The Energy Improvement and Extension Act of 2008, which was enacted on October 3, 2008, includes a package of energy-related tax provisions.
The Emergency Economic Stabilization Act is now law as of October 3, 2008, and along with it the Energy Improvement and Extension Act of 2008 (the “Energy Act”). The Energy Act contains extensions of the once languishing energy tax credits and other programs. The big news is the extension of the wind and solar tax incentives. But there is other good news too. The Energy Act includes renewable tax incentives, accelerated deprecation for smart grid investments, and new credits for carbon dioxide sequestration and capture investments. The Energy Act also expands clean coal tax benefits and provides benefits for refinery expansion for heavier crude.
The following is an overview of the key energy provisions in the new legislation.
The production tax credit is extended. The Section 45* renewable energy production tax credit is extended through 2009 for wind power, one year from the previous expiration date.
The micro-turbine property credit is extended. The Section 48 business energy investment tax credit for micro-turbine property is extended from 2008 through the end of 2016.
Section 48 energy investment tax credit is allowed for qualified small wind energy property. The Energy Act adds an energy credit for “qualified small wind energy property” to the list of property eligible for the energy credit. The credit amount for qualified small wind energy property is 30 percent.
The business energy tax credit for solar energy property is extended. The 30 percent Section 48 business energy investment tax credit for qualified solar property is extended from 2008 through the end of 2016.
The energy credit is permitted for public utility property. The Energy Act repeals the restrictions on public utility property being eligible for the Section 48 business energy investment tax credit.
The production tax credit for certain other renewables is extended and expanded. The Section 45 renewable energy production tax credit is extended to 2010 in the case of certain sources other than wind and refined coal (extended one year), two years from the previous expiration date. The types of facilities qualifying for the credit are expanded to include new biomass facilities, geothermal and those that generate electricity from marine renewables (e.g., waves and tides).
Other Electric Incentives
Depreciation for smart meters and smart grid systems is accelerated. The depreciable life of such property is reduced from 20 years to 10 years.
The 10 percent business energy tax credit is expanded to apply to “combined heat and power system property (CHP).” The Energy Act adds the category “combined heat and power system property” to the list of property eligible for the energy business investment tax credit. The provision makes CHP property eligible for the 10 percent credit through December 31, 2016.
Coal gasification investment credit is expanded and modified. The coal gasification investment credit qualifications have expanded, and the limits on the credit have been modified. The Energy Act increases the qualifying gasification project credit for any tax year to 30 percent of the qualified investment. Also, the Energy Act adds to the list of eligible entities that can carry out qualified gasification projects any person whose application for certification is principally intended for use in a domestic project that employs domestic gasification applications related to transportation grade liquid fuels.
The refined coal credit is extended for one year. The Section 45 credit for refined coal production is extended through 2009, one additional year from its previous expiration date. The Energy Act also included some favorable changes to the definition of refined coal.
Steel industry fuel is added to the definition of refined coal as a qualified resource for purposes of the electricity production credit. The Energy Act treats steel industry fuel (as defined in the Energy Act) as refined coal, a qualified resource for purposes of the electricity production credit.
Income tax credit is provided for qualified carbon dioxide captured after date of enactment of the Energy Act. The Energy Act creates a credit for qualified facilities that sequester carbon dioxide under certain conditions. The credit applies only to the capture and disposal within the United States or a U.S. possession.
Oil and Gas
The legislation provides for percentage depletion for marginal wells. The suspension on the taxable income limit for purposes of depreciating a marginal oil or gas well is extended for 2009.
The election to expense certain refineries is extended for two years and modified to include fuel derived from shale and tar sands.
U.S. production activities deduction is reduced for production of oil, gas or their primary products.
Different treatment of foreign oil and gas extraction income (FOGEI) and foreign oil-related income (FORI) is eliminated.
Biodiesel production tax credit is extended; renewable diesel tax credit is extended and modified. The $1.00 per gallon production tax credit for biodiesel and the 10¢/gallon credit for small biodiesel producers are extended through 2009. The $1.00 per gallon production tax credit for diesel fuel created from biomass is also extended. Biodiesel imported and sold for export is not eligible for the credit effective May 15, 2008.
Alcohol, biodiesel, renewable diesel and alternative fuel income and excise tax incentives are made inapplicable to fuel produced outside the United States for use outside the United States. The Energy Act also modifies the excise tax refund rules for alcohol fuel mixtures, biodiesel fuel mixtures, alternative fuel mixtures and alternative fuel to provide that no amount may be paid under those rules for any mixture or alternative fuel if a credit isn’t allowed for that mixture or alternative fuel by reason of this limitation.
Alternative fuel excise tax credits/refunds are extended through December 31, 2009; qualifying fuels are expanded; and carbon capture is required for certain fuels. This applies to fuels that are not ethanol, methanol, biodiesel or renewable diesel.
The energy credit can offset 100 percent of the alternative minimum tax. The Energy Act adds the Section 48 energy investment tax credits to those allowed against the alternative minimum tax.
The energy-efficient buildings deduction is extended. The law allowing taxpayers to deduct the cost of energy-efficient property installed in commercial buildings is extended through 2013.
The research tax credit is extended. The research tax credit is extended for two more years, through the end of 2009.
“New qualified plug-in electric drive motor vehicle credit” is allowed for tax years beginning after December 31, 2008, for property purchased before January 1, 2015. There is a new credit for business purchases of certain electric motor vehicles.
The energy-efficient appliance credit is modified and extended. The provision allowing manufacturers to receive a tax credit for the production of energy-efficient appliances is extended through 2010, and the credit’s standards and amounts are increased.
* Unless otherwise indicated, all Section references refer to the Internal Revenue Code of 1986, as amended.