Production Tax Credit

Program Name: Production Tax Credit
Program Sponsor: U.S. Internal Revenue Service
Program Type:          Corporate Tax Credit
Technology:               Wind, Biomass, Geothermal, Landfill Gas, Municipal Solid Waste Facilities, Qualified Hydropower, Marine and Hydrokinetic Renewable Energy Facilities
Eligibility:                        Commercial/ Industrial

Description

The Production Tax Credit (PTC) is an inflation adjusted per-kilowatt-hour (kWh) tax credit for electricity generated by qualified energy resources and sold by the tax payer to an unrelated person during the taxable year. The duration of the credit is 10 years after the date the facility is placed in service.

Eligibility

To qualify, a facility must have begun construction before 2021. A project is considered under construction if physical work of a significant nature has begun or if at least 5% of the total cost of the project has been incurred.

How the Program Works

The amount of PTC available to a taxpayer is calculated by multiplying a base rate (depending on the type of facility) that is adjusted annually for inflation by each kWh of electricity the taxpayer produces and sells to third parties during the year. The unadjusted based rate is 1.5 cents per kWh for electricity produced from wind, closed-loop biomass and geothermal facilities. The base rate is cut in half for power produced by open-loop biomass, landfill gas, hydropower, and marine and hydrokinetic facilities.

Importantly, the wind PTCs are reduced by a certain percentage depending on the year in which the facility began. The applicable reduction based on the year construction begins is as follows: 

Year Construction Begins Reduction in available credit
2016 0%
2017 20%
2018 40%
2019 60%
2020 40%
2021 40%

Additionally, PTC- eligible taxpayers have the option of claiming the 30% energy investment tax credit (ITC) in lieu of the PTC.

How to Apply

To claim the ITC, a taxpayer must complete and attach IRS Form 8835 to their tax return. Instructions for completing the form are also available.

Contact Information

Internal Revenue Service (IRS),
1111 Constitution Avenue, N.W.,
Washington, D.C. 20224
(800) 829-1040.