Bulletin No. 2025–12

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2025–12

March 17, 2025

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE, INCOME TAX

T.D. 10024, page 1104.

The final regulations provide rules relating to the clean electricity production credit, § 45Y, and the clean electricity

investment credit, § 48E, established by the Inflation Reduction Act of 2022. In addition to providing general rules, the

final regulations provide rules for determining greenhouse

Finding Lists begin on page ii.

gas emissions rates resulting from the production of electricity and petitioning for provisional emissions rates, which are

necessary for determining eligibility for these credits. The

final regulations affect all taxpayers who produce clean electricity and claim the clean electricity production credit with

respect to a facility or the clean electricity investment credit

with respect to a facility or energy storage technology, as

applicable, that is placed in service after 2024.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

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March 17, 2025 

Bulletin No. 2025–12

Part I

26 CFR 1.45Y-0, 1.45Y-1, 1.45Y-2, 1.45Y-3, 1.45Y-4,

1.45Y-5, 1.48E-0, 1.48E-1, 1.48E-2, 1.48E-3, 1.48E4, 1.48E-5

T.D. 10024

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

Section 45Y Clean

Electricity Production

Credit and Section

48E Clean Electricity

Investment Credit

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document sets forth

final regulations regarding the clean electricity production credit and the clean electricity investment credit established by the

Inflation Reduction Act of 2022. These

final regulations provide rules for determining greenhouse gas emissions rates

resulting from the production of electricity; petitioning for provisional emissions

rates; and determining eligibility for these

credits in various circumstances. The final

regulations affect all taxpayers that claim

the clean electricity production credit with

respect to a qualified facility or the clean

electricity investment credit with respect

to a qualified facility or energy storage

technology, as applicable, that is placed in

service after 2024.

DATES: Effective date: These regulations

are effective on January 15, 2025.

Applicability dates: For dates of applicability, see §§1.45Y-1(e), 1.45Y-2(d),

1.45Y-3(d) 1.45Y-4(e), 1.45Y-5(j), 1.48E1(e), 1.48E-2(h), 1.48E-3(f), 1.48E-4(j),

and 1.48E-5(l).

FOR FURTHER INFORMATION

CONTACT: Maksim Berger, John M.

Deininger, Martha M. Garcia, Boris

March 17, 2025

Kukso, Nathaniel Kupferman, and Alexander Scott at (202) 317-6853 (not a tollfree number).

SUPPLEMENTARY INFORMATION:

Authority

This Treasury decision amends the

Income Tax Regulations (26 CFR part

1) to implement the statutory provisions

of sections 45Y and 48E of the Internal

Revenue Code (Code). The regulations

contained in this Treasury decision are

issued by the Secretary of the Treasury or

her delegate (Secretary) pursuant to the

authority granted under sections 45Y(f),

48E(i) and 7805(a) of the Code (final regulations).

Section 45Y(f) provides an express

delegation of authority to the Secretary to

prescribe rules to implement section 45Y,

“including calculation of greenhouse gas

emissions rates for qualified facilities and

determination of clean electricity production credits under section 45Y.” Section

48E(i) provides an express delegation of

authority to prescribe rules “regarding

implementation of [section 48E].”

Finally, section 7805(a) authorizes the

Secretary “to prescribe all needful rules

and regulations for the enforcement of

[the Code], including all rules and regulations as may be necessary by reason of

any alteration of law in relation to internal

revenue.”

Background

On August 30, 2023, the Treasury

Department and the IRS published a notice

of proposed rulemaking and a notice of

public hearing (REG-100908-23) in the

Federal Register (88 FR 60018), corrected in 88 FR 73807 (Oct. 27, 2023),

and 89 FR 25550 (April 11, 2024), providing guidance on the Prevailing Wage

and Apprenticeship (PWA) requirements

under sections 30C, 45, 45L, 45Q, 45U,

45V, 45Y, 45Z, 48, 48C, 48E, and 179D

(PWA proposed regulations).

On November 22, 2023, the Treasury Department and the IRS published

a notice of proposed rulemaking and a

notice of public hearing (REG-132569-

1104

17) in the Federal Register (88 FR

82188), corrected in 89 FR 2182 (January 12, 2024), proposing rules that

would provide guidance under section

48 (section 48 proposed regulations). On

February 22, 2024, the Treasury Department and the IRS published a second

correction to the proposed regulations in

the Federal Register (89 FR 13293) that

re-opened the comment period through

March 25, 2024. Among other matters,

the section 48 proposed regulations

withdrew and reproposed §1.48-13 of

the PWA proposed regulations addressing the PWA requirements under section

48, the rules under section 48(a)(9)(B)(i)

related to an energy project with a maximum net output of less than one megawatt of electrical (as measured in alternating current) or thermal energy (One

Megawatt Exception), and the recapture

rules under section 48(a)(10)(C) related

to the prevailing wage requirements.

Although the section 48 proposed regulations withdrew certain portions of the

PWA proposed regulations, the section

48 proposed regulations incorporated the

preamble to the PWA proposed regulations for generally applicable rules.

On June 3, 2024, a notice of proposed

rulemaking (REG-119283-23) relating

to the clean electricity production credit

determined under section 45Y (section

45Y credit) and the clean electricity investment credit determined under section 48E

(section 48E credit) was published in the

Federal Register (89 FR 47792) proposing amendments to 26 CFR part 1 (proposed regulations). See the Background

and Explanation of Provisions sections of

the preamble to the proposed regulations,

which is incorporated in this preamble to

the extent consistent with the following

Summary of Comments and Explanation of Revisions. Additionally, the Treasury Department and the IRS requested

comments on the proposed definition of

a qualified facility with a maximum net

output of less than one megawatt (as measured in alternating current) for purposes

of the One Megawatt Exception under

section 45Y(a)(2)(B)(i). The proposed

regulations incorporated the preamble to

the PWA proposed regulations for generally applicable rules.

Bulletin No. 2025–12

On June 25, 2024, the Treasury

Department and the IRS published final

regulations (T.D. 9998) in the Federal

Register (89 FR 53184) adopting the

PWA proposed regulations (PWA final

regulations) with certain modifications

and revisions in response to public comments on the PWA proposed regulations.

Comments received on generally applicable rules in response to the PWA proposed regulations, including rules that

merely referenced section 48 or 48E, are

addressed in the PWA final regulations.

The preamble to the PWA final regulations explained that comments received

regarding the specific PWA requirements

related to the One Megawatt Exception

under sections 45Y, 48, and 48E, and the

recapture rules in section 48(a)(10)(C),

whether received in response to the PWA

proposed regulations or the section 48

proposed regulations, would be addressed

in future guidance. Because proposed

§1.48E-3 of the PWA proposed regulations generally incorporated the rules of

proposed §1.48-13, the PWA final regulations did not include final regulations

under section 48E. Proposed §1.48E-3

of the PWA proposed regulations and the

provisions relating to section 48E of the

proposed regulations would be addressed

in future guidance.

On December 12, 2024, the Treasury

Department and the IRS published final

regulations (T.D. 10015) in the Federal

Register (89 FR 100598) adopting the

section 48 proposed regulations, including the rules for the PWA requirements

in §1.48-13 (section 48 final regulations).

The Treasury Department and the IRS

addressed the comments related to the

PWA requirements with respect to section

48 including the One Megawatt Exception

under section 48(a)(9)(B)(i), the recapture

rules under section 48(a)(10)(C), and the

definition of an energy project in the section 48 final regulations.

As described in the Summary of Comments and Explanation of Revisions, this

Treasury decision adopts the proposed

regulations with certain modifications

after full consideration of all comments

received, including comments pertaining

to the One Megawatt Exception under section 45Y(a)(2)(B)(i) and to issues related

to the PWA requirements under section

48E and proposed §1.48E-3.

Bulletin No. 2025–12

Summary of Comments and

Explanation of Revisions

I. Overview

The Treasury Department and the

IRS received over 1,800 written comments timely submitted by the August

2, 2024, comment submission deadline,

in response to the proposed regulations,

which are available for public inspection at https://www.regulations.gov or

upon request. A public hearing was held

in person on August 12, 2024, and telephonically on August 13, 2024, at which

36 speakers provided testimony over the

two days. After careful consideration of

the comments and testimony, the proposed regulations are adopted with modifications as described in this Summary of

Comments and Explanation of Revisions.

Comments summarizing the statute or

the proposed regulations, recommending

statutory revisions to sections 45Y and

48E or other statutes, or addressing issues

that are outside the scope of this rulemaking (such as revising other Federal regulations and recommending changes to IRS

forms) are generally not described in this

Summary of Comments and Explanation

of Revisions or adopted in these final

regulations. In addition to modifications

described in this Summary of Comments

and Explanation of Revisions, the final

regulations also include non-substantive

grammatical or stylistic changes to the

proposed regulations. Unless otherwise

indicated in this Summary of Comments

and Explanation of Revisions, provisions

of the proposed regulations with respect

to which no comments were received are

adopted without substantive change.

The Treasury Department and the IRS

consulted extensively with scientific and

technical experts from across the Federal

government, including personnel from the

Department of Energy (DOE), the Environmental Protection Agency (EPA), and

the Department of Agriculture (USDA), in

developing and drafting these final regulations. The Treasury Department and the

IRS had regular working group meetings

with these experts from the time that sections 45Y and 48E were enacted by the

Inflation Reduction Act (IRA) through the

drafting and publication of the proposed

and final regulations. These meetings

1105

included discussions on the full range of

issues related to determining greenhouse

gas emissions rates for the production

of electricity, petitioning for provisional

emissions rates, and determining eligibility for the section 45Y and 48E credits in

various circumstances. These meetings

also included comprehensive briefing and

full consideration of the issues raised in

the comments received on the proposed

regulations and proposed §1.48E-3 of

the PWA proposed regulations. In addition, experts from the DOE, the EPA,

and the USDA reviewed multiple drafts

of the proposed and final regulations in

their entirety. The conclusions reached in

these final regulations and explained in

this Summary of Comments and Explanation of Revisions were deeply informed

by these working group meetings and the

scientific and technical expertise that was

shared in those meetings.

For purposes of this preamble, a provision of the proposed regulations, for example, §1.45Y-1 of the proposed regulations,

is referred to as “proposed §1.45Y-1.”

II. Rules Specific to Section 45Y

Proposed §1.45Y-1 provided an overview of proposed §§1.45Y-1 through

1.45Y‑5 and definitions of terms for purposes of proposed §§1.45Y-1 through

1.45Y‑5, including the terms “combined

heat and power system (CHP) property,”

“metering device,” “related person,”

“unrelated person,” and “qualified facility.”

A. Metering device

Proposed §1.45Y-1(a)(5)(i) through

(iii) defined, for purposes of section

45Y(a)(1)(A)(ii)(II), the term “metering

device;” provided standards for maintaining and operating a metering device

for purposes of section 45Y(a)(1)(A)(ii)

(II) and proposed §1.45Y-1(a)(5), including by providing that a metering device

should meet certain standards and be properly calibrated, and provided rules related

to monitoring and locating the metering

device. Proposed §1.45Y-1(a)(5)(iv) provided examples illustrating the rules provided by proposed §1.45Y-1(a)(5).

