocated across the energy 

property and qualified facility that share 

such property. 

(iii) Roads. Roads that are an integral 

part of an energy property are integral 

to the activity performed by the energy 

property such as onsite roads that are 

used for equipment to operate and 

maintain the energy property. Roads 

primarily for access to the site, or roads 

used primarily for employee or visitor 

vehicles, are not integral to the activity 

performed by an energy property. 

(iv) Fences. Fencing is not an integral 

part of an energy property because it is 

not integral to the activity performed by 

the energy property. 

(v) Buildings. Generally, buildings are 

not integral parts of an energy property 

because they are not integral to the 

activity of the energy property. 

However, the structures described in 

paragraphs (f)(3)(vi) and (vii) of this 

section are not treated as buildings for 

this purpose. 

(vi) Structures essentially items of 

machinery or equipment. A structure 

that is essentially an item of machinery 

or equipment is not treated as a building 

for purposes of paragraph (f)(3)(v) of this 

section. 

(vii) Structures that house certain 

property. A structure that houses 

property that is integral to the activity 

of an energy property is not treated as 

a building for purposes of paragraph 

(f)(3)(v) of this section if the use of the 

structure is so closely related to the use 

of the housed energy property that the 

structure clearly can be expected to be 

replaced if the energy property it 

initially houses is replaced. 

(4) Location of energy property. Any 

property that meets the requirements of 

paragraphs (f)(2) and (3) of this section 

is part of an energy property regardless 

of where such property is located. 

(5) Examples. This paragraph 

provides examples illustrating property 

included in energy property. 

(i) Example 1. Solar energy property. 

X constructs a solar energy property 

(Solar Property) comprised of 500 

separate solar panels. The solar panels 

are connected by wires, cables, and 

combiner boxes. Generated electricity is 

conditioned for subsequent use through 

one inverter and eventually carried to a 

substation that houses a transformer 

where the electricity is stepped up to 

electrical grid voltage before being 

transmitted to the electrical grid through 

an intertie. All components of the Solar 

Property up to the inverter are 

functionally interdependent 

components of the Solar Property. The 

inverter and up to and including the 

transformer are integral parts of the 

Solar Property. Therefore, the Solar 

Property is an energy property for 

purposes of the section 48 credit. When 

X places the Solar Property in service, 

the cost of the components up to and 

including the transformer is included in 

the basis of the Solar Property for 

purposes of computing the section 48 

credit. 

(ii) Example 2. Co-located energy 

properties. Assume the same facts as in 

paragraph (f)(5)(i) of this section 

(Example 1), except that Y constructs a 

wind energy property (Wind Property) 

near X’s solar energy property (Solar 

Property). X’s Solar Property and Y’s 

Wind Property each connect to a 

substation that houses a transformer 

where the electricity is stepped up to 

electrical grid voltage before being 

transmitted to the electrical grid through 

an intertie. X and Y each pay 50% of the 

cost of, and own a 50% undivided 

interest in, the transformer and related 

power conditioning equipment housed 

in the substation. X’s Solar Property and 

Y’s Wind Property are separate energy 

properties. When X and Y place their 

respective energy properties in service, 

the cost of the components up to and 

including 50% of the cost of the 

transformer and related power 

conditioning equipment is included in 

X’s and Y’s basis in their respective 

energy properties for purposes of 

computing the section 48 credit. 

(iii) Example 3. Qualified offshore 

wind energy project. Z constructs an 

offshore wind farm (Offshore Wind 

Energy Project) comprised of 150 

turbines (energy properties) for which Z 

makes a valid election under section 

48(a)(5) to claim the section 48 credit in 

lieu of the section 45 credit. The 

alternating current electricity generated 

by the individual wind turbines will be 


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carried by inter-array cables to an 

offshore substation where a transformer 

will step up the voltage of the electricity 

and a converter will convert it to direct 

current so it may be transported by 

subsea export cables to an onshore 

substation adjacent to the point of 

interconnection with the electrical grid. 

When the electricity reaches the 

onshore substation, it will flow into 

another converter where it will be 

converted back to alternating current, 

and then through a transformer and 

associated switchgear where it will be 

converted to electrical grid voltage and 

where the Offshore Wind Energy Project 

can be electrically isolated from the 

grid. The electricity will then pass 

through an intertie that will take the 

electricity from the substation to the 

point of interconnection with the 

electrical grid. All components of the 

Offshore Wind Energy Project, up to and 

including the transformer and 

switchgear housed in the onshore 

substation, are either functionally 

interdependent components or integral 

parts of the energy properties that 

comprise the Offshore Wind Energy 

Project. Therefore, when Z places the 

Offshore Wind Energy Project in service, 

the cost of the components up to and 

including the transformer and 

switchgear housed in the onshore 

substation are included in the aggregate 

basis of the energy properties that 

comprise the Offshore Wind Energy 

Project for purposes of computing the 

section 48 credit. 

(iv) Example 4. Co-located energy 

property and qualified facility. X 

constructs a wind facility (Wind 

Facility) that is co-located with an 

energy storage technology (Energy 

Storage). The Wind Facility and Energy 

Storage share power conditioning and 

transfer equipment. The power 

conditioning and transfer equipment are 

integral parts of the Energy Storage, and 

are therefore considered energy 

property. Therefore, X will include a 

properly allocated share of the shared 

power conditioning and transfer 

equipment costs to determine the 

section 48 credit for the Energy Storage. 

If the Wind Facility otherwise satisfies 

the requirements of the section 45 

credit, X may claim the section 45 credit 

with respect to the Wind Facility. 

(g) Applicability date. This section 

applies with respect to property placed 

in service after December 31, 2022, and 

during a taxable year beginning after 

December 12, 2024. 

■ Par. 3. Sections 1.48–13 and 1.48–14 

are added to read as follows: 

§ 1.48–13 Rules relating to the increased 

credit amount for prevailing wage and 

apprenticeship. 

(a) In general. If a qualified energy 

project satisfies the requirements in 

paragraph (b) of this section, the amount 

of the credit determined under section 

48(a) of the Internal Revenue Code 

(Code), after the application of section 

48(a)(1) through (8), and (15), is equal to 

the credit determined under section 

48(a) (section 48 credit) multiplied by 

five. 

(b) Requirements. A qualified energy 

project satisfies the requirements of this 

paragraph (b) if it is one of the 

following— 

(1) A project with a maximum net 

output of less than one megawatt (MW) 

of electrical (as measured in alternating 

current) or thermal energy determined 

based on the nameplate capacity as 

provided in paragraph (e) of this section 

(One Megawatt Exception); 

(2) A project the construction of 

which began prior to January 29, 2023; 

or 

(3) A project that meets the prevailing 

wage requirements of section 

48(a)(10)(A), § 1.45–7(a)(2) and (3) and 

(b) through (d), and paragraph (c) of this 

section, the apprenticeship 

requirements of section 45(b)(8) and 

§ 1.45–8, and the recordkeeping and 

reporting requirements of § 1.45–12. 

