United States

IRS updates begun construction guidance for extended energy credits

Key dates updated to conform to 2014 Tax Increase Prevention Act


As anticipated, the IRS issued new guidance, in the form of Notice 2015-25, extending the deadline for beginning construction of qualified facilities for purposes of the renewable electricity production tax credit (PTC) or the election to claim the energy investment credit (ITC) in lieu of the PTC. This guidance was necessary to conform the dates in prior guidance (Notices 2013-29, 2013-60 and 2014-46) to the one-year extension of the PTC enacted as part of the Tax Increase Prevention Act of 2014. Under the new rules, construction must begin before Jan. 1, 2015 (or under a safe harbor provision, 5 percent or more of the cost of the qualified facility must be paid or incurred before Jan. 1, 2015) in order to claim the PTC or the ITC in lieu of the PTC for that facility. Specifically, all references to Jan. 1, 2014, in Notices 2013-29, 2013-60 and 2014-46 are replaced by Jan. 1, 2015.

In addition, the date a taxpayer must place the facility in service in order to be deemed to satisfy the Continuous Construction Test (in order to meet the Physical Work Test) or the Continuous Efforts Test (in order to meet the Safe Harbor), as provided in Notice 2013-60 was extended from before Jan. 1, 2016, to before Jan.1, 2017.

Qualified facilities for PTC and ITC

The PTC is a credit based on the number of kilowatt hours of electricity produced over a 10-year period from the following types of renewable energy facilities:

  • Wind
  • Closed-loop biomass
  • Open-loop biomass
  • Geothermal
  • Landfill gas
  • Trash combustion
  • Hydropower
  • Marine and hydrokinetic

The PTC rate is either 1.5¢ or .75¢ per kWh multiplied by an inflation adjustment factor that is updated every year. Prior to 2013, the facility had to be placed in service prior to the credit expiration date in order to qualify for the PTC. That changed with the two-year extension in the American Taxpayer Relief Act of 2014 (ATRA), which provided the ability to qualify a facility placed in service after the credit expiration date if construction began or a spending safe harbor was met before the expiration date. ATRA also added a provision to enable taxpayers to elect the ITC in lieu of the PTC for a qualified facility.

The ITC is a credit of either 10 percent or 30 percent (depending on the type of renewable energy) applied to the qualified cost basis at the date placed in service for the following types of renewable energy facilities:

  • Solar energy property
  • Fiber-optic solar energy equipment
  • Geothermal energy property
  • Fuel cell power plant property
  • Microturbine power plant property
  • Combined heat and power system property
  • Small wind electricity-generating property (wind turbine capacity of 100 kilowatts or less)
  • Geothermal heat pump cooling systems

The ITC for most qualified facilities is scheduled to expire after 2016, with the exception of solar and geothermal, which have no expiration date. The ITC rate for solar, however, will drop from 30 percent to 10 percent after 2016. It is important to note that the begun construction and safe harbor provisions do not apply to ITC qualified facilities but do apply to PTC facilities for which the ITC is elected in lieu of the PTC.


The begun construction and safe harbor provisions were enacted in recognition of the fact that many PTC qualified facilities take a long time to get from conceptual design to being placed in service due to regulatory hurdles and long construction periods. Notice 2015-25 removes uncertainty surrounding the begun construction and placed in service deadlines and has enabled many more renewable energy projects to obtain debt or equity financing to continue toward completion.


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