Commenters provided feedback on

the definition of “metering device.” Two

March 17, 2025

commenters noted that the proposed regulations defined a “metering device”

related to “energy revenue metering,” and

asserted that metering devices typically

measure energy production, not revenue.

The commenters recommended revising

the term “energy revenue metering” to

“energy production metering” in the final

regulations.

The Treasury Department and the IRS

have determined that, because energy revenue metering encompasses energy production measurement as part of its function, the commenters’ concern is addressed

by the proposed regulations. Therefore,

these final regulations adopt the definition

of metering device as proposed.

Another commenter requested that the

final regulations provide clarifications

regarding third-party metering requirements. The commenter requested that the

Treasury Department and the IRS clarify

whether operation of the metering device

by a third party could be fully remote, or if

the meter owner must be granted access to

the site. The commenter further requested

that the final regulations clarify whether

the meter can be located prior to energy

delivery to storage, or whether it must be

located at the point of interconnection.

Finally, the commenter requested clarification regarding whether the section 45Y

credit amount is determined at the point

of sale or where the electricity is metered.

Section 45Y(a)(1)(A) provides, in part,

that the amount of the credit is the kilowatt

hours of electricity produced by the taxpayer at a qualified facility and in the case

of a qualified facility which is equipped

with a metering device which is owned

and operated by an unrelated person, sold,

consumed or stored by the taxpayer during

the taxable year. Proposed §1.45Y-1(a)(5)

(ii) required a metering device to meet the

requirements of the American National

Standards Institute C12.1-2022 standard,

or subsequent revisions, be revenue grade

with a +/−0.5% accuracy, and be properly

calibrated and maintained in proper working order according to the instructions

of its manufacturer. If a metering device

satisfies the requirements in §1.45Y-1(a)

(5)(ii), the statutory language of section

45Y(a)(1)(A) would not prevent operation by a third party to be fully remote.

As to whether the metering device can be

located prior to energy delivery to stor-

March 17, 2025

age or whether it must be located at the

point of interconnection, the location of

the meter should not matter provided the

meter meets the requirements in §1.45Y1(a)(5)(ii). Accordingly, the final regulations adopt proposed §1.45Y-1(a)(5) without change, and do not impose a specific

location requirement for such metering

device based on the lack of such a requirement in the statutory language.

B. Related and unrelated persons

Proposed §1.45Y-1(a)(7) provided a

definition of the term “related person” and

special rules for the treatment of corporations that are members of a consolidated

group (as defined in §1.1502-1(h)).

Proposed §1.45Y-1(a)(11) provided a

definition of the term “unrelated person;”

rules for the sales of electricity to individual consumers; and an example illustrating the application of these rules.

A commenter requested clarification

regarding the sale to an unrelated person

requirement. The commenter pointed

to Notice 2008-60, 2008-30 I.R.B. 178,

which provides guidance on the section

45 credit by clarifying that the requirement of a sale to an unrelated person will

be treated as satisfied if the producer of

electricity sells electricity to a related person for resale by the related person to a

person that is not related to the producer.

The commenter requested that the Treasury Department and the IRS likewise

confirm that under section 45Y, a sale to a

related person for the purposes of resale to

an unrelated person will also be treated as

a sale to an unrelated person if there is no

metering device owned and operated by a

third party.

The Treasury Department and the IRS

disagree that the rule in Notice 2008-60

that is applicable to the section 45 credit,

under which the sale of electricity to a

related party with a subsequent sale to an

unrelated party is treated as a sale to an

unrelated party, should apply to the section

45Y credit. Section 45 does not include a

provision similar to section 45Y(a)(1)(A)

(ii), which provides that either (I) a taxpayer must sell the electricity to an unrelated party, or (II) the taxpayer’s qualified

facility must be equipped with a metering

device owned and operated by an unrelated person, and the electricity must be

1106

sold, consumed or stored by the taxpayer

during the taxable year. The inclusion of

section 45Y(a)(1)(A)(ii) demonstrates that

Congress intended to allow the section

45Y credit for related party sales only if

the taxpayer produces electricity at a qualified facility that has a metering device

owned and operated by an unrelated person. Congress did not carve out an exception for related party sales for purposes of

resale to unrelated persons and the final

regulations cannot create one. To allow

taxpayers to apply the concepts provided

in Notice 2008-60 to the section 45Y

credit for sales to unrelated parties would

undermine the metering obligation in section 45Y(a)(1)(A)(ii)(II). Accordingly, the

Treasury Department and the IRS cannot

adopt the commenter’s recommendation

and the rule will be adopted as proposed.

C. Credit phase out

Proposed §1.45Y-1(c) provided rules

for calculating the amount of the credit

under section 45Y(a) and the applicable

phase-out percentages; defined the term

“applicable year” and provided rules for

determining the applicable year, including

rules regarding the use of certain datasets in determining the applicable year.

The definition of “applicable year” also

applies for purposes of the section 48E

credit phase-out rules. In the preamble

to the proposed regulations, the Treasury

Department and the IRS requested comments on which datasets are most appropriate to determine the applicable year and

why.

Commenters generally agreed with

the Treasury Department and the IRS

that the Energy Information Administration’s (EIA) Electric Power Annual and

Monthly Energy Review, the EPA Inventory of U.S. Greenhouse Gas Emissions

and Sinks (GHGI), the EPA Greenhouse

Gas Reporting Program (GHGRP), and

the Emissions and Generation Resource

Integrated Database (eGrid) are suitable

datasets to determine the applicable year

and recommended the final rules adopt

one or more of these dataset(s) as providing the timeliest assessment of emissions

to minimize potential confusion. One

commenter suggested using a single annually published government data source,

and recommended the EIA Monthly

Bulletin No. 2025–12

Energy Review that delineates electricity

sector greenhouse gas (GHG) emissions

for 2022 and the following years.

Review of the comments confirmed

that the EIA Electric Power Annual and

the EPA GHGI are well-established data

sources that are representative of the

annual GHG emissions from the production of electricity in the United States.

Moreover, the requirement in §1.45Y1(c)(4) that both the EIA Electric Power

Annual and the EPA GHGI must be

assessed separately increases certainty

that emissions from the power sector meet

the required levels.

Another commenter requested that the

Treasury Department and the IRS consider whether a single year drop in GHG

emissions of less than the applicable year

threshold followed by GHG emissions

increases in subsequent years should trigger the phase-out of the credits.

Section 45Y(d)(3) describes the term

“applicable year” as the later of 2032, or

the calendar year in which the Secretary

determines that the annual GHG emissions from the production of electricity

in the United States are equal to or less

than 25 percent of the annual GHG emissions from the production of electricity in

the United States for calendar year 2022.

Section 45Y(d)(2) provides that the section 45Y credit phases out over a fouryear period subsequent to the applicable

year. The statutory language describes the

applicable year as a single year, and the

credit phase-out begins subsequent to the

applicable year. Based on the statutory

language, the phase-out period is a continual period. Therefore, the statutory language does not grant the Treasury Department and the IRS authority to reverse a

determination that GHG emissions were

at a sufficient level to meet the definition

of the applicable year. For this reason, the

comment is not adopted.

D. Qualified facility

The proposed regulations adopted the

statutory definition of a “qualified facility.” Section 45Y(b)(1)(A) provides, in

part, that a qualified facility is a facility

for which the GHG emissions rate is not

greater than zero. The GHG emissions

rate is further defined in section 45Y(b)

(2). Section 45Y(b)(1)(B) provides that a

Bulletin No. 2025–12

facility is only treated as a qualified facility during the 10-year period beginning on

the date the facility was originally placed

in service.

A commenter asked for clarification

regarding changes to a facility that impact

its GHG emissions rate from electricity generation and whether such changes

impact a qualified facility’s credit eligibility. The commenter requested confirmation that a facility that initially operates

with greater than zero GHG emissions

but later operates with not greater than

zero GHG emissions can still be considered a qualified facility under section 45Y.

The commenter suggested clarifying that

in the case of such a facility, the 10-year

credit period begins when the facility first

becomes a “qualified facility” operating

at commercial scale with not greater than

zero GHG emissions. The commenter

asserted that providing a different interpretation would disincentivize facilities

that are built with the capacity to produce

power with greater than zero GHG emissions from undertaking such investment.

The Treasury Department and the IRS

note that section 45Y(b)(1)(B) treats a

facility as a qualified facility only during

the 10-year period beginning on the date

the facility was originally placed in service. Generally, a qualified facility is considered placed in service in the earlier of

(i) the taxable year in which, under the

taxpayer’s deprecation practice, the period

for depreciation with the respect to such

property begins; or (ii) the taxable year in

which the qualified facility is placed in a

condition or state of readiness and availability to produce electricity, whether in a

trade or business or in the production of

income. Accordingly, a facility that initially operates with greater than zero GHG

emissions may later be treated as a qualified facility if it meets the requirements

under section 45Y(b) in a taxable year,

but only during the 10-year period beginning on the date the facility was originally

placed in service. For example, taxpayer

places in service a facility in year 1 that

has GHG emission that are greater than

zero. In year 6, the facility has GHG emissions that are not greater than zero and is a

qualified facility under section 45Y. If the

facility continues to have not greater than

zero GHG emissions, the facility continues to be a qualified facility under section

1107

45Y and taxpayer may claim the section

45Y credit until year 10 (years 6 through

10), provided the facility continues to

have not greater than zero GHG emissions

for each of the remaining years. The Treasury Department and the IRS cannot adopt

the commenter’s recommendation and the

rule will be adopted as proposed.

A commenter asserted that a facility

qualifying for a section 45Y credit should

not cease to be a qualified facility if, for

a limited time or in a limited amount, it

has a GHG emissions rate above zero

(for example, as a result of a temporary

change in fuel or feedstock). The commenter referenced Notice 2008-60, which

it described as allowing the use of minimal fossil fuels for flame startup and stabilization in an open-loop biomass facility that qualifies under section 45. The

commenter stated that zero-carbon fuels

are not always available. The commenter

emphasized that the proposed regulations

under section 48E, in contrast to those

under section 45Y, provide flexibility for

purposes of recapture for those facilities

that produce 10 grams of CO2e per kWh.

As a result, the commenter requested that

the final regulations allow a facility to

claim the section 45Y credit for the days

or months of the year during which the

facility produces electricity with a GHG

emissions rate of zero. The commenter

asserted that flexibility is needed for de

minimis emissions or periods during the

tax year.

Section 45Y(b)(1)(A) defines a qualified facility as having a GHG emissions

rate from the production of electricity of

not greater than zero. The statute does

not provide a de minimis exception and

the final regulations cannot create one.

Accordingly, a facility cannot qualify for

the section 45Y credit in a taxable year

during the 10-year credit period after

such facility is originally placed in service if such facility has a GHG emissions

rate from the production of electricity of

greater than zero, even if for a limited

time or in a limited amount. However, the

Treasury Department and the IRS note

that a facility’s failure to qualify for the

section 45Y credit in one or more taxable

years does not prevent such facility from

qualifying for the section 45Y credit in

any other taxable years during the 10-year

credit period after such facility is origi-

March 17, 2025

nally placed in service. The statute allows

a facility a 10-year credit period from the

date the facility is originally placed in

service, and a facility can be considered

a qualified facility for any taxable year

during such 10-year credit period in which

it satisfies the requirements of the section

45Y credit.