(c) Special rule applicable to general 

prevailing wage requirements—(1) In 

general. In addition to satisfying the 

prevailing wage requirements under 

§ 1.45–7(a)(2) and (3) and (b) through 

(d), a taxpayer must ensure that any 

laborers and mechanics employed 

(within the meaning of § 1.45–7) by the 

taxpayer or any contractor or 

subcontractor in the construction of 

such energy project, and for the fiveyear period beginning on the date such 

project is placed in service, the 

alteration or repair of such project, are 

paid wages at rates not less than the 

prevailing rates for construction, 

alteration, or repair of a similar 

character in the locality in which such 

project is located as most recently 

determined by the Secretary of Labor, in 

accordance with 40 U.S.C. chapter 31, 

subchapter IV. Subject to section 

48(a)(10)(C) and this paragraph (c), for 

purposes of determining the increased 

credit amount under section 

48(a)(9)(B)(iii), the taxpayer is deemed 

to satisfy the prevailing wage 

requirements of section 48(a)(10)(A)(ii) 

at the time such project is placed in 

service. 

(2) Transition waiver of penalty for 

prevailing wage requirements. For 

purposes of the transition waiver 

described in § 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) 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 December 12, 2024, 

if the taxpayer relied upon Notice 2022– 

61, 2022–52 I.R.B. 560, or the Proposed 

Regulations (REG–132569–17) (88 FR 

82188), corrected in 89 FR 13293 (Feb. 

22, 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 December 12, 2024. 

(3) Exception. For purposes of 

satisfying the prevailing wage 

requirements of paragraph (b)(3) of this 

section, § 1.45–7(a)(1) does not apply. 

(4) Recapture—(i) In general. In the 

case of an energy project that receives 

the increased credit amount under 

paragraph (a) of this section by reason 

of satisfying the requirements of 

paragraph (b)(3) of this section, the 

increased credit amount is subject to 

recapture for any project that does not 

satisfy the prevailing wage requirements 

in § 1.45–7(b) through (d) and paragraph 

(c)(1) of this section for any period with 

respect to an alteration or repair of such 

project during the five-year period 

beginning on the date such project is 

originally placed in service (five-year 

recapture period) (but that does not 

cease to be investment credit property 

within the meaning of section 50(a) of 

the Code). 

(ii) Recapture event—(A) In general. 

Any failure to satisfy the prevailing 

wage requirements in § 1.45–7(b) 

through (d) and paragraph (c)(1) of this 

section for any period with respect to 

the alteration or repair of any project 

during the five-year recapture period is 

a recapture event. Any failure to satisfy 

the prevailing wage requirements in 

§ 1.45–7(b) through (d) and paragraph 

(c)(1) of this section with respect to the 

alteration or repair of any project during 

the five-year recapture period described 

in paragraph (c)(6) of this section 

remains subject to the correction and 

penalty provisions in § 1.45–7(c), 

including the waiver provisions in 

§ 1.45–7(c)(6). Subject to § 1.45–7(c)(5) 

and (6), if the correction and penalty 

payments described in § 1.45–7(c) are 

not made by the taxpayer on or before 

the date that is 180 days after the date 

of a final determination by the IRS (as 

defined in § 1.45–7(c)(4)(ii)), the cure 

provision described in § 1.45–7(c) does 


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not apply and the increased credit 

amount is subject to recapture. 

(B) Yearly determination. A 

determination of whether a recapture 

event has occurred under paragraph 

(c)(3)(ii) of this section 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 energy project 

is placed in service. Thus, for each 

taxable year beginning or ending within 

the five-year recapture period, the 

taxpayer must determine whether the 

prevailing wage requirements of section 

48(a)(10)(A), § 1.45–7(b) through (d), 

and paragraph (c)(1) of this section are 

satisfied for the recapture year(s) 

occurring during each taxable year. 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) of this 

section with respect to such taxable 

year. 

(C) Carrybacks and carryforward 

adjusted. In the case of any recapture 

event described in paragraph 

(c)(3)(ii)(A) of this section, the 

carrybacks and carryforwards under 

section 39 of the Code must be adjusted 

by reason of such recapture event. 

(iii) Correction and penalty payments 

not required if taxpayer is subject to 

recapture under section 48(a)(10)(C). If 

the IRS determines that a taxpayer that 

claimed the increased credit amount 

under section 48(a)(9)(B)(iii) or 

transferred a specified credit portion 

under section 6418 of the Code that 

includes the increased credit amount 

under section 48(a)(9)(B)(iii) failed to 

satisfy the prevailing wage requirements 

in § 1.45–7(b) through (d) and paragraph 

(c)(1) of this section for any period with 

respect to the alteration or repair of any 

project during the five-year recapture 

period and the taxpayer does not make 

the correction and penalty payments 

provided in § 1.45–7(c), then no penalty 

is assessed under § 1.45–7, and the 

increased credit amount is subject to 

recapture. Taxpayers whose increased 

credit amount is subject to recapture 

under this section may retain the 

amount of the section 48(a) credit (base 

credit) determined under section 48(a) 

of this section provided all requirements 

were met in the year of determination. 

(5) Recapture amount—(i) In general. 

If a recapture event has occurred as 

described in paragraph (c)(3)(ii) of this 

section, the tax under chapter 1 of the 

Code for the taxable year in which the 

recapture event occurs is increased by 

the applicable recapture percentage 

multiplied by the increased credit 

amount allowed to the taxpayer 

pursuant to paragraphs (a) and (b)(3) of 

this section. 

(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 

(c)(4)(ii)(A) of this section, the recapture 

percentage is 80; 

(C) Within one full year after the close 

of the period described in paragraph 

(c)(4)(ii)(B) of this section, the recapture 

percentage is 60; 

(D) Within one full year after the close 

of the period described in paragraph 

(c)(4)(ii)(C) of this section, the recapture 

percentage is 40; or 

(E) Within one full year after the close 

of the period described in paragraph 

(c)(4)(ii)(D) of this section, the recapture 

percentage is 20. 

(6) Recapture period. The five-year 

recapture period begins on the date the 

project 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. 

(7) Increase in tax for recapture. The 

increase in tax under chapter 1 of the 

Code for the recapture of an increased 

credit amount claimed under paragraph 

(a) of this section occurs in the year of 

the recapture event. 

(8) Annual prevailing wage 

compliance report. In addition to the 

general reporting requirements in 

§ 1.45–12, a taxpayer that has claimed 

an increased credit amount under 

paragraph (a) of this section or 

transferred a specified credit portion 

under section 6418 that includes an 

increased credit amount under 

paragraph (a) of this section is required 

to provide to the IRS, information on the 

payment of prevailing wages with 

respect to any alteration or repair of the 

project 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. 

(9) Transferred specified credit 

portions. In the case of a transferred 

specified credit portion under section 

6418, to which recapture of an increased 

credit amount under this paragraph (c) 

applies, the eligible taxpayer is required 

to notify the transferee taxpayer of the 

recapture event in accordance with the 

provisions of § 1.6418–5(f)(2) and the 

transferee taxpayer is responsible for 

any amount of increase in tax under 

section 48(a)(10)(C) and this paragraph 

(c) in accordance with the provisions of 

§ 1.6418–5(f)(3). 

