The future of the Build Back Better Act (BBBA) and related community development incentives after Sen. Joe Manchin’s announcement that he would not vote for the legislation is the subject of this week’s Tax Credit Tuesday episode. Michael Novogradac, CPA, is joined by Peter Lawrence, Novogradac director of public policy and government relations, and Tony Grappone, CPA, to discuss what’s next for potential tax extenders legislation, what tax incentive provisions could be included in a future version of the BBBA and more.
The Office of the Comptroller of the Currency (OCC) today issued a final rule to rescind the Community Reinvestment Act (CRA) rule it issued in June 2020. Today’s action replaces the 2020 rule with a rule based on rules adopted by the OCC, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) in 1995, as amended. The final rule applies to national banks, federal savings associations and state savings associations. The updated rule takes effect Jan. 1, 2022.
The U.S. House of Representatives today passed the Build Back Better Act, a $1.7 trillion bill that includes an expansion of the low-income housing tax credit (LIHTC), the introduction of the neighborhood homes tax credit (NHTC), an additional tribal allocation of the new markets tax credit (NMTC) and $325 billion in renewable energy tax incentives. H.R. 5376 passed 220-213 and now goes to the Senate. The legislation includes an extension of the 12.5% increase in 9% LIHTC allocations that began in 2018 through 2024, adding a 10% increase, plus an annual inflation adjustment, to that amount. The bill also would reduce the 50% test for affordable rental housing financed with private activity bonds (PABs) to 25% for calendar years 2022-26, establish a 50% basis boost for extremely low-income housing and provides a 30% basis boost for LIHTC properties in tribal areas.
The Internal Revenue Service (IRS) published a notice today providing a 1.2049 inflation adjustment factor for Internal Revenue Code (IRC) Section 45Q carbon oxide sequestration credits. The Notice 2021-35 inflation adjustment means the credit for calendar year 2021 is $24.10 per metric ton of qualified carbon oxide under IRC Section 45Q(a)(1) and $12.05 per metric ton of qualified carbon oxide under IRC Section 45Q(a)(2).
Democrats in the House of Representatives today released revised text for the Build Back Better Act (H.R. 5376), which includes an expansion of the low-income housing tax credit (LIHTC), the neighborhood homes tax credit (NHTC) and a $175 million tribal allocation for the new markets tax credit (NMTC) for 2022. The revised legislation retains $555 billion in tax and spending proposals for clean energy with minor changes. The LIHTC provisions include the extension of the 12.5% increase in 9% allocations that began in 2018 as part of the baseline during 2022-2024, adding annual 10% plus inflation increases for 2022-24 to those amounts, but reverting to the 2017 baseline as adjusted for inflation in 2025. It also would reduce the 50% test for affordable rental housing financed with private activity bonds (PABs) to 25% for five years (2022-26) and establish the 50% basis boost for extremely low-income housing, with the set-aside reduced from 10% to 8%, and a 30% basis boost for LIHTC properties in tribal areas.
President Joe Biden today announced the Build Back Better framework to guide the drafting of reconciliation legislation. Bill text introduced today in the House Rules Committee details the $1.75 trillion spending proposal.
Of the $1.75 trillion, $150 billion would be set aside for housing and community development spending, including funding for rental assistance, preserving public housing and the national Housing Trust Fund (HTF). The framework also includes $555 billion for clean energy tax and spending proposals, of which $320 billion are for tax proposals, about $50 billion more than the House Ways and Means version of the reconciliation package.
Legislation to establish renewable energy investment tax credits (ITCs) and production tax credits (PTCs) for the domestic manufacturing of onshore wind energy components was introduced in both houses of Congress. The Onshore Wind American Manufacturing Act would create a 30% ITC for U.S.-based facilities that manufacture or assemble qualified onshore wind components.
Rep. Dan Kildee, D-Michigan, introduced the Solar Energy Manufacturing for America Act, a bill aimed at boosting solar panel manufacturing jobs in America by providing tax credits at every stage of the solar manufacturing supply chain, from polysilicon production to solar cells to fully assembled solar modules.
Three members of the House of Representatives today introduced legislation that would create a tax credit for the production of “green” and “blue” hydrogen. The Clean Hydrogen Production and Investment Tax Credit Act of 2021 (H.R. 5192) would provide the tax credit to companies that reduce carbon emissions by the production of hydrogen. The credit would be worth an applicable amount (a sliding percentage, based on the production method, multiplied by $3, adjusted for inflation) multiplied by the kilograms of qualified clean energy produced by the taxpayer during the taxable year.
Nine members of the House of Representatives introduced legislation to allow solar energy to qualify for a full value production tax credit (PTC). H.R. 5175 would extend the federal PTC to electricity produced by solar energy. The legislative text was not immediately available. The nine House members–including eight members of the Ways and Means Committee and one member of the Energy and Commerce Committee–introduced the legislation ahead of the Ways and Means Committee markup of the budget reconciliation package.
