On June 22, 2018, the IRS released guidance to assist developers and owners of solar energy projects in determining the "beginning of construction" for solar energy projects for purposes of the Investment Tax Credit (ITC) under Section 48 of the Internal Revenue Code. In extending the ITC in 2015, Congress changed the previous "placed-in-service" standard for qualification for the credit to a "beginning of construction" standard for projects completed by the end of 2023. Projects beginning construction in 2019 will receive the current 30% ITC, while projects beginning construction in 2020 and 2021 will receive 26% and 22%, respectively. After 2021, the residential credit will drop to zero while the commercial and utility credit drops to a permanent 10%.
Taxpayers may establish the beginning of construction by starting physical work of a significant nature (the Physical Work Test) or by meeting a safe harbor based on having paid or incurred five percent or more of the total cost of the energy property (the Five Percent Safe Harbor). Although a taxpayer may satisfy both methods of establishing the beginning of construction, construction will be deemed to have begun on the date the taxpayer first satisfies one of the two methods. Both methods require that a taxpayer make continuous progress toward completion once construction has begun (the Continuity Requirement). In either case, if a taxpayer places an energy property in service by the end of a calendar year that is no more than four calendar years after the calendar year during which construction of the energy property began (the Continuity Safe Harbor Deadline), the energy property will be deemed to satisfy the Continuity Safe Harbor. However, if an energy property is not placed in service before the end of the fourth calendar year after the calendar year during which construction of the energy property began, whether the energy property satisfies the Continuity Requirement under either the Physical Work Test or the Five Percent Safe Harbor will be determined by the relevant facts and circumstances. Click here for the IRS' Commence Construction Guidance Document.
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