(d) Energy project defined—(1) In 

general. For purposes of the increased 

credit amount provided by section 

48(a)(9) and paragraphs (b) and (c) of 

this section, the domestic content bonus 

credit amount provided by section 

48(a)(12), and the increase in credit rate 

for energy communities provided in 

section 48(a)(14), the term energy 

project means one or more energy 

properties (multiple energy properties) 

that are operated as part of a single 

energy project. Multiple energy 

properties will be treated as one energy 

project if they are owned by a taxpayer 

(subject to the related taxpayer rule 

provided in paragraph (d)(2) of this 

section) and any four or more of the 

following factors are present: 

(i) The energy properties are 

constructed on contiguous pieces of 

land; 

(ii) The energy properties are 

described in a common power purchase, 

thermal energy, or other off-take 

agreement or agreements; 

(iii) The energy properties have a 

common intertie; 

(iv) The energy properties share a 

common substation, or thermal energy 

off-take point; 

(v) The energy properties are 

described in one or more common 

environmental or other regulatory 

permits; 

(vi) The energy properties are 

constructed pursuant to a single master 

construction contract; or 

(vii) The construction of the energy 

properties is financed pursuant to the 

same loan agreement. 

(2) Time of determination—(i) Energy 

project. A taxpayer may make the 

determination that multiple energy 

properties are an energy project either— 

(A) At any point during the 

construction of the multiple energy 

properties, or 

(B) During the taxable year in which 

the last such energy property is placed 

in service. 

(ii) Placed in Service. An energy 

project (as defined in § 1.48–13(d)) is 

considered placed in service on the date 

the last of the energy properties within 

the energy project is placed in service. 

(3) Related taxpayers—(i) Definition. 

For purposes of this section, the term 

related taxpayers means members of a 

group of trades or businesses that are 

under common control (as defined in 

§ 1.52–1(b)). 

(ii) Related taxpayer rule. For 

purposes of this section, related 

taxpayers are treated as one taxpayer in 

determining whether multiple energy 

properties are treated as an energy 


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Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 100653 

project with respect to which a section 

48 credit may be determined. 

(4) Separate reporting for energy 

properties within an energy project—(i) 

In general. While multiple energy 

properties may be treated as a single 

energy project for specified purposes, 

this information must be separately 

reported for each energy property 

within an energy project on Form 3468, 

Investment Credit, or any successor 

form(s), and such form must be filed 

with the taxpayer’s timely filed 

(including extensions) Federal income 

tax return for the taxable year in which 

the energy property is placed in service. 

(e) Nameplate capacity for purposes 

of the One Megawatt Exception—(1) In 

general. For purposes of paragraph 

(b)(1) of this section, whether an energy 

project has a maximum net output of 

less than 1 megawatt (MW) of electrical 

(as measured in alternating current) or 

thermal energy is determined based on 

the nameplate capacity. If an energy 

project is comprised of more than one 

energy property, the energy project’s 

maximum net output is calculated as 

the sum of the nameplate capacity of 

each energy property. If applicable, 

taxpayers should use the International 

Standard Organization (ISO) conditions 

to measure the maximum electrical 

generating output or usable energy 

capacity of an energy project. 

Paragraphs (e)(2) through (7) of this 

section provide rules for measuring 

output for different types of energy 

properties to determine whether the 

One Megawatt Exception (as provided 

in paragraph (b)(1) of this section) 

applies. Because electrochromic glass 

property (as defined in § 1.48– 

9(e)(2)(ii)), fiber-optic solar energy 

property (as defined in § 1.48–9(e)(2)(i)), 

and microgrid controllers (as defined in 

§ 1.48–9(e)(12)) do not generate 

electricity or thermal energy, these 

energy properties are not eligible for the 

One Megawatt Exception. 

(2) Nameplate capacity for energy 

properties that generate in direct current 

for purposes of the One Megawatt 

Exception. Only for energy properties 

that generate electricity in direct 

current, the taxpayer may choose to 

determine the maximum net output (in 

alternating current) of each energy 

property that is part of the energy 

project by using the lesser of: 

(i) The sum of the nameplate 

generating capacities within the unit of 

energy property in direct current, which 

is deemed the nameplate generating 

capacity of the unit of energy property 

in alternating current; or 

(ii) The nameplate capacity of the first 

component of property that inverts the 

direct current electricity into alternating 

current. 

(3) Electrical generating energy 

property. In the case of an electrical 

generating energy property, the One 

Megawatt Exception is determined by 

using maximum electrical generating 

output in megawatts that the unit of 

energy property 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. 

(4) Electrical energy storage property. 

In the case of electrical energy storage 

property (as defined in § 1.48– 

9(e)(10)(ii)), the 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, apply the 

rules of paragraph (2) of this section. 

(5) Thermal energy storage property 

and other property generating or 

distributing thermal energy. In the case 

of thermal energy storage property (as 

defined in § 1.48–9(e)(10)(iii)) and other 

energy property that generates or 

distributes thermal energy for 

productive use (for example, geothermal 

energy property, GHP property, solar 

process heat property), the 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 and 

other energy property distributing 

thermal energy to a building or 

buildings, the nameplate capacity can 

be assessed as either the aggregate 

maximum thermal output of all 

individual heating or cooling elements 

within the building or buildings, or as 

the maximum thermal output that the 

entire project is capable of delivering to 

a building or buildings at any given 

moment. The maximum thermal output 

an entire project 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 output 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 

output 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. 

(6) Hydrogen energy storage property 

and specified clean hydrogen 

production facilities. In the case of a 

hydrogen energy storage property (as 

defined in § 1.48–9(e)(10)(iv)) or a 

specified clean hydrogen production 

facility (as defined in section 

48(a)(15)(C)), the One Megawatt 

Exception is determined by using the 

property’s or facility’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. 

(7) Qualified biogas property. In the 

case of qualified biogas property, the 

One Megawatt Exception is determined 

by 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. Taxpayers may convert 

the maximum net output of 3.4 mmBtu/ 

hour into an equivalent maximum net 

volume flow in scf per hour using the 

appropriate high heat value conversion 

factors found in the Environmental 

Protection Agency (EPA) Greenhouse 

Gas Reporting Rule (GHGRR) at table C– 

1 to subpart C of part 98 (40 CFR part 

98). Otherwise, taxpayers may calculate 

their own equivalent volumetric flow if 

the heat content of the gas is known. 

(f) Applicability date. This section 

applies to energy projects placed in 

service in taxable years ending on or 

after December 12, 2024, and the 

construction of which begins after 

December 12, 2024. 


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100654 Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 

§ 1.48–14 Rules applicable to energy 

property. 

(a) Retrofitted energy property—(1) In 

general. For purposes of section 

48(a)(3)(B)(ii), (5)(D)(iv), and (8)(B)(iii) 

of the Internal Revenue Code (Code), a 

retrofitted energy property may be 

originally placed in service even though 

it contains some used components of 

the unit of energy property only if the 

fair market value of the used 

components of the unit of energy 

property is not more than 20 percent of 

the total value of the unit of energy 

property taking into account the cost of 

the new components of property plus 

the value of the used components of the 

unit of energy property (80/20 Rule). 

Only the cost of new components of the 

unit of energy property is taken into 

account for purposes of computing the 

credit determined under section 48 

(section 48 credit) with respect to the 

unit of energy property. The cost of new 

components of the unit of energy 

property includes all costs properly 

included in the depreciable basis of the 

new components. If the taxpayer 

satisfies the 80/20 Rule with regard to 

the unit of energy property and the 

taxpayer pays or incurs new costs for 

property that is an integral part of the 

energy property (as defined in § 1.48– 

9(f)(3)(i)), then the taxpayer may include 

the new costs paid or incurred for 

property that is an integral part of the 

energy property (as defined in § 1.48– 

9(f)(3)(i)) in the basis of the energy 

property for purpose of the section 48 

credit. In the case of an energy project 

(as defined in § 1.48–13(d)), the 80/20 

Rule is applied to each unit of energy 

property comprising an energy project. 