E. Combined heat and power (CHP)

property

Proposed §1.45Y-1(a)(2) defined

“combined heat and power (CHP) property.” Proposed §1.45Y-1(d) set forth the

credit eligibility requirements for CHP

property; provided rules for determining

the energy efficiency percentage of CHP

property and for calculating electricity

produced by CHP property; and defined

the term “heat rate” and provided rules for

its calculation.

Section 45Y(g)(2) generally provides special rules for the calculation of

the credit with respect to CHP property.

Section 45Y(g)(2)(A)(i) states that “the

kilowatt hours of electricity produced

by a taxpayer at a qualified facility shall

include any production in the form of useful thermal energy by any combined heat

and power system property within such

facility.” Section 45Y(g)(2)(A)(i) requires

the thermal energy output from a CHP

property to be included in determining

the energy that qualifies for the credit in

contrast to a non-CHP facility, for which

only the electricity generation should be

credited. For example, if a CHP property

produces 1 kWh of electricity output and 1

kWh of thermal output, then the taxpayer

that owns the CHP property may compute

a credit based on production of 2 kWh of

electricity.

Section 45Y(g)(2)(B) provides that the

term “combined heat and power property”

has the same meaning given such term by

section 48(c)(3) (without regard to subparagraphs (A)(iv), (B), and (D) thereof).

Section 48(c)(3)(C)(i) and proposed

§1.45Y-1(d)(2) define the energy efficiency percentage for purposes of a CHP

property as a fraction— (I) the numerator of which is the total useful electrical,

thermal, and mechanical power produced

by the system at normal operating rates,

and expected to be consumed in its normal application, and (II) the denominator

March 17, 2025

of which is the lower heating value of

the fuel sources for the system. Section

45Y(g)(2)(C)(ii) provides that the term

“heat rate” means the amount of energy

used by the qualified facility to generate

1 kilowatt hour of electricity, expressed

as British thermal units per net kilowatt

hour generated. Proposed §1.45Y-1(d)(3)

(ii) addressed how to determine the “heat

rate” for a qualified facility that includes

CHP property that uses combustion. In

the preamble to the proposed regulations,

the Treasury Department and the IRS

requested comments regarding the application of the energy efficiency percentage

requirements to CHP property for which

there is no combustion and whether the

statutory definition of “heat rate” for this

property should be further clarified in the

final regulations.

One commenter addressed the application of the energy efficiency percentage

requirements to CHP property involving

nuclear power and recommended the final

regulations adopt the EIA’s definition of

“heat content” as a substitute for the lower

heating value used to calculate the energy

efficiency of a CHP property. The commenter emphasized that the lower heating value usually applies to combustion

fuels, not fuels such as uranium that are

non-combustible, and for non-combustion fuels the lower heating value should

be the same as the heat content. Another

commenter made a similar request that

the final regulations permit the use of

a nuclear reactor’s maximum licensed

thermal output to serve as the functional

equivalent of the lower heating value of

fuel sources, in recognition that nuclear

fission does not involve combustion.

A separate commenter requested the

final regulations establish a methodology

for taxpayers to determine the energy efficiency percentage for CHP property using

non-combustible fuel sources for which

there is no lower heating value. With

respect to the definition of heat rate, the

commenter asserted that the methodology

in proposed §1.45Y-1(d)(3)(ii)(B) to calculate heat rate does not take into account

that there is no lower heating value for

CHP property using non-combustible fuel

sources. The commenter further questioned the accuracy of the formula for

converting from BTU to kWh to calculate electricity produced by CHP property

1108

because the formula relies upon a definition of heat rate that does not account for

CHP property using non-combustion fuel

sources. The commenter recommended

providing a conversion formula in the

final regulations for CHP property using

non-combustion fuel sources.

The Treasury Department and the

IRS recognize there is a gap in the current guidance regarding how to calculate the energy efficiency percentage and

heat rate for fuels without lower heating

values as referenced in section 48(c)(3)

(C)(i)(II) and the proposed methodology

in proposed §1.45Y-1(d)(3)(ii)(B). The

lower heating value is intended to provide

a measure for the energy released when

a fuel is combusted under certain conditions. Fuels that are not combusted will

not have a lower heating value, but the

amount of energy such fuels could release

under certain conditions can still be measured.

The Treasury Department and the IRS

agree with commenters that the final regulations should permit the use of a nuclear

reactor’s thermal output to serve as the

functional equivalent of the lower heating

value of fuel sources, in recognition that

nuclear fission does not involve combustion. The final regulations are amended

accordingly. With respect to other technologies, the Treasury Department and the

IRS will continue to consult with experts

in order to develop additional approaches

that are either generally applicable or

appropriate for other particular technologies. The final regulations are therefore

also amended to reflect this continuing

consideration and to provide flexibility to

prescribe these additional approaches in

guidance published in the Internal Revenue Bulletin. Section 1.45Y-1(d)(2) and

(d)(3)(ii)(B) of the final regulations are

revised accordingly.

In addition, for organizational purposes, the definition under proposed

§1.45Y-1(a)(2) of a unit of a qualified

facility for purposes of CHP property, has

been moved within the definition of a unit

of a qualified facility under §1.45Y-2(b)

(2)(i).

F. 80/20 rule

The 80/20 Rule is designed to broaden

the availability of investment and produc-

Bulletin No. 2025–12

tion tax credits by providing a new original placed in service date for a qualified

facility that includes some components

of property previously placed in service,

rather than requiring the qualified facility

to be composed entirely of new components of property. In the context of section

45Y, the 80/20 Rule applies at the qualified facility level to the components of

property within the unit of qualified facility. Proposed §1.45Y-4(d)(1) provided

that for purposes of section 45Y(b)(1)(B),

a facility may qualify as originally placed

in service even if it contains some used

components of property within the unit of

qualified facility, provided the fair market value of the used components of the

unit of qualified facility is not more than

20 percent of the total value of the unit of

qualified facility (that is, the cost of the

new components of property plus the fair

market value of the used components of

property within the unit of qualified facility).

Although this section focuses on the

80/20 Rule in the section 45Y context,

section III.E. of this Summary of Comments and Explanation of Revisions

describes some comments received on

both sections 45Y and 48E. This includes

discussion of the interaction between the

rule for addition of a new unit or an addition of capacity (Incremental Production

Rule) and the 80/20 Rule. As described in

that section, the Treasury Department and

the IRS agree that the statutory provisions

allowing for new units and additions of

capacity provided in sections 45Y(b)(1)

(C) and 48E(b)(3)(B)(i) are separate and

distinct from the 80/20 Rule. If a retrofitted facility satisfies the 80/20 Rule, the

final regulations provide that the facility

will be treated as newly placed in service

even if the taxpayer also satisfies the provisions regarding new units and additions of

capacity. These final regulations provide

an additional example, in §1.45Y-4(c)(5)

(v) that specifically addresses decommissioned and restarted facilities. In response

to a comment, the Treasury Department

and the IRS removed the reference to a

decommissioned nuclear facility in Example 3 in §1.45Y-4(c)(6)(iii) to avoid referring to decommissioned and restarted

nuclear facilities in the additions of capacity rule and the 80/20 Rule. Additionally,

§1.45Y-4(d)(1) is clarified to confirm that

Bulletin No. 2025–12

a qualified facility that meets the requirements of section 45Y(b)(1)(A) may claim

the full section 45Y credit rather than the

credit resulting from the addition of a new

unit or an addition of capacity.

While commenters generally supported

the need for the 80/20 Rule for the section 45Y credit, commenters also asked

for clarity regarding the application of the

80/20 Rule. A commenter requested clarification that a facility that previously qualified for a credit under section 45 or 48

and is later retrofitted may be eligible for

a section 45Y or 48E credit if it satisfies

the 80/20 Rule. The Treasury Department

and the IRS agree that if a qualified facility under section 45 or an energy property

under section 48 is later retrofitted in a

manner that satisfies the 80/20 Rule, it

will be considered a new qualified facility

and may be eligible for a section 45Y or

48E credit so long as the qualified facility

meets all requirements of section 45Y or

48E.

Another commenter generally stated

that under Notice 2018-59, 2018-28 I.R.B.

196, the 80/20 Rule applies at the property level and not the project or system

level. The commenter requested that the

80/20 Rule similarly only apply at the

property level for the section 45Y credit.

In response to this comment, the Treasury

Department and the IRS confirm that for

purposes of the section 45Y credit, the

80/20 Rule does not apply to a project or

system but instead to a qualified facility.

Proposed §1.45Y-4(d)(1) set forth the

80/20 Rule for purposes of the section

45Y credit and applies the rule to a retrofitted qualified facility. The 80/20 Rule

applies at the qualified facility level to the

components of property within the unit

of qualified facility. The final regulations

retain this application of the 80/20 Rule to

the section 45Y credit.

Another commenter requested clarification regarding how the 80/20 Rule

is applied for purposes of section 45Y

by comparing its application to section

48E. The commenter pointed out that

proposed §1.48E-4(c)(4) looked only to

functionally interdependent components

of property (and not integral property) to

determine what is considered new components of the unit of qualified facility,

while proposed §1.45Y-4(d) did not. This

commenter requested clarification regard-

1109

ing which components are included in the

determination under the 80/20 Rule for

purposes of the section 45Y credit. Similarly, another commenter recommended

that the final regulations define a “unit of

qualified facility” as the specific components necessary for the production of electricity and not the integral property essential to the completeness of that function.

With respect to dam-based hydropower

facilities, another commenter supported

proposed §1.45Y-4(d) permitting existing

dam-based hydroelectric facilities to qualify for the 80/20 Rule. The commenter

asked to confirm that the 80/20 Rule is

applied on a turbine-by-turbine basis and

not the whole facility, because individual

turbines may be repowered separately. As

noted earlier, the 80/20 Rule applies at the

qualified facility level to the components

of property within the unit of qualified

facility and therefore in the context of a

hydropower facility the 80/20 Rule cannot

be applied on a turbine-by-turbine basis.

The Treasury Department and the

IRS decline to modify the proposed rule

in response to these requests for specific

applications to particular technologies.

Proposed §1.45Y-2(b)(2)(i) provided that

for purposes of the section 45Y credit, the

unit of qualified facility includes all functionally interdependent components of

property (as defined in proposed §1.45Y2(b)(2)(ii)) owned by the taxpayer that

are operated together and that can operate

apart from other property to produce electricity.

Proposed §§1.45Y-4(d)(2) and 1.48E4(c)(3) both provided that the cost of

new components of the unit of qualified facility includes all costs properly

included in the depreciable basis of the

new components of property of the unit

of qualified facility. Under both proposed

§§1.45Y-2(b)(2) and 1.48E-2(b)(2), a

unit of qualified facility only includes

functionally interdependent components

of property and not integral property.

Thus, the Treasury Department and the

IRS agree with the commenter that only

functionally interdependent property is

taken into account to determine whether

a retrofitted qualified facility satisfies the

80/20 Rule for purposes of sections 45Y

and 48E. Proposed §1.48E-4(c)(4) provided a rule allowing costs for integral

property to be included in determining

March 17, 2025

the section 48E credit after it has been

determined that the qualified facility has

satisfied the 80/20 Rule. Because the section 45Y credit is a production tax credit

calculated based on electricity produced

and not the amount of investment in the

qualified facility, there is no need for a

rule similar to proposed §1.48E-4(c)(4)

in the final regulations under section 45Y.

