Energy Related Provisions in Recent Legislation

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1 Energy Related Prvisins in Recent Legislatin 2321 N. Lp Drive, Ste 200 Ames, Iwa Octber 13, by Rger A. McEwen Overview In late 2008 and early 2009, tw majr pieces f legislatin were enacted int law with the stated gal f spurring the ecnmy. The 2008 legislatin (H.R 1424) was titled the Emergency Ecnmic Stabilizatin Act f Divisin B f the 2008 law cntains the energy-related prvisins. The 2009 law (H.R. 1) is knwn as the American Recvery and Reinvestment Act f 2009 and is the largest spending bill in U.S. histry. Energy-related prvisins are included amng the varius prvisins f the bill. EMERGENCY ECONOMIC STABILIZATION ACT OF 2008 Divisin B The Energy Imprvement and Extensin Act f 2008 Extensin f the renewable energy credit thrugh 2009, fr wind and refined cal, and thrugh 2010 fr ther surces f renewable energy. Act, Divisin B, Title I, Subtitle A, Sec. 101, amending I.R.C. 45(d). Nte: The Act als expands the types f facilities qualifying fr the credit t new bimass facilities and t thse that generate electricity frm marine renewables (e.g., waves and tides) and makes the credit available thrugh Act, Divisin B, Title I, Subtitle A, Sec. 102, amending I.R.C. 45(d). Extensin f the 30 percent energy-efficient prperty credit thrugh 2016, with the credit ffsetting AMT liability. Act, Divisin B, Title I, Subtitle A, Sec. 103, amending I.R.C. 48(a), (c)(1) and (c)(2). Qualified slar energy prperty (and remval f the $2,000 maximum limit), and qualified fuel cell prperty. 10 percent credit fr micr-turbines. 30 percent credit fr the building f small wind turbines (nameplate capacity f nt mre than 100 kw) used t generate electricity, capped at $4,000 per year. Act, Divisin B, Title I, Subtitle A, Sec. 104, amending I.R.C. 48(c). Effective fr perids after Octber 3, 2008, in tax years ending after Oct. 4, 2008, thrugh Credit wrth 30 percent f the cst (capped at $2,000 per year), fr gethermal heat pump systems thrugh Act, Divisin B, Title I, Subtitle A, Sec. 105, amending I.R.C. 48(a) by adding new subsectin vii. Effective fr perids after Octber 3, 2008, in tax years ending after Octber 3, Extensin f the residential energy efficient prperty credit t prperty placed in service n r befre December 21, Act, Divisin B, Subtitle A, Sec. 106, amending I.R.C. 250D(g). 1

2 The creatin f a credit fr carbn dixide sequestratin in the amunt f $20 per metric tn f qualified carbn dixide (captured frm an industrial surce) which the taxpayer captures at a qualified facility (an industrial facility at which carbn capture equipment is placed in service which captures nt less than 500,000 metric tns f carbn dixide during the tax year) the taxpayer wns and dispses f in secure gelgical strage, and $10 per metric tn f qualified carbn dixide which the taxpayer captures at a qualified facility and uses as a tertiary injectant in a qualified il r natural gas recvery prject. Act, Divisin B, Title I, Subtitle B, Sec. 115, adding I.R.C. 45Q. Effective fr carbn dixide captured after Octber 3, Expansin f the 50 percent bnus depreciatin allwance fr cellulsic bifuels prperty t cellulsic bifuels ther than ethanl. Act, Divisin B, Title II, Sec. 201, amending I.R.C. 168(l). Effective fr prperty placed in service after Octber 3, 2008, and befre 2013, and fr tax years ending after Octber 3, Extensin f the credit fr bidiesel and renewable diesel thrugh 2009, and increasing the credit frm $.50 t $1.00, fr fuel prduced, sld r used in Act, Divisin B, Title II, Sec. 202, amending I.R.C. 40A(g); 6426(c)(6) and 6427(e)(5)(B). Clarificatin that fuel credits are designed t prvide an incentive fr dmestic prductin by specifying that imprted bidiesel that is immediately resld is ineligible fr the bidiesel fuel credit. Act, Divisin B, Title II, Sec. 203, amending I.R.C. 40A(d). Effective