(2) Excluded costs. Costs incurred for 

new components of property added to 

used components of a unit of energy 

property may not be taken into account 

for purposes of the section 48 credit 

unless the taxpayer satisfies the 80/20 

Rule (as provided in paragraph (a)(1) of 

this section) by placing into service a 

unit of energy property 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 energy property taking into 

account the cost of the new components 

of property plus the value of the used 

components of property. 

(3) Examples. This paragraph (a)(3) 

provides examples illustrating the 

provisions of this paragraph (a): 

(i) Example 1. Retrofitted solar energy 

property that satisfies the 80/20 Rule. Z 

owns an existing solar energy property 

for which the section 48 credit has been 

claimed and the recapture period for the 

section 48 credit has elapsed. Z replaces 

used components of the solar energy 

property with new components of 

property at a cost of $1.4 million. The 

retrofitted solar energy property 

constitutes a unit of energy property. 

The fair market value of the remaining 

original components of the retrofitted 

solar energy property is $100,000, 

which is not more than 20 percent of the 

retrofitted solar energy property’s total 

value of $1.5 million (that is, the cost of 

the new components ($1.4 million) + 

the value of the remaining original 

components ($100,000)). The value of 

the old components of the retrofitted 

solar energy property is 7 percent of the 

value of total value of the retrofitted 

solar energy property ($100,000/$1.5 

million), thus the retrofitted solar 

energy property will be considered 

newly placed in service for purposes of 

section 48, and Z will be able to claim 

a section 48 credit based on the cost of 

the new components ($1.4 million). 

(ii) Example 2. Capital improvements 

to an existing energy property that do 

not satisfy the 80/20 Rule. X owns an 

existing unit of energy property for 

which the section 48 credit has been 

claimed and the recapture period for the 

section 48 credit has elapsed. The fair 

market value of the unit of energy 

property is $1 million. During the tax 

year, X makes capital improvements to 

the unit of energy property. The 

expenditures for such capital 

improvements total $300,000. X may not 

claim a section 48 credit for the 

$300,000 spent on capital improvements 

during the tax year because the capital 

improvements did not satisfy the 80/20 

Rule. 

(iii) Example 3. Upgrades to a 

qualified hydropower production 

facility that satisfies the 80/20 Rule: Y 

owns a qualified hydropower 

production facility (hydropower facility) 

as defined under section 45 and no 

taxpayer, including Y, has ever claimed 

a section 45 credit for the hydropower 

facility. The hydropower facility 

consists of a unit of energy property 

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 energy property. Y makes upgrades to 

the unit of energy property 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 energy property. The 

remaining original components of the 

unit of energy property 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 48, and Y will be able to make 

a valid section 48(a)(5) election and 

claim a section 48 credit based on the 

cost of the new components ($1.5 

million). 

(b) Dual use property—(1) Definition. 

For purposes of section 48, the term 

dual use property means property that 

uses energy derived from both a 

qualifying source (that is, from an 

energy property defined in § 1.48–9(a) 

(including a qualified facility for which 

an election has been made as provided 

by paragraph (f)(2) of this section)) and 

from a non-qualifying source (that is, 

sources other than an energy property 

defined in § 1.48–9(a) (including a 

qualified facility for which an election 

has been made as provided by 

paragraph (f)(2) of this section)). 

(2) Qualification as energy property— 

(i) In general. Dual use property 

qualifies as energy property if its use of 

energy from non-qualifying sources does 

not exceed 50 percent of its total energy 

input (as determined under the rules of 

paragraph (b)(2)(ii) of this section) 

during an annual measuring period (as 

defined in paragraph (b)(2)(iii) of this 

section). If the energy used from 

qualifying sources is between 50 percent 

and 100 percent, only a proportionate 

amount of the basis of the energy 

property will be taken into account in 

computing the amount of the section 48 

credit (for example, if 80 percent of the 

energy used by a dual use property is 

from qualifying sources, 80 percent of 

the basis of the dual use property will 

be taken into account in computing the 

amount of the section 48 credit). 

(ii) Aggregation of energy inputs. The 

measurement of energy use required for 

purposes of paragraph (b)(2)(i) of this 

section may be made by comparing, on 

the basis of British thermal units (Btus), 

energy input to dual use property from 

all qualifying sources with energy input 

from all non-qualifying sources. To 

convert the energy inputs for CHP into 

Btus, the lower heating value of the fuel 

is used for CHP property and the higher 

heating value of the hydrogen is used 

for fuel cells. The Commissioner may 

also accept any other method that 

accurately establishes the relative 

annual use of energy derived from all 

qualifying sources and of energy input 

from all non-qualifying sources by dual 

use property. 

(iii) Annual measuring period. For 

purposes of paragraph (b)(2)(i) of this 

section, the term annual measuring 

period means with respect to an item of 


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Federal Register / Vol. 89, No. 239 / Thursday, December 12, 2024 / Rules and Regulations 100655 

dual use property the 365-day period 

(366-day period in case of a leap year) 

beginning with the day the dual use 

property is placed in service (initial 

annual measuring period) or a 365-day 

period (366-day period in case of a leap 

year) beginning the day after the last day 

of the immediately preceding annual 

measuring period (subsequent annual 

measuring period). 

(iv) Recapture. If, for any subsequent 

annual measuring period (within the 

recapture period specified in section 

50(a) of the Code, the equipment’s use 

of energy from all qualifying sources is 

reduced below 50 percent of its total 

energy input (as determined under the 

rules of paragraph (b)(2)(i) of this 

section), then recapture of the section 48 

credit is required under section 50(a). 

(v) Example. On October 1, 2021, X, 

a calendar year taxpayer, places in 

service a unit of energy property that 

includes a system that heats its office 

building by circulating hot water heated 

by energy derived from a geothermal 

deposit through the building. The water 

heated by energy derived from a 

geothermal deposit is not hot enough to 

provide sufficient heat for the building. 

The circulation system includes an 

electric boiler in which the water is 

further heated before being circulated in 

the heating system. Energy from the 

electric boiler is not from a qualifying 

source and therefore the system is dual 

use property. On a Btu basis, sixty 

percent of the total energy input to the 

circulating system during the initial 

annual measuring period (the 365-day 

period beginning on October 1, 2021) is 

energy derived from a geothermal 

deposit. Accordingly, the circulation 

system, including the pumps and pipes 

that circulate the hot water through the 

building, are part of the unit of energy 

property and eligible for a section 48 

credit. Sixty percent of the basis of the 

circulation system is taken into account 

in determining the section 48 credit for 

X’s unit of energy property. During the 

365-day period beginning on October 1, 

2023, forty-five percent of the total 

energy input to the circulating system 

(on a Btu basis) is energy derived from 

a geothermal deposit. X’s section 48 

credit is therefore subject to recapture 

under section 50. 

(c) Energy property eligible for 

multiple Federal income tax credits—(1) 

In general. The basis of energy property 

may be eligible for calculating both the 

section 48 credit and another Federal 

income tax credit, subject to the 

limitation provided in paragraph (c)(2) 

of this section. 

