Section 48 Investment Tax Credit (ITC) makes owners or investors eligible for investment tax credits if they install specified renewable energy generation equipment and place it in service during the years 2006 through 2021. The ITC allows a credit equal to a specified percentage times the cost (basis) of any energy property put in service during the tax year. Up to 30% tax credit is available to projects which qualify. A correct determination of the basis in the property is very important to accurately calculate the ITC value.
As it stands today, the credit scheme will be gradually phased by year 2021.
Generally speaking, commercial, industrial, investor-owned utilities, cooperative utilities, and agricultural properties qualify for these credits where the original use begins with the taxpayer, or the properties were built by the taxpayer, and the percentage of used parts does not exceed 20%. Except in the case of certain geothermal and solar projects, electrical generation must be in place. Section 48, does not demand that electricity be sold to an outside party or the grid.
• Solar Technologies. 30% credit is allowed 2019Include equipment that produce electricity, heating or cooling of space (or heating water for use inside the structure), or process heat from solar energy. Hybrid solar lighting systems, illuminating the insides inside of a structure distributed sunlight using fiber-optic are also eligible. However, solar pool-heating systems, and passive solar systems and are not.
• Fuel Cells. 30% credit is allowed, with no maximum limit on the total amount. However, there is a limit of $1,500 per 0.5 kilowatt (kW) of fuel cell capacity. The cells must have a minimum capacity of 0.5 kW electricity-only and efficiency of 30% or better and must use renewable fuels.
• Small Wind Turbines. 30% of expenditures, with no upper limit for small turbines up to 100 kW commissioned after December 31, 2008. Eligible small wind property includes wind turbines in capacity. A maximum credit of $4,000 applies to eligible property put in service between October 3, 2008, and January 1, 2009. (This limit was later removed). The turbines must meet specific performance and quality standards.
• Geothermal Systems. The credit of 10% expired 2016. Currently geothermal electricity qualifies for 10% only up to, but not including, the electric transmission stage. No expiration date has been stated.
• Microturbines qualified for up to 10% of expenditures with no maximum value limit but an upper cap at $200 per kW of turbine capacity, and maximum capacity of two megawatts (MW) or below with electricity-only generation efficiency better than or equal to 26%. However, the eligibility was available only till 2016.
• Combined Heat and Power (CHP). The credit of 10% expired in 2016.
Production Tax Credit (PTC)– Technologies eligible for the Production Tax Credit (PTC) scheme could opt for the ITC in lieu of the production tax credit if construction began prior to January 1, 2015. From January 1, 2015, wind energy systems only can claim the ITC option.