On Dec. 17, 2010, President Obama signed into law the Tax
Relief, Unemployment Insurance Reauthorization, and Job Creation
Act of 2010 (the 2010 Tax Act), a multi-billion dollar tax cut
package that generally extends the Bush income tax cuts for
individuals and the lower capital gain/dividend tax rates for all
taxpayers for two additional years. Also, the 2010 Tax Act contains
several provisions that will have a significant positive impact on
businesses that invest in the renewable energy industry, as
follows:
Section 1603 Cash Grants In Lieu of Tax Credits
In 2009, the Section 1603 cash grant program was enacted to
provide for a cash grant (in lieu of tax credits) equal to 30
percent of the project costs for solar, wind, biomass, geothermal,
landfill gas, waste energy, hydropower, marine and fuel cell power
projects and 10 percent of the project costs for microturbines,
geothermal heat pump systems and combined heat and power
cogeneration systems. In order to qualify, applicants must have
either (i) placed the project in service before the end of 2010, or
(ii) begun construction of the project before the end of
2010. As a result, many applicants were racing against the
clock to begin construction of renewable energy projects (or
satisfy the 5 percent safe harbor) before the end of 2010.
The 2010 Tax Act extends the Section 1603 cash grant program for
another year. As extended, applicants must either (i) place the
renewable energy project into service by the end of 2011, or (ii)
begin construction of the project before the end of 2011 so long as
the project is ultimately placed in service before the applicable
tax credit termination date (i.e., by the end of 2012 for wind
projects; by the end of 2013 for biomass, geothermal, landfill gas,
waste energy, hydropower and marine; and by the end of 2016 for
solar, microturbines, geothermal heat pump systems, fuel cell and
combined heat and power cogeneration systems).
Bonus Depreciation
The 2010 Tax Act extends bonus depreciation by two years from
the end of 2010 until the end of 2012. The first-year bonus
depreciation allowance is increased to 100 percent for
qualified property that is placed in service before the end of
2011, which effectively allows taxpayers to expense the entire
capitalized cost of the property in the first year. A one year
extension of the placed in service date (i.e., before the end of
2012) may be allowed for property with a depreciation recovery
period of 10 years or more.
Also, the 2010 Tax Act provides for first-year bonus depreciation
equal to 50 percent for qualified property placed in service during
2012 (or before the end of 2013 for longer-lived property).
Refined Coal
The 2010 Tax Act extends the placed-in-service period through
Dec. 31, 2011 for new refined coal facilities (other than refined
coal facilities that produce steel industry fuel). In general, an
income tax credit equal to $6.27 per ton (for 2010) is allowed for
the production of certain refined coal. Refined coal is a
qualifying liquid, gaseous or solid synthetic fuel produced from
coal or high carbon ash that when burned, emits 20 percent less
nitrogen oxides and 40 percent less sulfur dioxide or mercury as
compared to the emissions released by the feedstock coal.
Tax Credits for Biodiesel, Alternative Fuels and Ethanol
The tax credits for biodiesel, renewable diesel fuel,
alternative fuels and ethanol have been extended through the end of
2011. In addition, the existing $.54 tariff on imported ethanol has
been extended through the end of 2011.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