III. Rules Specific to Section 48E

Proposed §1.48E-1(b)(1) provided

rules for determining the amount of the

credit; defined the term “applicable percentage;” and explained how to determine

the applicable percentage for a qualified

facility. Proposed §1.48E-1(c) provided

the credit phase-out rules and proposed

§1.48E-1(c)(3) defined applicable year

for purposes of the credit phase-out rules

by reference to proposed §1.45Y-1(c)(3).

See section II.C. of this Summary of Comments and Explanation of Revisions for a

discussion of those rules.

A. Organization of Proposed §1.48E-2

Proposed §1.48E-2(a) defined a qualified facility for purposes of section 48E.

Proposed §1.48E-2(b) described the

property included in a qualified facility

for purposes of section 48E, defined the

terms “unit of qualified facility” as well as

“functionally interdependent” and “integral part” (both as they apply to a qualified

facility), and provided several examples

to illustrate the rules. Proposed §1.48E2(c) provided rules for the coordination of

the section 48E credit with certain other

Federal income tax credits with respect to

qualified facilities. Proposed §1.48E-2(d)

provided rules for determining the qualified investment with respect to a qualified

facility. Proposed §1.48E-2(e) defined

the term “qualified property.” Proposed

§1.48E-2(f) defined certain terms related

to requirements for qualified property,

including “tangible personal property,”

“other tangible property,” “construction,

reconstruction, or erection of qualified

property,” “acquisition of qualified property,” “original use of qualified property,”

“depreciation allowable,” “placed in service” and “claim.” Proposed §1.48E-2(g)

provided rules for energy storage technology (EST).

March 17, 2025

The Treasury Department and the IRS

determined that the organization of proposed §1.48E-2, as it related to qualified

facilities, did not adhere to the organization of section 48E. The final regulations

reorganize §1.48E-2 to more clearly follow the organization of section 48E. The

Treasury Department and the IRS do not

intend for the reorganization of §1.48E-2

to create any substantive differences from

the rules as they were provided in the proposed regulations.

As reorganized, §1.48E-2(a) of these

final regulations provides the rules for

determining the qualified investment

with respect to a qualified facility. Section 1.48E-2(b) defines the term “qualified facility” as it relates to section 48E,

as well as the term “placed in service.”

Section 1.48E-2(c) defines the term

“qualified property.” Section 1.48E-2(d)

provides the rules for property included

in a qualified facility, including a description of “unit of qualified facility” and

“integral part,” and provides examples

illustrating these rules. Section 1.48E2(e) provides definitions related to the

requirements for qualified property. Section 1.48E-2(f) provides rules for the

coordination of the section 48E credit

with certain other Federal income tax

credits with respect to qualified facilities

and includes examples to illustrate those

rules. Section 1.48E-2(g) provides rules

relating to EST. Finally, the definition of

the term “claim” for both a qualified facility and EST is moved to §1.48E-1(a)(2)

and is modified to also apply to the other

Federal income tax credits described in

section 48E(b)(3)(C).

is stepped up to transmission voltage. Similarly, another commenter asked whether

the scope of qualified property under section 48E(b)(2) includes all property identified as energy property under section

48(a)(3), unless explicitly excluded under

section 48E.

The Treasury Department and the IRS

recognize that some technologies may

be creditable under both sections 48 and

48E. Although the rules for eligibility differ between the two sections, they share

many overlapping concepts (for example,

functional interdependence and integral

property). For those facilities that generate electricity and for EST that are eligible

for both the section 48 and 48E credits, the

Treasury Department and the IRS expect

similar property to be eligible. However, the application of these concepts to

a specific facility or EST is ultimately a

fact-specific determination.

That said, unlike section 48, these final

regulations are technology neutral, and

the rules are meant to apply to all qualified facilities. A definitive response to

these comments would require the Treasury Department and the IRS to conduct a

complete factual analysis of the property

in question, which may include information beyond that which was provided by

the commenters. Because more information is needed to make the determinations requested by the commenters, the

requested clarifications are not addressed

in these final regulations.

B. Qualified investment with respect to a

qualified facility and qualified property

Proposed §1.48E-2(g) provided rules

defining a unit of EST. Section 48E(c)

(2) defines the term “energy storage technology” by reference to section 48(c)(6)

(noting that the beginning of construction

requirement in section 48(c)(6)(D) does

not apply). A commenter suggested clarifying that EST may include either “property . . . which receives, stores, and delivers energy for conversion,” or “thermal

energy storage property,” by reading the

“and” between sections 48(c)(6)(A)(i) and

(ii) as disjunctive. The Treasury Department and the IRS confirm that the term

“and” between sections 48(c)(6)(A)(i) and

(ii) is disjunctive for purposes of section

Proposed §1.48E-2(d) described a qualified investment with respect to any qualified facility. Proposed §1.48E-2(e) defined

“qualified property” for purposes of proposed §1.48E-2(a).

A commenter requested that the final

regulations clarify that the qualified property included in a qualified investment in a

qualified hydropower facility includes all

the components and property identified as

qualified property in prior guidance under

section 48, up through and including the

substation at which the electrical voltage

1110

C. Energy storage technology overview

1. In General

Bulletin No. 2025–12

48E(c)(2) and property described in section 48(c)(6)(A)(i) or (ii) are included as

EST.

2. Functionally Interdependent

Proposed §1.48E-2(g)(2)(i) provided

that, for purposes of the section 48E

credit, a unit of EST includes all functionally interdependent components of property (as defined in proposed §1.48E-2(g)

(2)(ii)) owned by the taxpayer that are

operated together and that can operate

apart from other property to perform the

intended function of the EST. Proposed

§1.48E-2(g)(2)(ii) provided that components are functionally interdependent if

the placing in service of each of the components is dependent upon the placing in

service of each of the other components to

perform the intended function of the EST.

A commenter requested that the Treasury Department and the IRS explicitly

clarify that the section 48E credit can be

claimed with respect to EST that is co-located and used in conjunction with electricity generation equipment for which

the section 45 or 45Y credits are claimed,

without regard to whether the EST would

be considered a functionally interdependent component or an integral part of the

electricity generation equipment under

other rules or whether the EST and electricity generation equipment are owned by

the same or different taxpayers.

Section 48E(a) provides that the clean

electricity investment credit is determined

separately with respect to any qualified

facility and any EST. This statutory text

establishes an important categorical distinction between qualified facilities and

ESTs. While integral property may be

shared by a co-located qualified facility

and an EST, a unit of qualified facility and

a unit of EST cannot share components

for purposes of section 48E. Further, the

Treasury Department and the IRS confirm

that an EST is eligible for the section 48E

credit if it satisfies the requirements of

section 48E, even if the EST is co-located

with a qualified facility that has claimed

the section 45 or 45Y credits. See section

III.C.6. of this Summary of Comments

and Explanation of Revisions for additional discussion of comments on co-located, or “hybrid,” projects that include an

EST and qualified facility.

Bulletin No. 2025–12

3. Qualified Investment with Respect to

Energy Storage Technology

Proposed §1.48E-2(g)(4) provided

that the qualified investment with respect

to any EST for a taxable year is the basis

of any EST placed in service by the taxpayer during such taxable year. Commenters requested clarification that the

entire cost basis of EST property that

converts energy to electricity is eligible

for the section 48E credit, even if some

functionally interdependent property is

used to produce heat. The commenters

asserted that there is no statutory requirement that the energy stored be exclusively converted to electricity and that

the Code is silent about any minimum

percentage requirement of energy being

converted to electricity.

Proposed §1.48E-2(g)(6)(i) described

electrical energy storage property as property (other than property primarily used

in the transportation of goods or individuals and not for the production of electricity) that receives, stores, and delivers

energy for conversion to electricity and

has a nameplate capacity of not less than

5 kWh. This definition is adopted from

section 48E(c)(2), which defines “energy

storage technology” including electrical

energy storage property by reference to

section 48(c)(6). Because the purpose of

an electrical energy storage property is to

receive, store and deliver energy for conversion to electricity, not to produce thermal energy, components of property of an

energy storage property used to produce

thermal energy would be subject to the

incremental cost rule discussed in section

III.G. of this Summary of Comments and

Explanation of Revisions.

4. Placed in Service

Proposed §1.48E-2(g)(5)(i) provided

rules for determining when an EST has

been placed in service for purposes of

the section 48E credit. Notwithstanding

the general rules provided in proposed

§1.48E-2(g)(5)(i), an EST with respect to

which an election is made under section

50(d)(5) of the Code and §1.48-4 to treat

the lessee as having purchased such EST

is considered placed in service by the lessor in the taxable year in which possession

is transferred to such lessee.

1111

Commenters suggested expanding the

definition of placed in service for EST

because “energy storage may charge

and discharge prior to being ready for

commercial operation.” Specifically, a

commenter suggested that EST property

should be treated as placed in service

when (i) such property has all licenses,

permits, and approval required to store

and dispatch power, (ii) pre-operational

testing is complete, (iii) the taxpayer has

title to the property, and (iv) the property

is available to store and discharge power

on a regular, commercial basis.

Instead of providing specific indicia of

when an EST is treated as being placed in

service, the rule in proposed §1.48E-2(g)

(5)(ii) provided general principles for a

taxpayer to determine when an EST has

been placed in service that are broadly

applicable to all types of EST. These principles are based upon the placed in service

rules provided by §1.48-9(b)(5), which

generally adopt the placed in service rules

of §1.46-3(d)(1). The general principles

under §1.46-3(d)(1) have applied to the

section 48 credit since its enactment. These

principles are well-understood, general

standards for determining when property

is placed in service, and they are widely

relied upon by industry. The Treasury

Department and the IRS view the general

principles provided by the proposed rule

as adequate for determining when EST is

placed in service, and as sufficiently broad

to address these commenters’ concerns.

Therefore, the final regulations adopt the

placed in service rules as proposed.

5. Electrical Energy Storage Property

Proposed §1.48E-2(g)(6)(i) described

electrical energy storage property as property (other than property primarily used in

the transportation of goods or individuals

and not for the production of electricity)

that receives, stores, and delivers energy

for conversion to electricity and has a

nameplate capacity of not less than 5 kWh.

For example, subject to the exclusion for

property primarily used in the transportation of goods or individuals, electrical

energy storage property includes but is not

limited to rechargeable electrochemical

batteries of all types (such as lithium-ion,

vanadium redox flow, sodium sulfur, and

lead-acid); ultracapacitors; physical stor-

March 17, 2025

age such as pumped storage hydropower,

compressed air storage, and flywheels; as

well as reversible fuel cells.

Commenters asked for clarification

regarding what constitutes property “primarily used” in the transportation of goods

or individuals. One commenter suggested

that the final regulations provide a bright

line rule and clarify that property that

receives, stores, and delivers energy for

conversion to electricity and is intended

to be used for less than 35 percent of its

hours of use in a calendar year for transporting goods or individuals is not considered “primarily used in the transportation

of goods or individuals.” In this commenter’s view, property, including a school bus,

that receives, stores, and delivers energy

for conversion to electricity that is used

less than 35 percent of its hours of use in

a calendar year for transporting goods or

individuals is not primarily used for transportation. However, the commenter clarified that if electric school buses paired

with a bidirectional vehicle-to-grid (V2G)

charger are permitted to qualify as EST,

then the charger itself should not be considered part of the electrical energy storage property.

