Definition of Energy Property and Rules Applicable to the Energy Credit

This document contains proposed regulations that would amend the regulations relating to the energy credit for the taxable year in which eligible energy property is placed in service. This document also withdraws and reproposes, for additional clarity, portions of previously proposed regulations regarding the increased energy credit amount available if prevailing wage and registered apprenticeship requirements are met. In connection with the Inflation Reduction Act of 2022, the proposed regulations would: update the types of energy property eligible for the energy credit, including additional types of energy property added by that law; clarify the application of new credit transfer rules to the energy credit recapture rules applicable to failures to satisfy the prevailing wage requirements, including notification requirements for eligible taxpayers; and include qualified interconnection costs in the basis of some lower-output energy properties. The proposed regulations would also provide additional requirements and rules generally applicable to energy property, such as rules regarding: functionally interdependent components; property that is an integral part of an energy property; application of an "80/20 Rule" to retrofitted energy property; dual use property; separate ownership of components of an energy property; property that could be eligible for multiple Federal income tax credits; and the election to treat qualified facilities eligible for the renewable electricity production credit instead as property eligible for the energy credit. The proposed regulations would impact taxpayers who invest in energy property eligible for the energy credit.