(2) Limitation. Except as provided in 

paragraph (g) of this section, a taxpayer 

may not claim both a section 48 credit 

and another Federal income tax credit 

with respect to the same basis in an 

energy property. See paragraph (e) of 

this section for special rules regarding 

ownership of energy property. 

(d) Incremental cost—(1) In general. 

For purposes of section 48, if a 

component of energy property is also 

used for a purpose other than the 

intended function of the energy 

property, only the incremental cost of a 

component of energy property is 

included in the basis of the energy 

property. 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 nonqualifying purpose. 

(2) Example. A installs solar energy 

property above the surface of an existing 

roof of a building that A owns. The solar 

energy property 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 

energy property, it constitutes part of 

that energy property 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 energy property for purposes of the 

section 48 credit. 

(e) Special rules concerning 

ownership—(1) Basis. For purposes of 

section 48, a taxpayer that owns an 

energy property is eligible for the 

section 48 credit only to the extent of 

the taxpayer’s basis in the energy 

property. In the case of multiple 

taxpayers holding direct ownership in 

an energy property, each taxpayer 

determines its basis based on its 

fractional ownership interest in the 

energy property. 

(2) Multiple owners. A taxpayer must 

directly own at least a fractional interest 

in the entire unit of energy property for 

a section 48 credit to be determined 

with respect to such taxpayer’s interest. 

No section 48 credit may be determined 

with respect to a taxpayer’s ownership 

of one or more separate components of 

an energy property if the components do 

not constitute a unit of energy property. 

However, the use of property owned by 

one taxpayer that is an integral part of 

an energy property owned by a second 

taxpayer will not prevent a section 48 

credit from being determined with 

respect to the second taxpayer’s energy 

property (though neither taxpayer 

would be eligible for a section 48 credit 

with respect to the first taxpayer’s 

property). 

(3) Related taxpayers—(i) Definition. 

For purposes of this section, the term 

related taxpayers means members of a 

group of trades or businesses that are 

under common control (as defined in 

§ 1.52–1(b)). 

(ii) Related taxpayer rule. For 

purposes of this section, related 

taxpayers are treated as one taxpayer in 

determining whether a taxpayer has 

made an investment in an energy 

property with respect to which a section 

48 credit may be determined. 

(4) Examples. The following examples 

illustrate the rules in this paragraph (e). 

In each example, X and Y are unrelated 

taxpayers. 

(i) Example 1. Fractional ownership 

required to satisfy section 48. X and Y 

own fractional ownership interests in a 

GHP property that is a unit of energy 

property. Because X and Y each own a 

fractional ownership interest in a unit of 

energy property, a section 48 credit may 

be determined with respect to X’s and 

Y’s fractional ownership interests in the 

unit of energy property. 

(ii) Example 2. Separate ownership of 

GHP property. A GHP property is 

comprised of coils in the ground and 

several individual heat pumps used in 

conjunction with those coils. X owns 

both the coils in the ground and one of 

the individual heat pumps used in 

conjunction with the coils. Y owns one 

or more of the individual heat pump(s) 

used in conjunction with the coils. No 

section 48 credit may be determined 

with respect to Y because Y owns 

merely a component of energy property 

rather than a unit of energy property as 

defined in § 1.48–9(f)(2). However, 

while X does not own all of the 

individual heat pumps used in 

conjunction with the coils, X does own 

both the coils in the ground and one 

heat pump used in conjunction with the 

coils and thus owns an entire unit of 

energy property. Accordingly, X may 

compute a section 48 credit with respect 

to this unit of energy property. 

(iii) Example 3. Shared ownership of 

property that is an integral part of 

separate energy properties. X owns a 

wind energy property that is a unit of 

energy property and Y owns a solar 

energy property that is a unit of energy 

property that are co-located. Both X’s 

wind energy property and Y’s solar 

energy property connect to a substation 


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that houses a step-up transformer where 

the electricity is stepped up to electrical 

grid voltage before being transmitted to 

the electrical grid through an intertie. X 

and Y each own a 50 percent fractional 

ownership interest in the step-up 

transformer. The step-up transformer is 

an integral part of both the wind energy 

property and the solar energy property 

(as defined in § 1.48–9(f)(3)(i)). As a 

result, X and Y may both compute a 

section 48 credit for their respective 

energy properties by including their 

respective bases in the step-up 

transformer. 

(iv) Example 4. Separate ownership of 

property that is an integral part of 

separate energy property. X owns a 

wind energy property that is a unit of 

energy property and property that is an 

integral part of the wind energy 

property, specifically a transformer 

where the electricity is stepped up to 

electrical grid voltage before being 

transmitted to the electrical grid through 

an intertie. Y owns a solar energy 

property that is a unit of energy 

property that connects to X’s 

transformer. X and Y are not related 

persons within the meaning of 

paragraph (e)(3)(i) of this section. 

Because Y does not hold an ownership 

interest in the transformer, Y may 

compute its section 48 credit for its 

solar energy property, but it cannot 

include any basis relating to the 

transformer. 

(v) Example 5. X owns a wind energy 

property that is a unit of energy 

property and a solar energy property 

that is a unit of energy property. Both 

the wind energy property and the solar 

energy property 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 

energy property and the solar energy 

property (within the meaning of § 1.48– 

9(f)(3)(i)) and is owned by Y. X and Y 

are related persons within the meaning 

of paragraph (e)(3)(i) of this section. X 

and Y are treated as one taxpayer under 

paragraph (e)(3)(ii) of this section. X 

may include the basis of the transformer 

in computing its section 48 credit with 

respect to the wind energy and the solar 

energy property (but may not include 

more than 100% of that basis in the 

aggregate). 

(f) Election to treat qualified facilities 

as energy property—(1) In general. If a 

taxpayer makes an election under 

section 48(a)(5)(C) (pursuant to 

paragraph (f)(5) of this section) to treat 

qualified property that is part of a 

qualified investment credit facility as 

energy property with respect to which a 

section 48 credit may be determined, 

such property will be treated as energy 

property for purposes of section 48. No 

section 45 credit may be determined 

with respect to any qualified investment 

credit facility and the requirements of 

section 45 are not imposed on a 

qualified investment credit facility. 

(2) Qualified investment credit 

facility. The term qualified investment 

credit facility means any facility— 

(i) That is a qualified facility (within 

the meaning of section 45) described in 

section 45(d)(1) through (4), (6), (7), (9) 

or (11); 

(ii) That meets the placed in service 

and beginning of construction 

requirements (if any) provided in 

section 48; 

(iii) With respect to which no credit 

has been allowed under section 45; and 

(iv) For which the taxpayer makes an 

irrevocable election under section 

48(a)(5) and paragraph (f)(5) of this 

section. 

(3) Qualified property. The term 

qualified property means property that 

meets each of the requirements of 

paragraphs (f)(3)(i) through (iv) of this 

section. Regardless of where qualified 

property is located, any qualified 

property that meets the requirements of 

this paragraph (f)(3) is part of a qualified 

investment credit facility with respect to 

which a section 48 credit may be 

determined. 

(i) The property is tangible personal 

property or other tangible property (not 

including a building or its structural 

components), but only if such other 

tangible property is an integral part of 

the qualified investment credit facility. 

(ii) Depreciation (or amortization in 

lieu of depreciation) is allowable (as 

defined in § 1.48–9(b)(4)) with respect to 

the property. 

