Last week saw the release of yet another discussion draft from the staff of the Senate Finance Committee concerning tax reform. Following draft proposals concerning depreciation/accounting and other business expenses (such as advertising), the most recent draft proposes changes to the tax code’s rules concerning energy production and energy-efficient improvements.
Under the draft proposal, most existing energy tax incentives would be eliminated or otherwise allowed to sunset and replaced by two credits.
The first would be a tax credit for the production of clean energy, with the value of the credit determined by the amount of greenhouse gases produced during production – greener production, more credit. The credit could be claimed either as an energy production credit or an investment credit of up to 20 percent based on installed qualified equipment.
The credit would become effective for new power production facilities after January 1, 2017, although after 2016 a 20 percent credit would be available for existing facilities that retrofit to capture at least 50 percent of carbon dioxide emissions. The credit would phase out when U.S. electricity production emits 25 percent less in greenhouse emissions.
The second credit would reward the production of any transportation fuel that is 25 percent cleaner than conventional gasoline. The maximum credit would be $1 per gallon, with the actual credit determined for the fuel relative to gasoline. The credit would begin in 2017. Alternatively, an investment credit would be available based on 20 percent of the value new, qualified production facilities.
In turn, the draft proposal would eliminate or phase out almost all existing energy tax incentives. For housing, this means:
The section 25C tax credit for energy-efficient improvements to existing homes would sunset permanently at the end of 2013
The section 45L $2000 tax credit for the construction of new energy-efficient homes would sunset permanently at the end of 2013
The section 179D credit for commercial and multifamily energy-efficient improvements, as proposed in the cost recovery draft, would be eliminated
The section 25D 30 percent tax credit for residential solar, geothermal, wind turbines, and fuel cells would remain under present law, but the December 31, 2016 sunset would be enforced.
It is estimated that these changes on net could raise $75 billion in tax revenue over ten years.