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IRS Clarifies the Beginning of Construction Requirement for Claiming Energy Credits

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The renewable energy production tax credit (PTC) and energy investment tax credit (ITC) can be claimed for electricity produced from renewable sources. The caveat for these energy credits is that this electricity needs to be produced at what is deemed a qualified facility, which is one where the construction begins prior to a deadline.

Previously, that meant that the construction needed to have begun prior to January 1, 2015. Through the issuance of the Protecting Americans From Tax Hikes Act of 2015 (PATH Act), these credits were extended for another two years for facilities that are under construction before January 1, 2017.

The IRS requires specific tests and safe harbors to ascertain when construction begins. These include the Physical Work Test and the Five Percent Safe Harbor.

According to what is known as the Continuity Requirement, the taxpayer needs to make ongoing progress in the building process after the start of construction.

The recent clarification offered by the IRS specifies that a taxpayer is able to meet the Continuity Safe Harbor requirements by putting the facility into use either by a calendar year that is no more than four calendar years after the one during which construction began or December 31, 2016. Up until this recent statement, December 31, 2016 was not mentioned and now the tax payer may select whichever of these options is offers a longer timeframe.

Contact your professional tax advisor for any questions about whether your facility qualifies for these energy credits.