§1.48-13. Rules relating to the increased credit amount for prevailing wage and apprenticeship. — Inbound Citations

(B) Section 48(a)(10)(C), as provided in § 1.48-13; and

(b) For purposes of section 48, this section, §§ 1.48-13 and 1.48-14, and any provision of the Code or this chapter that expressly refers to any of the foregoing, the definitions in this paragraph (b) apply:

(1) The term construction, reconstruction, or erection of energy property means work performed to construct, reconstruct, or erect energy property either by the taxpayer or for the taxpayer in accordance with the taxpayer's specifications.

(2) The term acquisition of energy property means a transaction by which a taxpayer acquires the rights and obligations to establish tax ownership of an energy property for Federal income tax purposes.

(i) The term original use of energy property means the first use to which a unit of energy property is put, whether or not such use is by the taxpayer.

(ii) A retrofitted unit of energy property acquired by the taxpayer will be treated as not being put to original use by the taxpayer unless the rules in § 1.48-14(a) regarding retrofitted energy property (80/20 Rule) or paragraph (e)(10)(v) of this section regarding modifications of certain energy storage technology apply. The question of whether a unit of energy property meets the 80/20 Rule or is modified (as described in paragraph (e)(10)(v) of this section) is a facts and circumstances determination.

(i) For purposes of applying paragraph (c)(1)(ii) of this section, depreciation or amortization in lieu of depreciation (collectively, depreciation) is allowable with respect to energy property if such property is of a character subject to the allowance for depreciation under section 167 of the Code and the basis or cost of such property is recovered using a method of depreciation (for example, the straight line method), which includes any additional first year depreciation deduction method of depreciation (for example, under section 168(k) of the Code). Further, if an Internal Revenue Service adjustment with respect to the Federal income tax or information return for such taxable year requires the basis or cost of such energy property to be recovered using a method of depreciation, depreciation is allowable to the taxpayer with respect to energy property.

(ii) For purposes of paragraph (b)(4)(i) of this section, depreciation is not allowable with respect to energy property if the basis or cost of such property is not recovered through a method of depreciation but, instead, such basis or cost is recovered through a deduction of the full basis or cost of the energy property in one taxable year (for example, under section 179 of the Code).

(i) Energy property is considered placed in service in the earlier of:

(A) The taxable year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to such energy property begins; or

(B) The taxable year in which the energy property is placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business or in the production of income. Energy property in a condition or state of readiness and availability for a specifically assigned function includes, but is not limited to, components that are acquired and set aside during the taxable year for use as replacements for a particular energy property (or energy properties) to avoid operational time loss and equipment that is acquired for a specifically assigned function and is operational but is undergoing testing to eliminate any defects. However, components acquired to be used in the construction of an energy property will not be considered in a condition or state of readiness and availability for a specifically assigned function.

(ii) Notwithstanding paragraph (b)(5)(i) of this section, energy property with respect to which an election is made under § 1.48-4 to treat the lessee as having purchased such energy property is considered placed in service by the lessor in the taxable year in which possession is transferred to such lessee.

(6) The term unit of energy property is defined in paragraph (f)(2)(i) of this section. No provision of this section or § 1.48-13 or § 1.48-14 uses the term unit in respect of energy property with any meaning other than that provided in paragraph (f)(2)(i) of this section.

(7) With respect to a section 48 credit determined with respect to energy property of a taxpayer, the term claim means filing a completing Form 3468, Investment Credit, or any successor form(s) with the taxpayer's timely filed (including extensions) Federal income tax return for the taxable year in which the energy property is placed in service, and includes the making of an election under section 6417 or 6418 of the Code and corresponding regulations with respect to such section 48 credit and made on the taxpayer's Federal income tax return or annual information return.

(3) A qualified facility that meets the prevailing wage requirements of section 48E(d)(3) and §§ 1.45-7(a)(2) and (3) and (b) through (d) and 1.48-13(c), the apprenticeship requirements of section 45(b)(8) and § 1.45-8, and the recordkeeping and reporting requirements of § 1.45-12;

(d) For purposes of the transition waiver described in § 1.48-13(c)(2) (by reference to § 1.45-7(c)(6)(iii)), the penalty payment required by § 1.45-7(c)(1)(ii) to cure a failure to satisfy the prevailing wage requirements in paragraph (b)(3) or (6) of this section is waived with respect to a laborer or mechanic who performed work in the construction, alteration, or repair of an energy project on or after January 29, 2023, and prior to January 15, 2025, if the taxpayer relied upon Notice 2022-61, 2022-52 I.R.B. 560, or the PWA proposed regulations (REG-100908-23) (88 FR 60018), corrected in 88 FR 73807 (Oct. 27, 2023), corrected in 89 FR 25550 (April 11, 2024), to determine when the activities of any laborer or mechanic became subject to the prevailing wage requirements, and the taxpayer makes the correction payments required by § 1.45-7(c)(1)(i) with respect to such laborer and mechanics within 180 days of January 15, 2025.