(iii) The taxpayer constructs, 

reconstructs, or erects the property (as 

defined in § 1.48–9(b)(1)) or acquires the 

property (as defined in § 1.48–9(b)(2)) if 

the original use of the property (as 

defined in § 1.48–9(b)(3)) commences 

with the taxpayer. 

(iv) The property is not intangible 

property. 

(4) Definitions related to requirements 

for qualified property. 

(i) Tangible personal property. The 

term tangible personal property means 

any tangible property except land and 

improvements thereto, such as buildings 

or other inherently permanent 

structures (including items that are 

structural components of such buildings 

or structures). Tangible personal 

property includes all property (other 

than structural components) that is 

contained in or attached to a building. 

Further, all property that is in the nature 

of machinery (other than structural 

components of a building or other 

inherently permanent structure) is 

considered tangible personal property 

even though located outside a building. 

Local law is not controlling for purposes 

of determining whether property is or is 

not tangible property or tangible 

personal property. Thus, tangible 

property may be personal property for 

purposes of the section 48 credit even 

though under local law the property is 

considered to be a fixture and therefore 

real property. 

(ii) Other tangible property. The term 

other tangible property means tangible 

property other than tangible personal 

property (not including a building and 

its structural components), that is used 

as an integral part of furnishing 

electrical energy by a person engaged in 

a trade or business of furnishing any 

such service. 

(iii) Integral part—(A) In general. 

Property owned by a taxpayer is an 

integral part of a qualified investment 

credit facility owned by the same 

taxpayer if it is used directly in the 

intended function of the qualified 

investment credit facility and is 

essential to the completeness of the 

intended function of the qualified 

investment credit facility. A taxpayer 

may not claim the section 48 credit for 

any property that is not owned by the 

taxpayer, regardless of whether that 

property is otherwise an integral part of 

the taxpayer’s qualified investment 

credit facility. 

(B) Power conditioning and transfer 

equipment. Property that is an integral 

part of a qualified investment credit 

facility includes power conditioning 

equipment and transfer equipment used 

to perform the intended function of the 

qualified investment credit facility. 

Power conditioning equipment 

includes, but is not limited to, 

transformers, inverters, and converters, 

which modify the characteristics of 

electricity or thermal energy into a form 

suitable for use or transmission or 

distribution. Parts related to the 

functioning or protection of power 

conditioning equipment are also treated 

as power conditioning equipment and 

include, but are not limited to, switches, 

circuit breakers, arrestors, and hardware 

used to monitor, operate, and protect 

power conditioning equipment. Transfer 

equipment includes equipment that 

permits the aggregation of energy 

generated by components of energy 

properties and equipment that alters 

voltage in order to permit transfer to a 

transmission or distribution line. 

Transfer equipment does not include 

transmission or distribution lines. 

Examples of transfer equipment include, 


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but are not limited to, wires, cables, and 

combiner boxes that conduct electricity. 

Parts related to the functioning or 

protection of transfer equipment are also 

treated as transfer equipment and may 

include items such as current 

transformers used for metering, 

electrical interrupters (such as circuit 

breakers, fuses, and other switches), and 

hardware used to monitor, operate, and 

protect transfer equipment. 

(C) Roads. Roads that are an integral 

part of a qualified investment credit 

facility are integral to the activity 

performed by the qualified investment 

credit facility; these include onsite 

roads that are used for equipment to 

operate and maintain the qualified 

investment credit facility. Roads 

primarily for access to the site, or roads 

used primarily for employee or visitor 

vehicles, are not integral to the activity 

performed by a qualified investment 

credit facility. 

(D) Fences. Fencing is not an integral 

part of a qualified investment credit 

facility because it is not integral to the 

activity performed by the energy 

property. 

(E) Buildings. Generally, buildings are 

not integral parts of a qualified 

investment credit facility because they 

are not integral to the activity of the 

qualified investment credit facility. 

However, the structures described in 

paragraphs (f)(4)(iii)(F) and (G) of this 

section are not treated as buildings for 

this purpose. 

(F) Structures essentially items of 

machinery or equipment. A structure 

that is essentially an item of machinery 

or equipment is not treated as a building 

for purposes of paragraph (f)(4)(iii)(E) of 

this section. 

(G) Structures that house certain 

property. A structure that houses 

property that is integral to the activity 

of a qualified investment credit facility 

is not treated as a building for purposes 

of paragraph (f)(4)(iii)(E) of this section 

if the use of the structure is so closely 

related to the use of the housed 

qualified investment credit facility that 

the structure clearly can be expected to 

be replaced if the qualified investment 

credit facility it initially houses is 

replaced. 

(5) Time and manner of making 

election—(i) In general. To make an 

election under section 48(a)(5) and 

paragraph (f) of this section to treat a 

qualified facility as a qualified 

investment credit facility, a taxpayer 

must claim the section 48 credit with 

respect to such qualified investment 

credit facility on a completed Form 

3468, Investment Credit, or any 

successor form(s), and file such form 

with the taxpayer’s timely filed 

(including extensions) Federal income 

tax return for the taxable year in which 

the qualified investment credit facility 

is placed in service. The taxpayer must 

also attach a statement to its Form 3468, 

or any successor form(s), filed with its 

timely filed Federal income tax return 

(including extensions) that includes all 

of the information required by the 

instructions to Form 3468, or any 

successor form(s) for each qualified 

investment credit facility subject to an 

election under section 48(a)(5) and 

paragraph (f) of this section. A separate 

election must be made for each qualified 

facility that meets the requirements 

provided in paragraph (f)(5)(v) of this 

section to be treated as a qualified 

investment credit facility. If any 

taxpayer owning an interest in a 

qualified facility makes an election with 

respect to such qualified facility, that 

election is binding on all taxpayers that 

directly or indirectly own an interest in 

the qualified facility. 

(ii) Special rule for partnerships and 

S corporations. In the case of a qualified 

facility owned by a partnership or an S 

corporation, the election under 

paragraph (f) of this section is made by 

the partnership or S corporation and is 

binding on all ultimate credit claimants 

(as defined in § 1.50–1(b)(3)(ii)) of a 

section 48 credit. The partnership or S 

corporation must file a Form 3468, 

Investment Credit, or any successor 

form(s), with its timely filed partnership 

or S corporation return (including 

extensions) with respect to Federal 

income tax for the taxable year in which 

the qualified investment credit facility 

is placed in service to indicate that it is 

making the election and attach a 

statement that includes all of the 

information required by the instructions 

to Form 3468, or any successor form(s) 

for each qualified facility subject to the 

election. The ultimate credit claimants 

must claim the section 48 credit on a 

completed Form 3468, or any successor 

form(s), and file such form with a timely 

filed (including extensions) Federal 

income tax return for the taxable year in 

which the ultimate credit claimant’s 

distributive share or pro rata share of 

the section 48 credit is taken into 

account under section 706(a) of the 

Code or section 1366(a) of the Code, 

respectively. The partnership or S 

corporation making the election must 

provide the ultimate credit claimants 

with the necessary information to 

complete Form 3468, or any successor 

form(s), to claim the section 48 credit. 

(6) Election irrevocable. The election 

under section 48(a)(5) and paragraph (f) 

of this section to treat a qualified facility 

as an energy property is irrevocable. 