The final regulations mirror the language of section 48E(c)(2), which adopts

the definition of EST provided in section

48(c)(6)(A), and excludes property primarily used in the transportation of individuals or goods. The Treasury Department and the IRS consider school buses as

primarily used in transportation because

the primary reason for a taxpayer to

acquire school buses is to transport individuals, not store energy, notwithstanding

the overall amount of time buses are used

to actually transport individuals. A “bright

line” test requested by the commenter is

not feasible because any given situation

and determination is fact dependent.

In addition, there are other IRA tax

incentives intended to benefit some technologies for which these commenters seek

section 48E credit eligibility. For instance,

section 45W of the Code provides a tax

credit for vehicles such as electric school

buses. Furthermore, a notice of proposed

rulemaking (REG-118269-23) published

in the Federal Register (89 FR 76759) on

September 19, 2024, regarding the section 30C alternative fuel vehicle refueling

property credit (September 2024 proposed

March 17, 2025

regulations) proposed a definition for

property primarily used in the transportation of goods or individuals and not for

the production of electricity for purposes

of sections 48 and 48E. In particular, proposed §1.48E-2 provided that energy storage property is primarily used in the transportation of goods or individuals and not

for the production of electricity, and therefore is not EST eligible for the section 48E

credit, if a credit is claimed under section

30C for such property. Comments regarding this proposed definition will be further

addressed in the Treasury decision that

finalizes the September 2024 proposed

regulations. The Treasury Department

and IRS note that energy storage property

for which the section 30C credit is not

claimed may be creditable as EST under

sections 48 and 48E if that property meets

the requirements of those tax credits.

6. Hybrid Systems (Qualified Facility +

EST)

Several commenters addressed the

treatment of qualified facilities, such as

solar generation facilities, and EST that

are co-located, or so-called “hybrid” projects. At least one commenter supported

treating a qualified facility and EST as

separate for purposes of the section 48E

credit. The commenter emphasized that

such an approach is critical for the longterm success of the section 45Y and 48E

credits, and importantly, will align with

the goal of the domestic content bonus

credit amount to reshore clean energy supply chains.

Other commenters requested that taxpayers be able to elect a single section

48E credit for hybrid systems, consisting

of a qualified facility and an EST, and

sought clarification of whether property

included in a unit of EST may be included

in a unit of qualified facility. A commenter

noted that for purposes of rooftop solar

and storage hybrid systems, the EST and

the solar energy property are dependent

upon each being placed in service because

both are essential to the completeness of

the intended function of the hybrid system. Commenters asserted that including EST in the definition of “integral

part” of a qualified facility and providing

examples of dual eligibility for section

48 and 48E credits during the transition

1112

period would help maintain consistency

and reduce administrative burdens. One

commenter recommended modifying proposed §1.48E-2(b) to clarify that EST may

(but is not required to) be considered an

integral part of a qualified facility. Commenters stated that such a clarification

would align with current guidance for the

domestic content bonus credit amount and

the test for determining whether multiple

energy properties will be considered an

energy project under the section 48 proposed regulations. Another commenter

stated that this approach would allow for

increased technological flexibility for purposes of the section 48E credit and would

allow residential solar energy developers

to continue claiming a single credit for

hybrid systems. A commenter claimed

that adding EST as an integral part of a

qualified facility would allow utility scale

solar energy developers the option to

claim separate credits for the EST and the

qualified facility under the section 48E

proposed regulations.

Another commenter suggested permitting a taxpayer developing a hybrid system and claiming the section 48E credit on

both the qualified facility and EST to elect

to treat them as a single energy project.

Other commenters requested that the final

regulations clarify that even if qualified

facilities and EST are separate categories

under section 48E, a taxpayer developing

a hybrid system that incorporates both

may file a single Form 3468, Investment

Credit, and register only once for purposes

of section 6418 of the Code relating to

transfer elections for eligible credits (section 6418 credit transfer elections).

As noted earlier in section III.C.2. of

this Summary of Comments and Explanation of Revisions, the statutory framework

of section 48E does not support treating

a qualified facility and EST as a single

creditable property. Instead, the text of

section 48E repeatedly treats a qualified

facility and EST as separately creditable

properties. Accordingly, there is no statutory basis to allow taxpayers an option

to claim a single credit for hybrid systems

that include both qualified facilities and

EST. In addition, although beyond the

scope of these final regulations, the Treasury Department and the IRS note that,

because a hybrid system would be considered two separate eligible credit prop-

Bulletin No. 2025–12

erties, a taxpayer would need to register

them separately for purposes of making

section 6418 credit transfer elections. See

§§1.6418-1(d) and 1.6418-4.

Some commenters also requested that

the final regulations provide an option to

claim a single credit for a hybrid system

rather than two credits, one for the EST

and one for the qualified facility, in part,

because those commenters currently enter

into a single leasing agreement with customers for both a solar qualified facility

and an EST. These commenters expressed

concern about whether, under the proposed regulations, they would need to

enter into separate contracts for the solar

qualified facility and the EST. These commenters noted that if they are able to use

a single contract, the contract will need to

have separate term lengths for the solar

qualified facility and the EST to satisfy

the leasing rules for tax purposes. These

commenters raised the issue that since a

solar qualified facility and an EST generally have different useful lives the leasing

rules could not cover both the solar qualified facility and the EST if they claimed

separate credits.

The Treasury Department and the IRS

are not aware of any case law or guidance related to leasing rules that would

require a taxpayer to break up the scope of

a lease into components before analyzing

whether there is a true lease for tax purposes regardless of the useful life of different assets included in the lease. In order

to claim section 48E credits for both the

solar qualified facility and an EST that are

part of a combined solar qualified facility

and EST, a taxpayer must retain ownership of both at the time such property is

placed in service. This is true regardless of

whether there are separate credits or separate credit calculations required for a solar

qualified facility and an EST. While the

final regulations define a unit of property

as a qualified facility or an EST for purposes of section 48E, the final regulations

are not intended to apply more broadly to

define what comprises a unit of property

for any other purpose of the Code.

Another commenter requested that the

section 48E credit be made available for

pumped storage hydropower property,

including if such property overlaps or

shares property with a qualified hydropower facility that has claimed or will

Bulletin No. 2025–12

claim the credit under section 45 or 45Y,

and that no allocation of costs is required

with respect to such overlapping property.

The Treasury Department and the

IRS confirm that an EST is eligible for a

separate section 48E credit if it satisfies

the requirements of section 48E and the

section 48E regulations. A taxpayer that

makes a qualified investment with respect

to a qualified facility or an EST is eligible

for the section 48E credit only to the extent

of the taxpayer’s eligible investment in the

qualified facility or EST. As described in

proposed §1.48E-2(b)(3)(vi), multiple

qualified facilities (whether owned by one

or more taxpayers), including qualified

facilities with respect to which a taxpayer

has claimed a credit under section 48E,

45, or 45Y or another Federal income

tax credit, may include shared property

that may be considered part of a qualified

investment for each qualified facility so

long as the cost basis for the shared property is properly allocated to each qualified

facility and the taxpayer only claims a section 48E credit with respect to the portion

of the cost basis properly allocable to the

qualified facility for which the taxpayer

is claiming a section 48E credit. The proposed rule addresses the commenter’s

concerns and will be adopted as proposed.

7. Thermal Energy Storage Property

Proposed §1.48E-2(g)(6)(ii) defined

thermal energy storage property as property comprising a system that is directly

connected to a heating, ventilation, or air

conditioning (HVAC) system; removes

heat from, or adds heat to, a storage

medium for subsequent use; and provides

energy for the heating or cooling of the

interior of a residential or commercial

building. Thermal energy storage property includes equipment and materials,

and parts related to the functioning of

such equipment, to store thermal energy

for later use to heat or cool, or to provide

hot water for use in heating a residential

or commercial building. Thermal energy

storage property does not include a swimming pool, CHP property, or a building or

its structural components.

Several commenters requested additional examples of thermal energy storage property and asked whether specific

property would be considered part of

1113

thermal energy storage. For example, a

commenter recommended including an

example of thermal energy storage property that includes phase change materials

operating as a battery in place of a refrigeration cycle to reduce energy consumption in cold storage. Several commenters

requested an example allowing for solar

thermal systems to be treated as thermal

energy storage property and noted that

solar thermal systems are explicitly eligible under the section 48 credit. A commenter specifically contended that solar

thermal systems that collect energy from

the sun to heat a storage medium (for

example, water) and then provide energy

through an HVAC system for a residential

or commercial building should be treated

as thermal energy storage systems under

section 48E.

Another commenter suggested clarifying that energy storage technology

includes property capable of discharging

both heat and electricity regardless of

how the facility’s heat is utilized as long

as the facility has an electrical nameplate capacity of at least 5 kWh and the

taxpayer claims a section 48E credit only

on the parts of the facility that are essential to receiving, storing, and delivering

energy for the conversion to electricity

(that is, excluding components related

to discharging heat). A different commenter suggested clarifying that thermal

energy storage property includes property directly connected to a refrigeration

system given that refrigeration systems

are a subset of HVAC systems. Another

commenter requested clarifying that otherwise-qualifying property that operates

squarely within an HVAC ecosystem, or

directly in connection with such a system,

and that directly impacts the temperature

of air being conditioned by an HVAC

system, is “directly connected” to such

system within the meaning of section

48E (and section 48); and non-structural,

energy-saving, portable products that are

incorporated into building elements specifically because of their energy-saving

properties are not themselves “a building

or its structural components,” and remain

non-structural even if integrated into a

ceiling.

Another commenter suggested providing examples of thermal energy storage

property that include thermal ice or chilled

March 17, 2025

water storage systems that use electricity

to run a refrigeration cycle to produce ice

or chilled water that is later connected to

the HVAC system as an exchange medium

for air conditioning the building, heat

pump systems that store thermal energy in

an underground tank or borehole field to

be extracted for later use for heating and/

or cooling, and electric furnaces that use

electricity to heat bricks to high temperatures and later use this stored energy to

heat a building through the HVAC system.

Similarly, a commenter recommended

several modifications to the examples

of thermal energy storage in proposed

§1.48E–2(g)(6)(ii): (i) replace the reference to “thermal ice storage systems” with

“chilled water or ice storage systems,” (ii)

acknowledge that tanks could be above or

below ground, and (iii) include “electric

boilers that use electricity to heat water

and later use this stored energy to provide

heat and/or domestic hot water to a building through the HVAC system.” Several

other commenters suggested clarifying

whether the phrase “directly connect to”

in proposed §1.48E-2(g)(6)(ii) means that

thermal storage systems that function as

self-contained heating or cooling systems

qualify as thermal energy storage property.

The Treasury Department and the IRS

agree that the definition of thermal energy

storage property requires clarification.

Proposed §1.48E-2(g)(6)(ii) defined thermal energy storage property, in part, as a

system which “removes heat from, or adds

heat to, a storage medium for subsequent

use.” The Treasury Department and the

IRS understand the phrase “adds heat to”

as including equipment that is involved

in adding, or transferring, already-existing heat from one medium to the storage

medium, but not equipment involved in

transforming other forms of energy into

heat in the first instance. Equipment that

just adds (or removes) heat includes technologies, like heat pumps, that draw heat

from the ambient air or other stores of heat

and adds that heat to a storage medium.

