On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”). This legislation extended the production tax credit (PTC) for wind facilities and the investment tax credit (ITC) for solar facilities, and imposes a “begun construction” requirement on both credits.

On May 5, 2016, the Internal Revenue Service released Notice 2016-31, 2016-23 I.R.B. 1022 (“Notice 2016-31”), which provided updated guidance on the beginning of construction requirement for the extended PTC. Notice 2016-31 extends and modifies prior guidance (collectively, the “prior notices”) and provides additional guidance with respect to the continuity requirements for the PTC. Notice 2016-31 indicates that guidance addressing the extension of the ITC for solar facilities will be released in the future.

Wind PTC

Under the PATH Act extension, wind facilities that begin construction before January 1, 2017, will be eligible to claim the full amount of the PTC. Wind facilities that begin construction after January 1, 2017, will be subject to a step-down of the PTC until January 1, 2020, at which point, the PTC expires for new facilities.

The table below provides a summary of the PTC amounts available after the PATH Act extension:

Click here to view table.

The prior notices provide that once construction has begun, there must be continuous construction or continuous efforts to complete the facility (collectively, the “continuity requirement”). Notice 2016-31 provides that a facility must be placed in service by the later of (a) the end of a calendar year that is no more than four calendar years from the calendar year in which the facility began construction, or (b) December 31, 2016 (the “Continuity Safe Harbor”). Notice 2016-31 provides an example, stating that a facility on which construction begins on January 15, 2016, will be deemed to satisfy the Continuity Safe Harbor if that facility is placed in service by December 31, 2020.

The table below identifies the earliest date a project can commence construction and satisfy the Continuity Safe Harbor for each placed-in-service (PIS) year:

Click here to view table.

Solar ITC

The PATH Act also amended Section 48(a)(2)(A)(i) of the Internal Revenue Code to extend the ITC for solar. Under the old law, the full amount of the ITC (a 30 percent credit) was available to facilities placed in service on or before December 31, 2016. The PATH Act extension shifted from a “placed-in-service” standard to a “begunconstruction” standard. Under the new law solar facilities that begin construction before January 1, 2020, will be eligible to claim the full amount of the ITC. Solar facilities that begin construction after January 1, 2020, will be subject to a phase-out of the amount of available ITC until January 1, 2022, after which point the ITC will step down to 10 percent.

The PATH Act also imposes a placed-in-service requirement on facilities that begin construction prior to January 1, 2022. Any such facility must be placed in service by December 31, 2023, in order to claim the credit amounts listed in the chart below. Facilities that begin construction prior to January 1, 2022, but are not placed in service until after December 31, 2023, are automatically subject to a 10 percent ITC.

The following table provides a summary of the ITC amounts available after the PATH Act extension:

Click here to view table.