(g) Coordination rule for sections 42 

and 48 credits. As provided under 

section 50(c)(3)(C), in determining 

eligible basis for purposes of calculating 

a section 42 credit, a taxpayer is not 

required to reduce its basis in an energy 

property by the amount of the section 48 

credit determined with respect to the 

property. The basis of an energy 

property may be used to determine a 

section 48 credit and may also be 

included in eligible basis to determine 

a section 42 credit. See paragraph (e) of 

this section for special rules regarding 

ownership of energy property. 

(h) Qualified interconnection costs 

included in certain lower-output energy 

properties—(1) In general. For purposes 

of determining the section 48 credit, 

energy property includes amounts paid 

or incurred by the taxpayer for qualified 

interconnection property (as defined in 

paragraph (h)(2) of this section), in 

connection with the installation of 

energy property (as defined in § 1.48– 

9(a)) that has a maximum net output of 

not greater than five megawatts (MW) 

(as measured in alternating current) (as 

described in paragraph (h)(3) of this 

section). The qualified interconnection 

property must provide for the 

transmission or distribution of the 

electricity produced or stored by such 

energy property and must be properly 

chargeable to the capital account of the 

taxpayer as reduced by paragraph (h)(6) 

of this section. If the costs borne by the 

taxpayer are reduced by utility or nonutility 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 48 credit. 

(2) Qualified interconnection 

property. The term qualified 

interconnection property means, with 

respect to an energy project that is not 

a microgrid controller, 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 energy project 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 § 1.48–9(b)(1)), 

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 § 1.48–9(b)(3)), of which, 

pursuant to an interconnection 

agreement (as defined in paragraph 

(h)(4) of this section), commences with 

a utility (as defined in paragraph (h)(5) 

of this section). For purposes of 


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determining the original use of 

interconnection property in the context 

of a sale-leaseback or lease transaction, 

the principles of section 50(d)(4) 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 an energy property. As a 

result, qualified interconnection 

property is not taken into account in 

determining whether an energy project 

satisfies the prevailing wage and 

apprenticeship requirements in section 

48(a)(10)(A) and (11), the requirements 

for the domestic content bonus credit 

amount referenced in section 48(a)(12), 

or the increase in credit rate for energy 

communities provided in section 

48(a)(14). 

(3) Five-Megawatt Limitation—(i) In 

general. The Five-Megawatt Limitation 

is measured at the level of the energy 

property in accordance with section 

48(a)(8)(A). The maximum net output of 

an energy property is measured only by 

nameplate generating capacity (in 

alternating current) of the unit of energy 

property, which does not include the 

nameplate capacity of any integral 

property, at the time the energy property 

is placed in service. The nameplate 

generating capacity of the unit of energy 

property is measured independently 

from any other energy properties that 

share the same integral property. 

(ii) Nameplate capacity for purposes 

of the Five-Megawatt Limitation. For 

purposes of paragraph (h)(1) of this 

section, the determination of whether an 

energy property has a maximum net 

output of not greater than five MW (as 

measured in alternating current) is 

based on the nameplate capacity for 

purposes of paragraph (h)(1) of this 

section. If applicable, taxpayers should 

use the International Standard 

Organization (ISO) conditions to 

measure the maximum electrical 

generating output or usable energy 

capacity of an energy property. 

Paragraphs (h)(3)(iv) and (v) of this 

section provide rules for applying the 

Five-Megawatt Limitation (as provided 

in paragraph (h)(1) of this section) to 

electrical generating energy property 

and electrical energy storage property, 

respectively. 

(iii) Nameplate capacity for energy 

properties that generate in direct current 

for purposes of the Five-Megawatt 

Limitation. For energy properties that 

generate electricity in direct current, the 

taxpayer may choose to determine 

whether an energy property 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 

energy property in direct current, which 

is deemed the nameplate generating 

capacity of the unit of energy property 

in alternating current; or 

(B) The nameplate capacity of the first 

component of property that inverts the 

direct current electricity into alternating 

current. 

(iv) Electrical generating energy 

property. In the case of an electrical 

generating energy property, the FiveMegawatt Limitation is determined by 

using the maximum electrical 

generating output in megawatts that the 

unit of energy property 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 energy property. 

(v) Electrical energy storage property. 

In the case of electrical energy storage 

property (as defined in § 1.48– 

9(e)(10)(ii)), the Five-Megawatt 

Limitation is determined by using the 

energy storage property’s maximum net 

output as its nameplate capacity. 

(4) Interconnection agreement. The 

term interconnection agreement means 

an agreement with a utility for the 

purposes of interconnecting the energy 

property 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 

energy property leased by such 

taxpayer. 

(5) Utility. For purposes of section 

48(a)(8) and this paragraph (h), 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—(i) In general. In the 

case of costs paid or incurred for 

qualified interconnection property as 

defined in paragraph (h)(2) of this 

section, amounts otherwise chargeable 

to capital account with respect to such 

costs must be reduced under rules 

similar to the rules of section 50(c) 

(including section 50(c)(3)). 

(7) Examples. This subparagraph 

provides examples illustrating the 

application of the general rules 

provided in paragraph (h)(1) of this 

section and Five-Megawatt Limitation 

provided in this paragraph (h). 

(i) Example 1. Application of FiveMegawatt Limitation to an 

interconnection agreement for energy 

properties owned by taxpayer. X places 

in service two solar energy properties 

(Solar Properties) each with a maximum 

net output of 4 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 Solar Properties 

that inverts the direct current electricity 

into alternating current). Each inverter 

is integral property to each Solar 

Property but is not shared by the Solar 

Properties. The Solar Properties share a 

step-up transformer, which is integral 

property to both Solar Properties. As 

part of the development of the Solar 

Properties, payment of qualified 

interconnection costs is required by the 

utility to modify and upgrade the 

utility’s transmission system at or 

beyond the point of interconnection to 

accommodate such 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 X paid or incurred for 

qualified interconnection property 

subject to the terms of the 

interconnection agreement, to calculate 

X’s section 48 credits for each of the 

Solar Properties because each has a 

maximum net output of not greater than 

five MW (alternating current). X cannot 

include more than the total costs X paid 

or incurred for the qualified 

interconnection property in calculating 

the aggregate section 48 credit amount 

for both Solar Properties. 

(ii) Example 2. Application of FiveMegawatt Limitation to an 

interconnection agreement for energy 

properties owned by separate taxpayers. 

X places in service a solar energy 

property (Solar Property) with a 

maximum net output of 3 MW (as 

measured in alternating current by using 

the nameplate capacity of the first 

component of property attached to the 

Solar Property that inverts the direct 

current electricity into alternating 

current). Y places in service a wind 

facility (Wind Facility), for which Y has 

made a valid election under section 

48(a)(5), with a maximum net output of 


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4 MW (as measured in alternating 

current). The Solar Property and the 

Wind Facility share a step-up 

transformer, which is integral to both 

facilities. As part of the development of 

the Solar Property and the Wind 

Facility, payment of qualified 

interconnection costs is required by the 

utility to modify and upgrade the 

transmission system at or beyond the 

point of interconnection to 

accommodate that 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 48 credits for 

the Solar Property and the Wind Facility 

because each has a maximum net output 

of not greater than five MW (in 

alternating current). 

