The United States Internal Revenue Code (IRC) allows production or investment tax credits for taxpayers using wind to produce electricity or for placing wind energy property into service. This outline summarizes the production tax credit (PTC) or the investment tax credit (ITC) available for taxpayers investing in wind power.

I. IRC Section 45, Production Tax Credit

• Allows a PTC for electricity produced by a taxpayer at a “qualified facility” during the 10-year period beginning on the date such facility is originally placed into service^[i]

• Qualified facility — includes facilities using wind to produce electricity and the construction of which begins before January 1, 2022^[ii]

• PTC rate — 1.5 cents per kilowatt hour of electricity produced, adjusted for inflation.^[iii]

• Phasedowns

  • The amount of PTC is phased down as follows:

    • 20% for facilities for which construction begins after December 31, 2016, and before January 1, 2018

    • 40% for facilities for which construction begins after December 31, 2017, and before January 1, 2019

    • 60% for facilities for which construction begins after December 31, 2018, and before January 1, 2020

    • 40% for facilities for which construction begins after December 31, 2019, and before January 1, 2022^[iv]

II. IRC Section 48, Investment Tax Credit

• A taxpayer may elect to treat wind facilities as “energy property” and claim an ITC in lieu of the PTC, subject to a phasedown similar to the PTC phasedown.^[v]

• ITC rate — calculated as a percentage of the basis of energy property (30%) placed into service during the taxable year.^[vi]

• One hundred percent of the ITC is eligible to be claimed in the year the energy property is placed into service — a significant benefit in comparison to the PTC.

• Phasedowns

  • Like the PTC, the ITC is phased down as follows:

    • 20% (or 24% of basis) for facilities for which construction begins after December 31, 2016, and before January 1, 2018

    • 40% (or 18% of basis) for facilities for which construction begins after December 31, 2017, and before January 1, 2019

    • 60% (or 12% of basis) for facilities for which construction begins after December 31, 2018, and before January 1, 2020

    • 40% (or 18% of basis) for facilities for which construction begins after December 31, 2019, and before January 1, 2022^[vii]

III. Offshore Wind Facilities

• Offshore wind facilities may elect either the PTC or the ITC.^[viii] 

• The full ITC (30% of basis) is allowed for offshore wind facilities for which construction begins before January 1, 2026.^[ix] 

[i] IRC §45(a).

[ii] IRC §45(d)(1).

[iii] IRC §45(a), (b)(2).

[iv] IRC §45(b)(5).

[v] IRC §48(a)(5).

[vi] Id.

[vii] IRC §48(a)(5)(E).

[viii] IRC §48(a)(5); this section allows a taxpayer to elect to treat a qualified facility as a Section 48 energy property if the taxpayer does not claim the PTC.

[ix] IRC §48(a)(5)(F).