fr claims fr credit r payment made n r after May 15, Creatin f a credit fr new qualified plugin electric drive mtr vehicles in the amunt f $2,500 plus $417 fr each kilwatt hur f tractin battery capacity in excess f 4 KwH (subject t a ceiling amunt n the credit based n the GVW rating f the vehicle). Act, Divisin B, Title II, Sec. 205, creating I.R.C. 30D. Effective fr tax years beginning after 2008 and fr eligible prperty purchased befre The credit is subject t a ceiling amunt f $7,500 fr qualified vehicles with a grss vehicle weight (GVW) rating f 10,000 punds r less (higher limits apply t heavier vehicles). The credit is subject t a phaseut perid beginning with the secnd calendar quarter fllwing the calendar quarter which includes the first date n which the ttal number f a qualified vehicle sld fr use in the U.S. is at least 250,000. The rate f reductin f the credit is 50 percent fr the first tw calendar quarters f the phaseut perid, and 25 percent fr the third and furth calendar quarters f the phaseut perid. A vehicle that qualifies fr the credit is ne that draws prpulsin using a tractin battery using at least 4 KwH f capacity, uses an ffbard surce f energy t recharge the battery, has a GVW rate (fr passenger vehicles) f 8,500 punds r less, and cnfrms t applicable Clean Air Act standards. The credit can be used t ffset AMT. Fr a qualified vehicle used by a taxexempt entity, the seller f the vehicle is treated as the taxpayer with respect t the vehicle. A three-mnth extensin, thrugh 2009, and mdificatin f the alternative fuel credit. Act, Divisin B, Title II, Sec. 204, amending I.R.C. 6426(d). Effective t fuel sld r used after Octber 3, The taxpayer must reduce their basis in the vehicle by the amunt f the credit allwed. 2

3 A taxpayer may elect t nt have the credit apply. The credit is part f the general business credit. Nte: The Chevrlet Vlt (frthcming) is prjected t be eligible fr the full $7,500 credit by virtue f using a 16 KwH capacity Lithium-In battery. Extensin f the alternative fuel vehicle refueling prperty credit thrugh 2010 (2014 fr hydrgen fueled vehicles). Act, Divisin B, Title II, Sec Effective fr prperty placed in service after Octber 3, 2008, in taxable years ending after Octber 3, factr f at least.80 r a thermal efficiency rating f at least 90 percent t qualify fr the credit. Als, while the credit is generally wrth up t $500 fr varius imprvements, it is limited t $200 fr windws and $300 fr bimass fuel stves. Extensin f the energy-efficient cmmercial buildings deductin thrugh Act, Divisin B, Title III, Sec Fr eligible cntractrs, extensin f the credit fr energy-efficient imprvements t new hmes acquired frm eligible cntractrs fr use as a residence befre Act, Divisin B, Title III, Sec Extensin thrugh 2009 f the suspensin n the taxable incme limit fr purpses f percentage depletin f a marginal il r natural gas well. Act, Divisin B, Title II, Sec Mdificatin and extensin f the energyefficient appliance credit thrugh Act, Divisin B, Title III. Sec Revenue Raisers A prvisin allwing emplyers t prvide emplyees wh cmmute t wrk by bicycle limited fringe benefits (up t $20 per mnth as an exclusin frm incme) t ffset the cst f such cmmuting. Act, Divisin B, Title II, Sec. 211, amending I.R.C. S 132(f). Effective fr tax years beginning after Nte: The prvisin is nt indexed fr inflatin. Extensin f the credit fr nn-business energy-saving prperty (such as windws, insulatin and HVAC systems) thrugh 2009, and inclusin f energy-efficient bimass fuel stves (with a thermal efficiency rating f 75 percent r mre) and asphalt rfs with cling granules as new classes f energy-efficient prperty eligible fr a cnsumer tax credit up t $500. Act, Divisin B, Title III, Sec Effective fr expenditures made after December 31, 2008, and befre Nte: The bill clarifies that water heaters must have either an energy A limitatin n