(iii) Example 3. Application of FiveMegawatt Limitation to an 

interconnection agreement for a single 

energy property. X develops three solar 

properties (Solar Properties) located in 

close proximity. The Solar Properties 

are not considered an energy project 

pursuant to the definition in § 1.48– 

13(d). Each of the Solar Properties is a 

unit of energy property that has a 

maximum net output of 4 MW. The 

nameplate capacity of each Solar 

Property is determined by using the sum 

of the nameplate generating capacities 

within the unit of each Solar Property 

in direct current, which is deemed the 

nameplate generating capacity of each 

Solar Property in alternating current. 

Electricity from the three Solar 

Properties 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 

Properties 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 Properties 

to calculate its section 48 credit for each 

of the Solar Properties, subject to the 

terms of each interconnection 

agreement, because each of the Solar 

Properties has a maximum net output of 

not greater than five 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 48 

credit amount for both Solar Properties. 

(iv) Example 4. Application of FiveMegawatt Limitation to a single 

interconnection agreement for multiple 

energy properties. The facts are the same 

as in paragraph (h)(7)(iii) of this section 

(Example 3), except that X is party to 

one interconnection agreement with the 

utility with respect to the three solar 

energy properties (Solar Properties) and 

the interconnection agreement allows 

for a maximum output of 12 MW (as 

measured in alternating current). With 

respect to each of the three Solar 

Properties, X may include the costs it 

paid or incurred for qualified 

interconnection property for each Solar 

Property to calculate its section 48 

credit for each Solar Property, subject to 

the terms of the interconnection 

agreement, because each Solar Property 

has a maximum net output of not greater 

than five MW (in alternating current). 

(v) Example 5. Application of FiveMegawatt Limitation to an Energy 

Project. The facts are the same as in 

paragraph (h)(7)(iv) of this section 

(Example 4), except that the three solar 

energy properties (Solar Properties) are 

also subject to a common power 

purchase agreement and as a result, are 

considered an energy project (as defined 

in § 1.48–13(d)). With respect to each of 

the three Solar Properties, X may 

include the costs it paid or incurred for 

qualified interconnection property to 

calculate its section 48 credit for each of 

the three Solar Properties, subject to the 

terms of the interconnection agreement, 

because each of the Solar Properties has 

a maximum net output of not greater 

than five MW (in alternating current). 

(vi) Example 6. Utility payment 

reducing costs borne by taxpayer. In 

year 1, X places in service a solar energy 

property (Solar Property) 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 energy property, 

which is the first component of property 

attached to each of the Solar Properties 

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 

Property 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 (h)(6) of this section. X 

properly includes the $1 million paid to 

the utility in determining its credit 

under section 48 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 48 

credit in year 1. 

(vii) Example 7. Non-utility payment 

reducing costs borne by taxpayer. The 

facts in year 1 are the same as in 

paragraph (h)(7)(vi) of this section 

(Example 6). 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 48 

credit in year 1. 

(i) Cross references. (1) For rules 

regarding the coordination of the section 

42 credit and section 48 credit, see 

section 50(c)(3). 

(2) For rules regarding the denial of 

double benefit for qualified biogas 

property, see section 45(e). 

(3) For applicable recapture rules, see 

section 50(a). 

(4) For rules regarding the credit 

eligibility of property used outside the 

United States, see section 50(b)(1). 

(5) For rules regarding the credit 

eligibility of property used by certain 

tax-exempt organizations, see section 

50(b)(3). See section 6417(d)(2) of the 

Code for an exception to this rule in the 

case of an applicable entity making an 

elective payment election. 

(6) For application of the 

normalization rules to determine the 

section 48 credit taken by certain 

regulated companies, including rules 

regarding the election not to apply the 

normalization rules to energy storage 


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technology (as defined in section 

48(c)(6)), see section 50(d)(2). 

(j) Applicability date. This section 

applies with respect to property placed 

in service after December 31, 2022, and 

during a taxable year beginning after 

December 12, 2024. 

■ Par. 4. Section 1.6418–5 is amended 

by adding paragraph (f) and revising 

paragraph (j) to read as follows: 

§ 1.6418–5 Special rules. 

* * * * * 

(f) Notification and impact of 

recapture under section 48(a)(10)(C)— 

(1) In general. In the case of any election 

under § 1.6418–2 or § 1.6418–3 with 

respect to any specified credit portion 

described in § 1.6418–1(c)(2)(ix), if, 

during any taxable year, there is 

recapture under section 48(a)(10)(C) of 

the Code and § 1.48–13(c)(4) of any 

increased credit amount under section 

48(a)(9)(B)(iii) before the close of the 

recapture period (as described in § 1.48– 

13(c)(6)), such eligible taxpayer and the 

transferee taxpayer must follow the 

notification process in paragraph (f)(2) 

of this section with the Federal income 

tax consequences of recapture impacting 

the transferee taxpayer as described in 

paragraph (f)(3) of this section. 

(2) Notification requirements. The 

notification requirements for the eligible 

taxpayer are the same as for an eligible 

taxpayer that must report a recapture 

event as described in paragraph (d)(2)(i) 

of this section, except that the recapture 

amount that must be computed is 

defined in § 1.48–13(c)(5). 

(3) Impact of recapture—(i) Section 

48(a)(10)(C) recapture event. The 

transferee taxpayer is responsible for 

any amount of tax increase under 

section 48(a)(10)(C) and § 1.48–13(c)(5) 

upon the occurrence of a recapture 

event under § 1.48–13(c)(4), provided 

that if an eligible taxpayer retains any 

amount of an eligible credit determined 

with respect to an energy property 

directly held by the eligible taxpayer, 

the amount of the tax increase under 

section 48(a)(10)(C) and § 1.48–13(c)(5) 

that the eligible taxpayer is responsible 

for is equal to the recapture amount 

multiplied by a fraction, the numerator 

of which is the total credit amount that 

the eligible taxpayer retained, and the 

denominator of which is the total credit 

amount determined for the energy 

property. The amount of the tax increase 

under section 48(a)(10)(C) that the 

transferee taxpayer is responsible for is 

equal to the recapture amount 

multiplied by a fraction, the numerator 

of which is the specified credit portion 

transferred to the transferee taxpayer, 

and the denominator of which is the 

total credit amount determined for the 

energy property. 

(ii) Impact of section 48(a)(10)(C) 

recapture event on basis of energy 

property held by eligible taxpayer. The 

eligible taxpayer must increase the basis 

of the energy property (as of the first day 

of the taxable year in which the 

recapture event occurs) by an amount 

equal to the recapture amount provided 

to the eligible taxpayer by the transferee 

taxpayer pursuant to the notification 

required under paragraph (f)(2) of this 

section and the recapture amount on 

any credit amounts retained by the 

eligible taxpayer in accordance with 

section 48(a)(10)(C) and § 1.48–13(c)(4). 

* * * * * 

(j) Applicability dates—(1) In general. 

Except as provided in paragraph (j)(2) of 

this section, this section applies to 

taxable years ending on or after April 

30, 2024. For taxable years ending 

before April 30, 2024, taxpayers, 

however, may choose to apply the rules 

of this section and §§ 1.6418–1 through 

1.6418–3 provided the taxpayers apply 

the rules in their entirety and in a 

consistent manner. 

(2) Paragraph (f) of this section. 

Paragraph (f) of this section applies to 

taxable years ending on or after 

December 12, 2024. 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: November 25, 2024. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2024–28190 Filed 12–4–24; 4:15 pm] 

BILLING CODE 4830–01–P 


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