The House of Representatives approved the fiscal year 2022 budget resolution Tuesday, unlocking forthcoming $3.5 trillion reconciliation legislation that will likely include a significant expansion of the low-income housing tax credit (LIHTC), creation of the neighborhood homes tax credit (NHTC) to incentivize the development and rehabilitate single-family housing in distressed neighborhoods and more funding for a wide variety of U.S. Department of Housing and Urban Development (HUD) programs. In addition to these resources, the forthcoming reconciliation legislation possibly could include the creation of the middle-income housing tax credit (MIHTC) to serve renters earning just above LIHTC income limits and expansion and enhancement for the federal historic tax credit (HTC), permanence and expansion of new markets tax credit (NMTC), extension and substantial expansion of renewable and clean energy tax credits
Rep. Linda Sanchez, D-California, introduced legislation to extend the residential energy efficient property tax credit under Internal Revenue Code Section 25D for five years at 30% before gradually phasing down to a 10% credit after 2028. The Residential Solar Opportunity Act (H.R. 4852) would make the residential credit mirror the phasedown schedule of the renewable energy investment tax credit (ITC).
Four Democratic senators introduced legislation to promote offshore wind energy through tax credits. The Offshore Wind Manufacturing Act of 2021 would provide a manufacturing investment tax credit (ITC) and a production tax credit (PTC) for facilities that produce offshore wind turbine components. Qualified facilities would receive a 30% ITC and the PTC would be from 2 cents to 5 cents per watt, multiplied by the total rated capacity of the turbine.
The Internal Revenue Service will publish in Thursday’s Federal Register a notice and request for comment on an extension of performance and quality standards that small wind energy property must meet to qualify for the production tax credit (PTC) under Section 48(a)(3)(D) of the Internal Revenue Code. The standards were established in Notice 2015-4. Comments are due Oct. 4.
The Internal Revenue Service (IRS) published a private letter ruling stating that facilities that generate solar electricity are not public utility property (PUP) under the Internal Revenue Code. PLR 202130005 clarifies that those facilities should not be treated as a PUP owned by a public utility or by the financial institution contributing capital. The IRS based the ruling on the fact that each partnership in a transaction will charge market-based rates to the operator for the electricity produced by the solar facilities.
A bipartisan group of legislators introduced in both houses of Congress a bill to encourage innovation in the clean energy to help rapidly scale and diversify new technologies. The Energy Sector Innovation Credit (ESIC) Act would create an investment tax credit (ITC) of up to 40% and a production tax credit (PTC) of up to 60% for low-market-penetration technologies. The credit could be applied to generation, storage, carbon capture and hydrogen production. The credit would phase out as technologies mature and Congress could take up new technology recommendations from the Department of Energy every five years.
New Jersey Gov. Phil Murphy signed legislation that shifts tax credits to the state wind energy program and makes changes to the state historic tax credit (HTC) and brownfield program concerning prevailing wage requirements. A. 5939 moves $350 million in tax credits originally intended for the New Jersey Emerge Program and the New Jersey Aspire Program to the wind energy tax incentive and provides that if less than the annual limitation of credits under those programs is awarded, the uncommitted credits be made available to qualified offshore wind projects. The HTC and brownfield program change requires that prevailing wage requirements also apply to building services work under those incentives.
The Internal Revenue Service (IRS) today released a ruling clarifying several issues related to Internal Revenue Code (IRC) Section 45Q carbon capture tax credits. Revenue Ruling 2021-13 determines that acid gas removal at an industrial facility is a component of carbon capture equipment within the meaning of the IRC 45Q credit; that an investor in components of capture equipment at an industrial facility doesn’t need to own every component in a single-process train to receive the credit, but must own at least one component; that under IRC Section 45Q, the placed-in-service date of a single-process train of carbon capture equipment is the date it is placed in condition or a state of readiness and availability for the capture, processing and preparation of carbon oxide for transport for disposal, injection or use; and the original placed-in-service date of a single-process train for IRC Section 45Q has no effect on the placed-in-service date of the existing acid gas removal unit for depreciation under IRC Sections 167 and 168.
The Internal Revenue Service (IRS) posted a notice Tuesday clarifying the beginning-of-construction requirement for both the renewable energy production tax credit (PTC) and investment tax credit (ITC) for energy properties in response to delays caused by the COVID-19 global pandemic. In an effort to assure that renewable energy endeavors can safely meet the continuity safe harbor requirements, Notice 2021-41 extends the safe harbor deadline for property that began construction in 2016 through 2020. Initiatives launched under the physical work test or the 5% safe harbor between 2016 and 2019 can satisfy requirements if they are placed in service by the end of a calendar year that is no more than six calendar years after the calendar year in which construction began; projects that began construction in 2020 must be placed in service within five years to satisfy the requirement.
Four senators led by Sen. Jon Ossoff, D-Georgia, introduced Monday the Solar Energy Manufacturing for America (SEMA) Act in an effort to spark domestic solar manufacturing, speed the transition to clean energy and propel America toward greater energy independence. The bill introduced by Ossoff along with Sens. Raphael Warnock, D-Georgia, Michael Bennet, D-Colorado, and Debbie Stabenow, D-Michigan, would provide tax credits to manufacturers throughout the solar manufacturing supply chain, including polysilicon production to photovoltaic cells to fully assembled solar modules
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