Secure Your Renewable Energy Project ITC Under Section 48 Before Time Runs Out

Authored by Baker Tilly’s Gideon Gradman

Time is running out to secure the Investment Tax Credit (ITC) for your biogas energy projects.

Many provisions of Internal Revenue Code (IRC) section 48, which define and codify the ITC for energy property, expire on Dec. 31, 2024.

Projects that begin construction after that date will need to qualify under the new credit regime of IRC section 48E Clean Energy Investment Tax Credits. Eligibility under the new regime focuses on producing electricity without producing greenhouse gas emissions. The new credit regime is essentially technology-neutral and focuses on the output of the process.

The shift from a technology-specific to technology-neutral credit program impacts many of the technologies that have qualified under the old regime. Some energy property types will be left out of the new regime, such as qualified biogas property and combined heat and power (CHP).

Take action now to secure your Investment Tax Credit under section 48. To qualify, you must meet certain milestones by Dec. 31, 2024. With the deadline fast approaching, now is the time to take action and ensure your project meets the necessary requirements. Missing this window could increase your capital costs and delay your tax benefits down the road.

What you need to know 

Any project owner looking to claim the ITC for their biogas project, CHP project or other renewable energy project must begin construction for tax purposes before the end of 2024.

How? In order to establish a qualifying construction start date – also known as meeting “begun construction” – a project must meet one of the following two tests by Dec. 31, 2024:

• The 5% Safe Harbor Test: This test requires the expenditure of at least 5% of the facility’s total ITC-eligible costs, which encompasses securing a minimum financial investment toward the project’s development.
• The Physical Work Test: This test focuses on the initiation of physical work of a significant nature on the project. That means starting on-site material construction or manufacturing activities that are integral to the energy property, or beginning physical work off-site by procuring ITC-eligible equipment and beginning fabrication by year end. In either case, the physical work must be “significant.”

Taxpayers must demonstrate either continuous construction or continuous efforts between the date of begun construction and the date the project is placed in service. In addition, all work must be done under a binding written contract with the vendors involved, and costs must be paid and incurred prior to Dec. 31, 2024.

For additional information on this topic, read more here.

Next steps 

Of course, most projects hoping to take advantage of the section 48 ITC are well underway at this point. That said, if your project is still considering several options for securing the ITC, you need to quickly consider ways to begin construction using either the 5% Safe Harbor Test or the Physical Work Test – and be sure to document your activities thoroughly.

You also need to know where to ask for help.

Baker Tilly’s energy team serves many clients that have secured (and are looking to secure) IRA energy tax credits as they develop their biogas projects and other clean energy initiatives. As part of our comprehensive IRA compliance program, we assist clients with assessing and documenting project eligibility, begun construction requirements, prevailing wage & apprenticeship, domestic content, and energy community bonus credit compliance strategies and documentation.

If you need help navigating your ITC strategy, or any aspect of your IRA journey, or if you simply want to discuss your options, contact a Baker Tilly specialist today.