(1) In the case of any election under § 1.6418-2 or § 1.6418-3 with respect to any specified credit portion described in § 1.6418-1(c)(2)(ix), if, during any taxable year, there is recapture under section 48(a)(10)(C) of the Code and § 1.48-13(c)(4) of any increased credit amount under section 48(a)(9)(B)(iii) before the close of the recapture period (as described in § 1.48-13(c)(6)), such eligible taxpayer and the transferee taxpayer must follow the notification process in paragraph (f)(2) of this section with the Federal income tax consequences of recapture impacting the transferee taxpayer as described in paragraph (f)(3) of this section.

(2) The notification requirements for the eligible taxpayer are the same as for an eligible taxpayer that must report a recapture event as described in paragraph (d)(2)(i) of this section, except that the recapture amount that must be computed is defined in § 1.48-13(c)(5).

(1) In the case of any election under § 1.6418-2 or § 1.6418-3 with respect to any specified credit portion described in § 1.6418-1(c)(2)(ix), if, during any taxable year, there is recapture under section 48(a)(10)(C) of the Code and § 1.48-13(c)(4) of any increased credit amount under section 48(a)(9)(B)(iii) before the close of the recapture period (as described in § 1.48-13(c)(6)), such eligible taxpayer and the transferee taxpayer must follow the notification process in paragraph (f)(2) of this section with the Federal income tax consequences of recapture impacting the transferee taxpayer as described in paragraph (f)(3) of this section.

(ii) An energy project (as defined in § 1.48-13(d)) is considered placed in service on the date the last of the energy properties within the energy project is placed in service.

(1) For purposes of section 48(a)(3)(B)(ii), (5)(D)(iv), and (8)(B)(iii) of the Internal Revenue Code (Code), a retrofitted energy property may be originally placed in service even though it contains some used components of the unit of energy property only if the fair market value of the used components of the unit of energy property is not more than 20 percent of the total value of the unit of energy property taking into account the cost of the new components of property plus the value of the used components of the unit of energy property (80/20 Rule). Only the cost of new components of the unit of energy property is taken into account for purposes of computing the credit determined under section 48 (section 48 credit) with respect to the unit of energy property. The cost of new components of the unit of energy property includes all costs properly included in the depreciable basis of the new components. If the taxpayer satisfies the 80/20 Rule with regard to the unit of energy property and the taxpayer pays or incurs new costs for property that is an integral part of the energy property (as defined in § 1.48-9(f)(3)(i)), then the taxpayer may include the new costs paid or incurred for property that is an integral part of the energy property (as defined in § 1.48-9(f)(3)(i)) in the basis of the energy property for purpose of the section 48 credit. In the case of an energy project (as defined in § 1.48-13(d)), the 80/20 Rule is applied to each unit of energy property comprising an energy project.

(i) The term unit of energy property means all functionally interdependent components of property (as defined in paragraph (f)(2)(ii) of this section) owned by the taxpayer that are operated together and that can operate apart from other energy properties within a larger energy project (as defined in § 1.48-13(d)). For rooftop solar energy property, all components of energy property that are installed on a single rooftop are treated as a single unit of energy property. See § 1.48-13(d) for rules regarding the treatment of multiple energy properties as an energy project for certain purposes.

(1) For purposes of paragraph (b)(1) of this section, whether an energy project has a maximum net output of less than 1 megawatt (MW) of electrical (as measured in alternating current) or thermal energy is determined based on the nameplate capacity. If an energy project is comprised of more than one energy property, the energy project's maximum net output is calculated as the sum of the nameplate capacity of each energy property. If applicable, taxpayers should use the International Standard Organization (ISO) conditions to measure the maximum electrical generating output or usable energy capacity of an energy project. Paragraphs (e)(2) through (7) of this section provide rules for measuring output for different types of energy properties to determine whether the One Megawatt Exception (as provided in paragraph (b)(1) of this section) applies. Because electrochromic glass property (as defined in § 1.48-9(e)(2)(ii)), fiber-optic solar energy property (as defined in § 1.48-9(e)(2)(i)), and microgrid controllers (as defined in § 1.48-9(e)(12)) do not generate electricity or thermal energy, these energy properties are not eligible for the One Megawatt Exception.