By contrast, equipment that transforms

other forms of energy into heat in the first

instance, for example through combustion

or electric resistance, is not property that

“removes heat from, or adds heat to” a

storage medium and is therefore not an eligible component of a thermal energy stor-

March 17, 2025

age property. For example, a conventional

gas boiler with an integrated storage tank

would not generally be thermal energy

storage property, as it would generate new

heat in the first instance through combustion and subsequently add that heat to the

storage medium, rather than merely adding existing heat to the storage medium.

While the gas boiler elements would not

be part of such property, the integrated

storage tank, may be thermal energy storage property if it otherwise meets the thermal energy storage property definition.

Further, an air-to-water heat pump with a

thermal storage tank, for example, would

generally be thermal energy storage property provided it otherwise meets the definition of thermal energy storage. This

could be the case even if the heat pump

also serves a purpose in the connected

HVAC system’s real-time heating or cooling of a building. In that case, the thermal

storage tank would be thermal energy

storage property and the heat pump may

also qualify as part of the thermal energy

storage property to the extent the taxpayer’s costs exceed the cost of an HVAC system without thermal storage capacity that

would meet the same functional heating

or cooling needs as the heat pump system

with a storage medium, other than time

shifting of heating or cooling. See section

III.G. of the Summary of Comments and

Explanation of Revisions for discussion of

the Incremental Cost Rule.

Proposed §1.48E-2(g)(6)(ii) included

an example of electric furnaces that use

electricity to heat bricks to high temperatures and later use this stored energy to

heat a building through the HVAC system.

The Treasury Department and the IRS

acknowledge that this example needs to

be refined to more precisely delineate the

scope of eligible thermal energy storage

property. Whereas the heated bricks and

equipment that adds heat generated by the

furnace to those bricks, or removes heat

from the bricks, is eligible thermal energy

storage property, the electric furnace

equipment that transforms energy into the

thermal energy via electrical resistance

in the first instance is not. Section 1.48E2(g)(6)(ii) of the final regulations provides that thermal energy storage property

does not include property that transforms

other forms of energy into heat in the first

instance.

1114

With respect to subsequent use, the

Treasury Department and the IRS also

agree that additional clarity is warranted.

The statute requires that thermal energy

storage property must be able to perform

certain functions, not simply perform heat

transfer. Any heat transfer may take some

amount of time and heat does not immediately dissipate even if no effort is made to

store it. While some commenters asserted

that such heat transfer is subsequent use,

the Treasury Department and the IRS disagree. A plain reading of the statute supports the conclusion that thermal energy

storage property does not include property

that simply engages in heat transfer. The

thermal energy storage property must be

able to store the thermal energy. The Treasury Department and the IRS find that a

minimum time interval for subsequent use

provides certainty for taxpayers and sound

tax administration.

Accordingly, the final regulations

clarify that property that “removes heat

from, or adds heat to, a storage medium

for subsequent use” is property that is

designed with the particular purpose of

substantially altering the time profile

of when heat added to or removed from

the thermal storage medium can be used

to heat or cool the interior of a residential or commercial building. The final

regulations also provide a safe harbor for

thermal energy storage property. If the

thermal energy storage property can store

energy that is sufficient to provide heating

or cooling of the interior of a residential

or commercial building for a minimum of

one hour, it is deemed to have the purpose

of substantially altering the time profile of

when heat added to or removed from the

thermal storage medium can be used to

heat or cool the interior of a residential or

commercial building.

These final regulations also add that

thermal energy storage property may

store thermal energy in an artificial pit, an

aqueous solution, or a solid-liquid phase

change material, in addition to the underground tank or a borehole field already

included in the proposed regulations, in

order to be extracted for later use for heating and/or cooling. The final regulations

clarify that sources of thermal energy that

transform other forms of energy into heat,

such as electric boilers, are not thermal

energy storage property.

Bulletin No. 2025–12

The Treasury Department and the IRS

clarified the definition of thermal energy

storage property and the examples in the

final regulations to illustrate what constitutes thermal energy storage property. The

final regulations provide revised examples of thermal energy storage property,

and those examples are intended to be a

non-exhaustive list. The Treasury Department and the IRS have also determined

that the revised description of thermal

energy storage property in §1.48E-2(e)(6)

(ii) provides taxpayers with a sufficient

means to determine whether specific property qualifies as thermal energy storage

property. To the extent that commenters

asked whether additional systems, configurations, or technologies would qualify

as thermal energy storage property, such

a determination would require the Treasury Department and the IRS to conduct

a complete factual analysis of the system, configuration, or technology, which

may include information beyond that

which was provided by the commenters.

Because more information is needed to

make any such determinations requested

by the commenters, the final regulations

do not provide such additional requested

clarifications.

Several commenters recommended

clarifying that thermal energy storage property includes property providing energy for the heating or cooling of

the interior of an industrial building, or

other types of buildings. A commenter

asserted that a wide variety of buildings

are served by thermal energy storage, such

as city halls, libraries, and jails, and that

the definition of thermal energy storage

property should not be limited to residential or commercial settings. Commenters

requested that property used to convey

stored energy and deliver it to building

spaces (such as pipes and pumps), used to

distribute stored thermal energy for heating or cooling or to supply domestic hot

water for consumption in a residential or

commercial building, be included within

the definition of thermal energy storage

property. One commenter recommended

defining thermal energy storage property

to include equipment, including pipes

and pumps, used to distribute stored thermal energy to and within buildings. The

commenter noted that such a clarification would necessitate incorporation of a

Bulletin No. 2025–12

dual use rule consistent with §1.48-14(b),

because thermal energy storage may use

pipes to distribute stored thermal energy

to and within buildings that are also used

by non-qualifying sources.

One commenter requested clarifying

whether thermal energy storage property

includes liquid desiccant storage systems

that use electricity to store energy in liquid

desiccants that remove latent heat from

the air for use in a connected HVAC system. Another commenter noted that most

solar thermal systems are combination or

hybrid systems that provide thermal storage in the form of water or another fluid

for a variety of applications. Regarding

such combination systems, other commenters recommended clarifying that

thermal energy property includes water

heating applications and providing an

example of such applications.

Section 48E(c)(2) defines EST as having the same meaning as under section

48(c)(6), and section 48(c)(6) defines EST

to include thermal energy storage property. The statutory definition of thermal

energy storage property under section

48(c)(6)(C) provides that such property is

directly connected to a HVAC, removes

heat from, or adds heat to, a storage

medium for subsequent use, and provides

energy for the heating or cooling of the

interior of a residential or commercial

building. To maintain consistency with

the statutory text, the final regulations

maintain the wording regarding eligible

building applications set forth in section

48(c)(6)(C)(i)(III). With respect to property used to distribute stored thermal

energy, such as pipes and pumps, the final

regulations provide a function-oriented

method to evaluate whether property is a

functionally interdependent or an integral

part of thermal energy storage property.

Beyond the examples included in the proposed regulations and additional examples

added here, commenters have described a

number of additional innovative technologies that might qualify as thermal energy

storage property. However, application of

the functional definition of thermal energy

storage property provided at section

48E(c)(2) (by reference to section 48(c)

(6)) would be necessary to determine if

these technologies are, in fact, examples

of qualifying thermal energy storage property. Moreover, the examples contained in

1115

proposed §1.48E-2(g)(6)(ii) are a non-exhaustive list. Therefore, the final regulations do not adopt all the recommended

additional examples.

Because section 48E(c)(2) provides

that the term “energy storage technology”

has the meaning given such term in section 48(c)(6), the final regulations incorporate modifications made to the section

48 proposed regulations by the section 48

final regulations to clarify the definition

of EST, including with respect to thermal

energy property.

8. Hydrogen Energy Storage Property

Proposed §1.48E-2(g)(6)(iii) provided

that hydrogen energy storage property

is property (other than property primarily used in the transportation of goods or

individuals and not for the production of

electricity) that stores hydrogen and has a

nameplate capacity of not less than 5 kWh,

equivalent to 0.127 kg of hydrogen or 52.7

standard cubic feet (scf) of hydrogen. Proposed §1.48E-2(g)(6)(iii) also provided

that hydrogen energy storage property

must store hydrogen that is solely used as

energy and not for other purposes, such

as for the production of end products (for

example, fertilizer), and set forth examples of hydrogen energy storage property.

A commenter stated that property storing hydrogen should be at least 1 GWh in

capacity (which is equivalent to 96,554

gallons of liquid hydrogen storage capacity or about 25.4 metric tons) in order to

qualify as hydrogen energy storage property. The Treasury Department and the

IRS note that section 48E(c)(2) defines

“energy storage technology” as having

the meaning given such term in section

48(c)(6) (without the application of the

beginning of construction deadline).

Section 48(c)(6) defines “energy storage

technology” as, in part, having a nameplate capacity of not less than 5 kilowatt

hours. Accordingly, the final regulations

do not adopt the commenter’s suggestion,

as doing so would be inconsistent with the

statute.

a. End use requirement

Numerous commenters disagreed with

the requirement that hydrogen energy

storage property must store hydrogen that

March 17, 2025

is solely used as energy and not for other

purposes, which the commenters referred

to as the “end use requirement.” Commenters noted that the end use requirement

is not statutorily prescribed and asserted

that it would be difficult, if not impossible, to implement. Commenters asserted

that a single industrial customer may have

multiple uses for hydrogen, sometimes for

energy and sometimes for other purposes

such as stripping pollutants from flue gas

streams, and that customers are not generally willing to restrict their use in order

to indemnify the hydrogen energy storage

property against investment credit recapture risk. Commenters also pointed out

that hydrogen storage projects may sell

to intermediaries in which case the end

use of hydrogen is not necessarily known,

and ensuring that the end use requirement

is respected by export markets would be

impossible. A commenter contended that

the limited number of examples and use

cases offered in the proposed regulations

raise several questions for taxpayers and

hydrogen storage developers.

Some commenters also maintained that

the end use requirement would be inconsistent with the Biden Administration’s

U.S. National Clean Hydrogen Roadmap.

One of these commenters stated that a

major build-out of hydrogen storage facilities targeting exclusively power sector

end use makes little sense from a strategic

perspective. A commenter asserted that

the definition of EST in section 48(c)(6)

(A)(i), which includes “hydrogen, which

stores energy,” simply recognizes that

hydrogen is inherently a form of energy

itself. A commenter also claimed that

section 48(c) only sets out affirmative

requirements for EST and that, therefore,

hydrogen storage property that is not primarily used in the transportation of goods

or individuals should qualify for the section 48E credit regardless of where the

stored hydrogen ends up. Commenters

further noted that some energy uses may

be indirect (for example, via intermediary

molecules), further complicating application of an end use requirement.

Commenters also asserted that an end

use requirement would bifurcate and

adversely affect the hydrogen market, and

that additional uses for hydrogen, such as

feedstock for industrial processes, could

present significant decarbonization oppor-

March 17, 2025

tunities. A commenter asserted that disallowing the section 48E credit for hydrogen storage from serving applications

such as steel production and iron refining

would be a significant disservice to America and delay or prevent massive reductions in carbon emissions while hindering

U.S. manufacturing of essential construction materials. Commenters noted that a

hydrogen end use requirement would disadvantage large-scale hydrogen storage

facilities relative to smaller ones.

