United States

IRS releases 2017 inflation adjustment factors for section 45 credit

Inflation adjustment factors and reference prices updated

TAX ALERT  | 

The tax credits for renewable electricity production and refined coal production each contain credit calculations that are subject to inflation adjustments and phase-out calculations that are subject to certain reference prices. As required by section 45(b)(2), the IRS issued Notice 2017-33 to update the applicable inflation adjustment factor and reference prices for 2017.

The 2017 inflation adjustment factor for qualified energy resources and refined coal is 1.5792. For 2017, the 10-year credit period for Indian coal has expired. Using these factors, the inflation-adjusted rate for the section 45(a) renewable electricity production credit is 2.4 cents per kilowatt hour of electricity produced (1.5 x 1.5792) for wind, closed-loop biomass and geothermal; and 1.2 cents per kilowatt hour of electricity produced (.75 x 1.5792) for open-loop biomass, landfill gas, trash combustion, hydropower and marine and hydrokinetic.

The reference prices are used to determine the phase-out calculation for the various production tax credits. The 2017 reference price for wind facilities is 4.55 cents per kilowatt hour and the 2017 reference price for refined coal is $51.09. Although these reference prices were updated for 2017, none of the updated reference prices exceed the factors that would cause any of the section 45 credits to be phased out.

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