The Joint Committee on Taxation released on June 17, 2021, its Technical Explanation of the Clean Energy for America Act (CEAA) which passed the Senate Committee of Finance on May 26, 2021. Here are the highlights if the underlying legislation become law as proposed:
Oil & Gas
Effective for taxable years beginning after the date of enactment, the “working interest” exception to the passive activity loss rules is repealed. This means there will no longer be an unlimited first year write off for pedestrian investors in oil and gas wells who typically seek these types of investments for tax planning purposes. The legislation would also repeal the immediate deduction for intangible drilling costs, percentage depletion, and would repeal the exemption enjoyed by certain publicly traded energy partnerships from corporate taxation.
In general, the CEAA creates a new 1.5 cent per kWh domestic production tax credit for projects originally placed into service after 2022 that pay a federal prevailing wage to the project workers and use qualified apprentices for not less than 15% of the total labor hours. The credit may electively be converted into a payment by the US Treasury.
In lieu of the domestic production credit there is a 30% investment tax credit, also convertible into a payment by the US Treasury.
Residential Electric & Other Energy Projects
A 30% tax credit is available to residential property owners for investments made in property that generates electricity from zero emission sources and placed into service after 2022. The credit is non-refundable but any excess credit may be carried forward for up to three years. CEAA also retains the present 30% level tax credit for residential energy efficient projects placed into service after 2020.
Retention of 30% Business Energy Tax Credit
For construction that commences before 2024, the 30% energy property tax credit is restored. This also includes qualified biogas property. Credit may be arranged as a payment in lieu of a tax credit.
Clean Hydrogen Production Facility
A 6% tax credit is made available. Credit may be arranged as a payment in lieu of a tax credit.
Electric Vehicle (EV) Tax Credit
Beginning in 2022 the maximum tax credit becomes $12,500, is a refundable tax credit, and the credit is not phased out based on the EV manufacturer’s production of EVs. The credit is phased out if the manufacturer’s suggested retail price exceeds $80,000.
Energy Efficient Homes and Commercial Buildings
Construction contractors can earn tax credits of up to $5,000 per new home construction project acquired by the purchaser after 2021. There are new tax credits of up to $1,500 for homeowners who make energy efficient improvements after 2021.
Owners of energy efficient commercial buildings may claim an income tax deduction of up to $2.50 per square foot for qualified expenditures made after 2021.