Commenters expressed concern that

hydrogen energy storage is being unfairly

singled out for disadvantageous treatment

as compared to other EST, noting that the

proposed regulations do not place an end

use restriction on electricity stored within

and discharged from batteries or other

storage technologies; noting that energy

withdrawn from batteries may be used for

any purpose without losing its eligibility

status. Commenters contended that the

end use requirement would unduly push

potential customers towards using battery-focused solutions instead of letting

batteries and hydrogen solutions compete

on equal footing, or in cases in which

no alternative exists, would continue to

extend the use of existing technologies,

fuels, and processes.

Some commenters supported the principle of an energy-based end use requirement for hydrogen energy storage property. One commenter sought clarification

that “energy” was not limited to electricity production. Another commenter supported the principle of an energy-based

end use limitation by comparing the statutory text of section 48(c)(6) from three

legislative bills, including the version ultimately enacted by Congress, but opposed

the “solely” criteria and cited practical

challenges including administrability.

Commenters generally requested that if an

end use requirement is maintained that it

be clarified and altered, and safe harbors

provided. For example, a commenter suggested providing a rebuttable presumption

of meeting the end use requirement if a

taxpayer can demonstrate that it stored

hydrogen predominantly for energy use.

Commenters also suggested creating a

safe harbor as long as the facility itself

uses some of the stored hydrogen for

energy or the facility is an open access

facility. A commenter requested flexi-

1116

ble rules for determining the end use of

hydrogen, including permitting taxpayers to assign withdrawn hydrogen based

on commercial sales arrangements, or,

alternatively, being able to rely on a mass

balance approach based on the inputs and

outputs to the storage property during the

year. Commenters also suggested that the

end use requirement conclude with the

end of the 5-year recapture period provided by section 50. Several commenters

suggested inverting the end use requirement to only disqualify property used

to store hydrogen that is solely used for

non-energy end products, or to exempt

common carrier infrastructure from the

end use requirement. Another commenter

recommended a rule under which a facility that uses “qualified clean hydrogen”

as defined under section 45V of the Code

is deemed to qualify under section 48E if

such hydrogen is used to create electricity.

Several commenters recommended

implementing a dual use safe harbor to

permit a taxpayer to claim a reduced section 48E credit when a portion of stored

hydrogen is used for a purpose other than

energy. Commenters noted that a dual

use safe harbor could apply if at least

half of the hydrogen in hydrogen energy

storage property is used for energy purposes. In contrast, other commenters were

opposed to any dual use approach to the

end use limitation and asserted that such

an approach would be unworkable, requiring “unknowable, unprovable, unmonitorable, unauditable facts.”

Commenters asked for clarification

regarding what constitutes energy use of

stored hydrogen and what documentation

is needed to demonstrate such energy use.

Several commenters were opposed to any

recordkeeping requirements related to the

end use of hydrogen and contended that

such requirements would be unduly burdensome to taxpayers given the fungibility

of hydrogen. Another commenter noted

that there are currently no recordkeeping

or documentation precedents available for

a taxpayer to efficiently demonstrate the

final end use of hydrogen stored in such

taxpayer’s hydrogen energy storage property. The commenter asserted that, as there

is no available documentation pathway for

tracking hydrogen molecules through to

their end use, it would be both impractical

and prohibitively costly for a taxpayer to

Bulletin No. 2025–12

develop and implement such recordkeeping practices.

After consideration of the comments

received, the Treasury Department and

the IRS agree that section 48(c)(6)(A)

(i) does not require that hydrogen energy

storage property store hydrogen that will

be used for the production of energy. The

Treasury Department and the IRS recognize commenters’ concerns regarding

the administrative challenges the end use

requirement could present for taxpayers

and agree that it should be removed. The

final regulations therefore do not adopt the

requirement that hydrogen energy storage

property store hydrogen that is solely used

as energy and not for other purposes such

as for the production of end products like

fertilizer.

b. Hydrogen storage media

Many commenters provided feedback regarding the qualifying types of

hydrogen storage media. Specifically,

a commenter requested expanding the

definition of hydrogen energy storage to

include storage of ammonia and electrolytic hydrogen derivative e-fuels. A commenter also requested that the Treasury

Department and the IRS recognize and

clarify that, unlike electricity, hydrogen is

a chemical building block for other molecules that are capable of more efficiently

carrying hydrogen. According to the commenter, this means that hydrogen can be

stored as a physical material medium such

as a metal hydride. The commenter also

requested confirmation that the examples

of hydrogen storage mediums provided in

the preamble to the proposed regulations

are non-exhaustive and that the type of

storage medium is intentionally unlimited.

The Treasury Department and the IRS

decline to adopt comments requesting that

the final regulations provide that chemical

storage (that is, equipment used to store

hydrogen carriers (such as ammonia and

methanol)) is hydrogen energy storage

property. Section 48E(c)(2) provides that

the term “energy storage technology” has

the meaning given to such term in section

48(c)(6). Section 48(c)(6)(A)(i) defines

“energy storage technology” as property

(other than property primarily used in the

transportation of goods or individuals and

not for the production of electricity) which

Bulletin No. 2025–12

receives, stores, and delivers energy for

conversion to electricity (or, in the case of

hydrogen, which stores energy), and has a

nameplate capacity of not less than 5 kilowatt hours. Section 48(c)(6)(A) references

hydrogen, but not compounds containing

hydrogen.

c. Hydrogen storage components and

equipment

Several commenters requested clarifications regarding the components

included in the definition of hydrogen

energy storage. Commenters generally

requested that the final regulations expand

the list of integral and functionally interdependent equipment to be more inclusive

of existing and future hydrogen energy

storage property technologies. One commenter noted that while the functional

interdependence test provided by the

proposed regulations is helpful, specifying further what components are considered part of hydrogen energy storage

is paramount. The commenter requested

additional examples that address specific

components including equipment needed

to functionally store hydrogen, equipment used to change the phase of matter,

equipment used to liquify hydrogen prior

to storage, equipment used to convert

stored hydrogen to ammonia to be used as

a carrier of that stored hydrogen, equipment used to store electrolytic hydrogen

derivative e-fuels, and any related and

necessary pipelines. Similarly, commenters requested that additional components

and equipment be specifically identified as

eligible parts of hydrogen energy storage

property, including hydrogen liquefaction

and related equipment and other equipment required to operate underground

hydrogen storage property.

A commenter requested that the final

regulations demarcate between equipment

used for hydrogen production, conditioning, transportation, and storage. The commenter emphasized that a clear demarcation is necessary to prevent gaming the

system if storage property would qualify

for the section 48E credit under section

48(c)(6) and the production equipment

will, in many or most cases, be associated

with the production tax credit under section 45V. The commenter suggested that

the proper demarcation between hydrogen

1117

production and conditioning, transportation, or storage equipment is the point at

which any post-production conditioning

to remove impurities or to put the hydrogen into a saleable form is completed. The

commenter stated that, in distinguishing

hydrogen production equipment from storage equipment, the associated conditioning equipment should include all equipment necessary to treat, process, compress,

pump, or perform other physical action on

hydrogen prior to its storage or delivery.

The commenter noted that equipment

used to convert hydrogen into ammonia,

methanol, or another hydrogen carrier also

should be associated with post-production

processing of hydrogen and not eligible

for the section 48E credit. Similarly, the

commenter asserted that equipment, such

as compressors, used to liquify hydrogen

(liquefaction) to put it into a deliverable

and salable form should not qualify as

hydrogen energy storage property, including the equipment necessary for liquefaction, conversion to ammonia, methanol, or

other hydrogen carrier, and dissociation or

cracking equipment necessary to convert

a hydrogen carrier back into hydrogen.

The commenter emphasized that if compressors are used in direct connection with

storage devices, rather than to change the

form of the hydrogen (for example, from

gas to liquid), compressors are integral to

the storage equipment and should qualify for the section 48E credit. Another

commenter stated that the definition of

hydrogen storage property should be limited to tanks and caverns of scale, and the

associated equipment necessary to fill or

discharge hydrogen from those tanks or

caverns.

Commenters also requested further

guidance on the eligibility of pipelines

as hydrogen energy storage property noting that there are specific cases in which

hydrogen pipelines that are directly connected to an energy storage facility can

operate as hydrogen storage, by providing additional volumes that can adjust

pressure in direct coordination with the

storage facility compression system. One

commenter requested clarification of the

term “primarily” in the phrase “other than

property primarily used in the transportation of goods or individuals” as applied

to pipelines that can be used to store

hydrogen. Another commenter suggested

March 17, 2025

clarifying the scope of hydrogen storage

property with respect to transportation,

customer delivery, and use.

One commenter that opposed the inclusion of pipelines, rail cars, and truck trailers in the definition of hydrogen storage

property, noted that if hydrogen has been

stored in qualified storage property, such

as tanks or underground storage salt caverns, the energy storage property should

end at the valve where the stored hydrogen

is delivered into a pipeline system. Additional commenters recommended limiting the treatment of hydrogen pipelines

as integral or interdependent to hydrogen

storage property. Commenters pointed to

Federal Energy Regulatory Commission

(FERC) rulings and applicable case law,

such as Hawaiian Independent Refinery, Inc. v. U.S., 697 F.2d 1063 (Fed. Cir.

1983), which delineate the circumstances

under which pipeline systems would be

considered part of the storage facility. One

commenter recommended only including

pipelines directly linked to storage facilities and further recommended that the

final regulations more precisely define the

boundary between storage and transportation infrastructure. This commenter’s proposed guideline would define the boundary between storage and transportation

infrastructure by only considering specific interconnected pipeline segments as

part of the storage system: point-to-point

lines starting from the storage facility and

ending at the first intersection point with

explicit compression equipment. Commenters also requested a safe harbor for

interconnecting pipelines whereby the

pipelines would be deemed integral or

interdependent to a hydrogen storage

facility if (i) the complex is conceived

and designed concurrently, and all offsite interconnecting pipeline components

are placed into service within twenty four

months of the date on which the first such

component is placed into service, and (ii)

the offsite interconnecting components

are within 100 miles of the storage facility or within the same State as the storage

facility.

Commenters proposed the inclusion of

additional examples that would provide

additional specific eligible components

and provide capitalization rules; establish eligibility of pipelines connecting

storage facilities if exclusive to use of

March 17, 2025

those facilities; and establish eligibility of

purification equipment intended to return

the purity of hydrogen post-storage to its

purity level upon entering storage.

A commenter suggested allowing tanks

and associated equipment for the storage

of ammonia when used as a hydrogen carrier to qualify for the section 48E credit

but stated that equipment used to disassociate ammonia into hydrogen (referred

to as cracking) is a separate function from

hydrogen storage and should not be treated

as hydrogen energy storage property.

The Treasury Department and the IRS

agree that clarifying the definition of

hydrogen energy storage property is warranted. Hydrogen liquefaction equipment

may prepare hydrogen for storage in the

hydrogen energy storage property, making

such property an integral part of hydrogen

energy storage property. The final regulations provide that property that is an

integral part of hydrogen energy storage

property includes, but is not limited to,

hydrogen liquefaction equipment.