the deductin fr incme attributable t dmestic prductin f il and gas (capping the deductin at 6 percent), while extending the deductin t strategic film and televisin prductin. Effective fr tax years beginning after 2008 (with the reductin taking effect in 2010). Act, Divisin B, Title IV, Sec. 401, amending I.R.C. 199(d). A prvisin requiring brker reprting f custmer basis and gain in securities transactins stcks, bnds, mutual funds and ther securities using either the FIFO methd r the average cst methd (beginning in 2011 n a phased-in basis) n Frm 1099-B. In additin, a brker must specify whether the gains are lng-term r shrt-term. The applicable dates are as fllws: 1) crprate stck-jan. 1, 2011; (2) mutual funds-jan. 1, 2012; (3) ther securities-jan.1, Nte: The prvisin als extends the timeframe in which Frm 1099-B (r statements) must be sent t custmers by brkers frm Jan. 31 t Feb. 15 fr 3

4 statements furnished after Dec. 31, In additin, fr peple wh transfer their securities frm ne brkerage t anther, the ld brker will need t prvide the new brker with the required cst basis and acquisitin date infrmatin. Act, Divisin B, Title IV, Sec. 403, amending I.R.C A prvisin extending the.2 percent FUTA surcharge n the first $7,000 f wages (r salary) paid after December 31, 2008, thrugh calendar year 2009 (e.g., 6.2 percent; 6.0 percent beginning Jan. 1, 2010 and thereafter). Act, Divisin B, Title IV, Sec. 404, amending I.R.C ENERGY-RELATED PROVISIONS OF THE AMERICAN RECOVERY AND REINVESTMENT ACT OF Advanced energy credit. The Act creates an investment tax credit in the amunt f 30 percent f qualified expenditures in a qualifying advanced energy prject. That s a prject that re-equips, expands r establishes a manufacturing facility fr the prductin f the fllwing: Prperty designed t be used t prduce energy frm renewable resurces (sun, wind and gethermal depsits); Fuel cells, micrturbines, r energy strage systems fr use with electric r hybrid electric mtr vehicles; Electric grids t supprt the transmissin f intermittent surces f renewable energy; Prperty designed t capture r sequester carbn dixide emissins; Prperty designed t refine r blend renewable fuels r t prduce energy cnservatin technlgies; New qualified plug-in electric drive mtr vehicles, qualified plug-in electric vehicles r cmpnents designed fr use with such vehicles; and Other advanced energy prperty designed t reduce greenhuse gas emissins Eligible prperty must be depreciable tangible persnal prperty r ther depreciable tangible prperty that is used as an integral part f the qualified investment credit facility. The Act specifies that up t $2.3 billin credits can be certified. The credit is nt allwed fr any qualified investment fr which a credit is allwed under I.R.C. 48, 48A r 48B. Act, Sec. 1302, amending I.R.C. 46 by adding subparagraph (5) and creating I.R.C. 48C. 2. Energy-efficient imprvements t existing hmes. The Act extends thrugh 2010, the existing tax credits fr imprvements t energy-efficient existing hmes. The Act als increases the credit frm t 30 percent (up frm 10 percent) f the amunt paid r incurred fr qualified energy efficient imprvements. The Act als replaces the item-by- item dllar caps with an verall $1,500 cap n all qualified prperty. In additin, the Act mdifies the existing standards fr energy-efficient building prperty (i.e., electric heat pumps, central air cnditiners, water heaters, wd stves, natural gas, prpane and il furnaces, natural gas and il ht water bilers, prpane furnace, prpane ht water biler, exterir windws, drs and skylights, and insulatin). Act, Sec. 1121, amending I.R.C. 25C. 3. Credit fr alternative fueling prperty. The Act increases the existing alternative refueling prperty credit (nn-hydrgen prperty) frm 30 percent t 50 percent, and increases the cap frm $30,000 t $50,000. The Act keeps the hydrgen refueling pumps credit at 30 percent, but raises the cap t $200,000. The Act als increases the credit frm 30 t 50 percent fr individuals and raises that cap t $2,000 (frm $1,000) fr nn-hydrgen prperty placed in service in 2009 and Act, Sec. 1123, amending I.R.C. 30C(e). 4. Extensin f credit fr electricity prduced frm renewable resurces. The 4

