On Friday, June 22, 2018, the Internal Revenue Service issued guidance clarifying when construction commences for purposes of qualifying for the investment tax credit (“ITC”) for solar photovoltaic facilities. The ITC is a dollar-for-dollar reduction in federal income tax due by the taxpayer equal to a specified percentage of the eligible basis (generally the cost) of an energy project originally placed in service by the taxpayer. The percentage of the ITC depends on when construction begins on the eligible project, and hence the guidance received by the IRS is critical.
As a result of the PATH Act, the ITC percentage for solar facilities, which traditionally has been 30 percent of the eligible basis, phases out as follows:
- 30% for projects that begin construction by the end of 2019
- 26% for projects that begin construction in 2020
- 22% for projects that begin construction in 2021
- 10% for projects that begin construction in 2022 or after