(1) For purposes of paragraph (b)(1) of this section, whether an energy project has a maximum net output of less than 1 megawatt (MW) of electrical (as measured in alternating current) or thermal energy is determined based on the nameplate capacity. If an energy project is comprised of more than one energy property, the energy project's maximum net output is calculated as the sum of the nameplate capacity of each energy property. If applicable, taxpayers should use the International Standard Organization (ISO) conditions to measure the maximum electrical generating output or usable energy capacity of an energy project. Paragraphs (e)(2) through (7) of this section provide rules for measuring output for different types of energy properties to determine whether the One Megawatt Exception (as provided in paragraph (b)(1) of this section) applies. Because electrochromic glass property (as defined in § 1.48-9(e)(2)(ii)), fiber-optic solar energy property (as defined in § 1.48-9(e)(2)(i)), and microgrid controllers (as defined in § 1.48-9(e)(12)) do not generate electricity or thermal energy, these energy properties are not eligible for the One Megawatt Exception.

(1) For purposes of paragraph (b)(1) of this section, whether an energy project has a maximum net output of less than 1 megawatt (MW) of electrical (as measured in alternating current) or thermal energy is determined based on the nameplate capacity. If an energy project is comprised of more than one energy property, the energy project's maximum net output is calculated as the sum of the nameplate capacity of each energy property. If applicable, taxpayers should use the International Standard Organization (ISO) conditions to measure the maximum electrical generating output or usable energy capacity of an energy project. Paragraphs (e)(2) through (7) of this section provide rules for measuring output for different types of energy properties to determine whether the One Megawatt Exception (as provided in paragraph (b)(1) of this section) applies. Because electrochromic glass property (as defined in § 1.48-9(e)(2)(ii)), fiber-optic solar energy property (as defined in § 1.48-9(e)(2)(i)), and microgrid controllers (as defined in § 1.48-9(e)(12)) do not generate electricity or thermal energy, these energy properties are not eligible for the One Megawatt Exception.

(1) For purposes of paragraph (b)(1) of this section, whether an energy project has a maximum net output of less than 1 megawatt (MW) of electrical (as measured in alternating current) or thermal energy is determined based on the nameplate capacity. If an energy project is comprised of more than one energy property, the energy project's maximum net output is calculated as the sum of the nameplate capacity of each energy property. If applicable, taxpayers should use the International Standard Organization (ISO) conditions to measure the maximum electrical generating output or usable energy capacity of an energy project. Paragraphs (e)(2) through (7) of this section provide rules for measuring output for different types of energy properties to determine whether the One Megawatt Exception (as provided in paragraph (b)(1) of this section) applies. Because electrochromic glass property (as defined in § 1.48-9(e)(2)(ii)), fiber-optic solar energy property (as defined in § 1.48-9(e)(2)(i)), and microgrid controllers (as defined in § 1.48-9(e)(12)) do not generate electricity or thermal energy, these energy properties are not eligible for the One Megawatt Exception.

(1) For purposes of paragraph (b)(1) of this section, whether an energy project has a maximum net output of less than 1 megawatt (MW) of electrical (as measured in alternating current) or thermal energy is determined based on the nameplate capacity. If an energy project is comprised of more than one energy property, the energy project's maximum net output is calculated as the sum of the nameplate capacity of each energy property. If applicable, taxpayers should use the International Standard Organization (ISO) conditions to measure the maximum electrical generating output or usable energy capacity of an energy project. Paragraphs (e)(2) through (7) of this section provide rules for measuring output for different types of energy properties to determine whether the One Megawatt Exception (as provided in paragraph (b)(1) of this section) applies. Because electrochromic glass property (as defined in § 1.48-9(e)(2)(ii)), fiber-optic solar energy property (as defined in § 1.48-9(e)(2)(i)), and microgrid controllers (as defined in § 1.48-9(e)(12)) do not generate electricity or thermal energy, these energy properties are not eligible for the One Megawatt Exception.

(1) For purposes of paragraph (b)(1) of this section, whether an energy project has a maximum net output of less than 1 megawatt (MW) of electrical (as measured in alternating current) or thermal energy is determined based on the nameplate capacity. If an energy project is comprised of more than one energy property, the energy project's maximum net output is calculated as the sum of the nameplate capacity of each energy property. If applicable, taxpayers should use the International Standard Organization (ISO) conditions to measure the maximum electrical generating output or usable energy capacity of an energy project. Paragraphs (e)(2) through (7) of this section provide rules for measuring output for different types of energy properties to determine whether the One Megawatt Exception (as provided in paragraph (b)(1) of this section) applies. Because electrochromic glass property (as defined in § 1.48-9(e)(2)(ii)), fiber-optic solar energy property (as defined in § 1.48-9(e)(2)(i)), and microgrid controllers (as defined in § 1.48-9(e)(12)) do not generate electricity or thermal energy, these energy properties are not eligible for the One Megawatt Exception.