5 Act extends the credit fr electricity prduced frm wind thrugh 2012, and 2013 fr ther renewable surces, such as bimass facilities, gethermal and slar. Act, Sec. 1101, amending I.R.C. 45(d). 5. Investment credit in lieu f prductin credit. The Act allws wners f facilities that prduce electricity frm wind, pen and clsed-lp bimass, gethermal, small irrigatin, hydrpwer, landfill gas, wastet-energy, and marine renewable t claim a 30 percent investment tax credit fr prperty placed in service in fr wind facilities, and fr prperty placed in service fr the ther type f facilities. The investment tax credit, if claimed, is in lieu f the renewable energy prductin tax credit that wuld therwise be allwable. Act, Sec. 1102, amending I.R.C. 48(a). 6. Small wind energy prperty. The Act eliminates the dllar limitatin n the therwise available credit fr small wind energy prperty. Act, Sec. 1103(a), amending I.R.C. 48(c)(4). 7. Plug-in vehicle credit. The Act increases the base amunt $2,500 tax credit fr plugin vehicles if the vehicle is purchased after 2009 and draws prpulsin frm a battery with at least 5 KwH capacity. The credit is increased by $417 fr each qualified vehicle which draws prpulsin frm a battery with at least 5 KwH f capacity, plus anther $417 fr each KwH f capacity in excess f 5 KwH up t 16 KwH (nt t exceed $5,000). The full credit is available thrugh the end f the first calendar quarter in which the vehicle manufacturer has sld 200,000 units f the vehicle. The credit is reduced in fllwing calendar quarters. The Act als prvides fr a new credit (capped at $2,500) f 10 percent f the cst f lw-speed vehicles, mtrcycles and 3-wheeled vehicles that wuld therwise be classified as a qualified plug-in vehicle but fr the fact that they are lw speed r d nt have fur wheels, fr purchases made after February 17, 2009 thrugh In additin, the Act prvides a credit (thrugh 2011) against the csts incurred in cnverting a vehicle int a plug-in vehicle thrugh a cnversin kit. This credit is pegged at 10 percent f the cst f cnversin that des nt exceed $40,000. The incme tax basis in a vehicle used in a trade r business is reduced by any credit amunt that is claimed with respect t such cnverted vehicle. Fr vehicles used by a tax-exempt entity r gvernmental entity, the credit belngs t the vehicle seller. Act, Secs. 1141, 1142 and 1143, amending I.R.C. 30 and 30D. 8. Carbn sequestratin. The Act clarifies that a taxpayer claiming the carbn dixide capture tax credit must be permanently stred in a gelgic frmatin. Act, Title XVI, Subtitle B, Part IV, Sec. 1131, amending I.R.C. 45Q(a)(2). 9. Grants in Lieu f Tax Credits. The Act prvides that a taxpayer, upn making applicatin t the Treasury Secretary, can receive a grant fr placing in service certain specified energy prperty t reimburse the taxpayer fr a prtin f the expense f such prperty. Such grants are in lieu f the taxpayer claiming any applicable credits with respect t such prperty. Act, Sec The prvisin specifies that the amunt f any grant is either 30 percent r 10 percent f the prperty's basis depending n the type f prperty invlved. Act, Sec. 1603(b)(2). The prvisin als specifies that certain taxpayers are nt eligible fr grants. Act, Sec. 1603(g). Grants can nly be made t taxpayers that make applicatin fr grants that the Secretary receives by September 30, 2011, fr prperty that is placed in service during 2009 r 2010 r after 2010 and befre the credit terminatin date fr the prperty at issue if cnstructin f the prperty began during 2009 r Act, Part V, Subtitle G, Secs. 1603(a) and (j). 5