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The Inflation Reduction Act: Corporate tax provisions [1]
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Date: 2022-12
Energy-related tax credits
A significant portion of the Inflation Reduction Act is devoted to incentives for green energy, including tax credits.
In some cases, the tax credits are extensions or expansions of existing credits. However, the IRA also creates new tax credits for businesses and individuals.
Research Credit Against Payroll for Small Businesses
The IRA increases from $250,000 to $500,000, the limit on the amount of research credit that qualified small businesses may elect to treat as a credit against their payroll tax liability.
Restoration and extension of the renewable electricity production tax credit (PTC) and the investment tax credit (ITC)
The act extends the PTC for renewable energy projects that begin construction through the end of 2024.
Facilities that pay prevailing wages during construction and for the first decade of operation, and fulfill apprenticeship requirements, can qualify for up to five times the base amount of the credit. Increased credit amounts apply to domestic content, energy communities, and hydropower facilities placed in service after 2022.
It also extends to the end of 2024 the election to treat certain facilities that otherwise qualify for the IRC §45 PTC (“qualified investment credit facilities”) as energy property qualified for the IRC §48 ITC instead.
The IRA extends for one year, through the end of 2024, the beginning-of-construction deadline for some types of energy property (for example, qualified fuel cell property) to qualify for the ITC. It also extends the beginning-of-construction deadline for geothermal equipment through the end of 2034.
The base energy credit rate is reduced unless wage and apprenticeship requirements are met. The Act also allows the credit for new types of energy property, including energy storage technology, qualified biogas, and microgrid controller property.
Beginning in 2023, the IRA expands the ITC to include certain qualified solar and wind facilities. To qualify, a facility must have a maximum net output of less than 5 megawatts and must be located in low-income communities, on American Indian land, or as part of a low-income residential building project or low-income economic benefit project.
Business credit for commercial clean vehicles
The Inflation Reduction Act provides a new business credit for qualified commercial clean vehicles in an amount equal to the lesser of:
15% (or 30% for a vehicle not powered by a gas or diesel internal combustion engine) of basis, or
the incremental cost of the vehicle (excess of the purchase price of such vehicle over the purchase price of a comparable vehicle).
The credit is worth a maximum of $7,500, or $40,000 for a vehicle with a gross vehicle weight rating of at least 14,000 pounds.
The credit is set to expire after 2032.
[Download the Inflation Reduction Act Roadmap for a full explanation of corporate tax credits.]
Clean electricity production credit
The IRA creates a new business credit for producing clean electricity for facilities placed in service after 2024, where the greenhouse gas emissions rate is not greater than zero.
The credit equals the kilowatt hours of electricity produced and sold, multiplied by a base amount of 0.3 cents or 1.5 cents (adjusted for inflation).
Increased credit amounts are available if certain wage and apprenticeship requirements are met. The credit begins to phase out one year after the latter of 2032, or the year when annual greenhouse gas emissions from U.S. electricity production are equal to or less than 25% of the emission rate for 2022.
Clean fuel production credit
The IRA creates a new business credit for clean fuel that a business produces at a qualifying facility and sells for qualifying purposes.
The fuel must meet certain emissions standards. The credit per gallon base amounts are:
$0.20 (non-aviation fuel)
$0.35 (aviation fuel)
Increases are available if the business meets prevailing wage and apprenticeship requirements. All amounts are adjusted for inflation.
The credit applies to clean fuel produced after 2024 and sold before 2028.
Clean electricity investment credit
The IRA creates a new investment credit for clean electricity property investments in energy storage technology and qualified facilities placed in service after 2024, where the greenhouse gas emissions rate is not greater than zero.
The base credit rate is 6% of the qualified investment, with increases available if specific requirements related to construction date, output, and wages, among other factors, are met.
The credit begins to phase out one year after the latter of 2032, or the year when annual greenhouse gas emissions from U.S. electricity production are equal to or less than 25% of the emission rate for 2022.
Extension and modification of alternative fuel vehicle refueling property credit
The IRA extends the alternative fuel vehicle refueling property credit through 2032 and lowers the credit rate from 30% to 6% if the refueling property is depreciable.
It also increases the credit limit to $100,000 per item of depreciable refueling property and $1,000 per item of non-depreciable refueling property. Bidirectional charging equipment and electric charging stations are now included as credit-eligible property if requirements are met.
It also quintuples the credit amount for any depreciable qualified alternative fuel vehicle refueling property that is part of a refueling project that begins within a specified time period and meets wage and apprenticeship requirements. To qualify, alternative fuel refueling property must be placed in service in a low-income community or in a nonurban area.
[Download the Inflation Reduction Act Roadmap for a full explanation of corporate tax credits.]
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[1] Url:
https://pro.bloombergtax.com/brief/the-inflation-reduction-act-corporate-tax-provisions/
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