Section 48E(c)(2) generally defines

“energy storage technology” as having

the meaning given such term in section

48(c)(6). Section 48(c)(6)(A)(i) defines

“energy storage technology” as excluding

property primarily used in the transportation of goods or individuals and not for

the production of electricity. In general,

whether property is “primarily” used in

the transportation of goods or individuals

and not for the production of electricity, is

dependent on the facts and circumstances.

Pipelines, trailers, and railcars are property primarily used in the transportation

of goods or individuals and not for the

production of electricity. Accordingly,

such property generally would not be considered part of hydrogen energy storage

property for purposes of section 48E.

The Treasury Department and the IRS

recognize that there are specific cases in

which hydrogen pipelines that are directly

connected to an energy storage facility

can operate as hydrogen storage. Hydrogen energy storage property may have

hydrogen pipelines that are used as gathering and distribution lines to transport

hydrogen within the hydrogen energy

storage property, making such hydrogen

pipelines an integral part of the hydrogen

energy storage property. These gathering

and distribution lines are not pipelines

1118

used to transport hydrogen outside of the

hydrogen energy storage property. The

final regulations clarify that property that

is an integral part of hydrogen energy storage property includes, but is not limited

to, gathering and distribution lines within

a hydrogen energy storage property.

The Treasury Department and the IRS

decline to provide additional examples

of integral equipment and functionally

interdependent equipment in the context

of hydrogen energy storage property. The

final regulations provide a function-oriented method to determine whether a

technology is EST that is broad enough to

encompass nascent technologies without

rendering the regulations quickly obsolete.

It is impossible to enumerate every technology that may be eligible for the section

48E credit given the ever-changing nature

of the industry and pace of technological

development. Although these regulations

do not list all technologies that may qualify for the section 48E credit, the final regulations provide adequate guidance and

examples to illustrate the application of

the rules for taxpayers to analyze a particular technology. The Treasury Department and the IRS, therefore, do not adopt

commenters’ requests concerning specific

technologies.

9. Modification of Energy Storage

Technology

Proposed §1.48E-2(g)(7) provided that

with respect to electrical energy storage

property and hydrogen energy storage

property, modified as set forth in proposed §1.48E-2(g)(7), such property will

be treated as an electrical energy storage property (as described in proposed

§1.48E-2(g)(6)(i)) or a hydrogen energy

storage property (as described in proposed

§1.48E-2(g)(6)(iii)), except that the basis

of the existing electrical energy storage

property or hydrogen energy storage property prior to such modification is not taken

into account for purposes of proposed

§1.48E-2(g)(7) and section 48E.

Commenters noted that taxpayers

often replace energy storage equipment

to manage the natural degradation of

storage assets over time and to prolong

the useful life of these projects, even if

such improvements do not meet a 5-kWh

capacity threshold. One commenter there-

Bulletin No. 2025–12

fore contended that references to nameplate capacity in section 48E are best read

to disregard any degradation of the EST

between when it is placed in service and

when capacity is added. The same commenter contended that modifications to

EST should be eligible for the section

48E credit if one of the 5kWh nameplate measurement tests under proposed

§1.48E-2(g)(7)(i) and (ii) are met, regardless of any degradation that has occurred

to the EST’s nameplate capacity since its

original in-service date. The commenter

requested clarifying that the nameplate

capacity after a modification is the nameplate capacity of such property before

the modification plus the capacity added

by the modification. Another commenter

suggested permitting a “modification that

leads to a demonstrated increase in capacity (measured and recorded immediately

before such modifications) of not less than

5kWh,” to be eligible for the section 48E

credit.

Another commenter explained that

nameplate capacity of EST is typically

defined when initial interconnection is

approved, meaning that taxpayers who

wish to claim the estimated expenditures

of storage augmentation under section

48E will need to modify the original

interconnection agreement or oversize

their assets before placing them into

service. The commenter requested that

the section 48E rules recognize the eligibility of storage augmentation beyond

nameplate capacity and suggested that

the estimated expenditures associated

with augmentation of qualifying EST be

fully eligible for the section 48E credit.

Another commenter suggested clarifying

that augmentation of EST over time is

eligible for the section 48E credit, either

by treating estimated future augmentation costs at the time the EST is originally placed in service as eligible, with

recapture provisions if estimated costs

are not realized, or by treating any costs

related to augmentation that are incurred

as part of the upfront investment to construct an energy storage site as eligible.

The commenter described augmentation

as the periodic upgrade to capacity over

a project’s lifetime by either adding new

inverters and enclosures or recycling batteries to old enclosures and adding new

batteries behind an existing inverter.

Bulletin No. 2025–12

Section 48E(c)(2) defines EST by

reference to section 48(c)(6). Proposed

§1.48E-2(g)(7)(i) and (ii) applied the rules

for modification of EST described in section 48(c)(6)(A)(i). In defining EST, section 48(c)(6)(A)(i) uses the term “nameplate capacity.” Accordingly, the rules for

modification of EST apply with respect to

the nameplate capacity of EST, and do not

take into account potential degradation

of the EST prior to its modification. The

final regulations clarify that for purposes

of the modification rules, the increase in

nameplate capacity is equal to the difference between nameplate capacity immediately after the modification and nameplate

capacity immediately prior to the modification. To maintain consistency with the

statute, the final regulations do not adopt

commenters’ suggestions to measure an

increase in nameplate capacity in a different manner.

A commenter also suggested clarifying

that a modification is taken into account

whether the increase in capacity is within

an existing enclosure, the existing enclosure is expanded, a new enclosure is added

for the increased capacity, or a new enclosure is constructed to include both the

existing capacity and the added capacity.

Section 48(a)(6)(B) defines modifications of EST without any reference

to physical space limitations. Proposed

§1.48E-2(g)(7) also does not address limiting modifications of EST based on physical space. The Treasury Department and

the IRS conclude that a modification of

EST is not limited by the physical space

occupied by the EST before or after the

modification and adopt the proposed regulations without change.

D. Rules for certain lower-output

qualified facilities

Proposed §1.48E-4(a)(1) provided

rules for qualified facilities with a maximum net output of not greater than 5

megawatts to include qualified interconnection costs in the basis of an associated

qualified facility. Proposed §1.48E-4(a)

(1) provided that the qualified investment

for a qualified facility includes amounts

paid or incurred by the taxpayer for qualified interconnection property in connection with the installation of a qualified

facility that has a maximum net output

1119

of not greater than 5 MW (as measured

in alternating current) (Five-Megawatt

Limitation). Proposed §1.48E-4(a)(1) also

provided that the qualified interconnection

property must provide for the transmission

or distribution of the electricity produced

by a qualified facility and must be properly

chargeable to the capital account of the taxpayer as reduced by the rules in proposed

§1.48E-4(a)(6). Proposed §1.48E-4(a)(2)

defined the term “qualified interconnection property.” Proposed §1.48E-4(a)(2)

further provided that qualified interconnection property is not taken into account

to determine if a qualified facility meets

the requirements for the increase in credit

rate for energy communities or domestic

content because qualified interconnection

property is not part of a qualified facility.

Proposed §1.48E-4(a)(3) described the

Five-Megawatt Limitation as a measurement taken at the qualified facility level.

Proposed §1.48E-4(a)(3)(i) provided that

the maximum net output of a qualified

facility is measured only by the nameplate

generating capacity of the unit of qualified

facility, which does not include the nameplate capacity of any integral property, at

the time that the qualified facility is placed

in service. Proposed §1.48E-4(a)(3)(i)

additionally provided that the nameplate

generating capacity of the unit of qualified

facility is measured independently from

any other qualified facilities that share the

same integral property. Proposed §1.48E4(a)(3)(ii) provided how the nameplate

capacity at a qualified facility is measured. Proposed §1.48E-4(a)(4) defined

the term “interconnection agreement”

and proposed §1.48E-4(a)(5) defined the

term “utility.” Proposed §1.48E-4(a)(6)

provided that expenses paid or incurred

for qualified interconnection property and

amounts otherwise chargeable to capital

account with respect to such expenses

must be reduced under rules similar to the

rules contained in section 50(c). Proposed

§1.48E-4(a)(6) provided that the taxpayer

must pay or incur the interconnection

property costs, and therefore, any reimbursement, including by a utility, must be

accounted for by reducing the taxpayers’

expenditure to determine eligible costs.

The preamble to proposed §1.48E-4(a)

(6) explained that a taxpayer that is reimbursed for these costs may not include

such reimbursed costs in the amount paid

March 17, 2025

or incurred by the taxpayer for qualified

interconnection property. In the case of a

utility reimbursing a taxpayer for costs the

taxpayer pays or incurs for qualified interconnection property, the utility should

provide the taxpayer with information

regarding such costs by the date on which

the project is placed in service.

The preamble to the proposed regulations explained that the Treasury Department and the IRS are aware of common

situations in which a taxpayer could ultimately receive a payment, credit, or service from another entity, including a utility, related to the costs the taxpayer pays

or incurs for qualified interconnection

property. For example, one taxpayer may

place in service a qualified facility and

make payments to a utility with respect to

qualified interconnection property involving the addition, modification, or upgrade

to the utility’s transmission system related

to such qualified facility. Subsequently,

a different taxpayer may, at a later date,

place in service a qualified facility and

make payments to the same utility related

to the same additions, modifications, or

upgrades to the utility’s transmission system that were made in response to the first

taxpayer’s interconnection. The utility

may pay, credit, or provide services to the

first taxpayer in an amount related to the

costs paid by the second taxpayer. The

likely amount or timing of any such payment, credit, or service would be unknown

at the time the first taxpayer interconnects

to the utility’s transmission system.

Additionally, in the preamble to

the proposed regulations, the Treasury

Department and the IRS requested comments on several issues related to reimbursements. The Treasury Department

and the IRS requested comment on

whether such payment, credit, or service

received by the first taxpayer, as a result

of subsequent payments made to a utility by other parties, should be treated as

a reimbursement to the first taxpayer and

impact the amount of the costs of qualified interconnection property that the

first taxpayer may include in its basis for

purposes of the section 48E credit. The

Treasury Department and the IRS also

requested comment on whether the costs

paid by the second taxpayer should be

treated as amounts paid or incurred for

qualified interconnection property in con-

March 17, 2025

nection with the installation of the second

taxpayer’s qualified facility. The Treasury

Department and the IRS requested comment on industry practices relevant to the

determination of costs paid or incurred for

qualified interconnection property, including the accounting treatment of costs paid

or incurred for qualified interconnection property. The Treasury Department

and the IRS also requested comment on

whether any clarifications are needed

regarding the tax treatment of amounts

paid or incurred for qualified interconnection property, including reimbursement of

costs paid or incurred by a taxpayer for

qualified interconnection costs.

In addition to updates discussed in Sections III.D.1 through 6, the final regulations clarify the definition of an interconnection agreement in §1.48E-4(a)(4) by

stating that in the case of the election provided under section 50(d)(5) (relating to

certain leased property), the term includes

an agreement regarding a qualified facility

leased by such taxpayer.

1. Qualified Interconnection Property

Some commenters requested clarification on whether certain costs are considered amounts paid or incurred for qualified

interconnection property. A commenter

requested that the final regulations confirm that equipment required to modify

and upgrade transmission or distribution

systems beyond the point of interconnection would be considered qualified interconnection property.

Section 48E(b)(4) provides that the

term “qualified interconnection property” has the meaning given such term in

section 48(a)(8)(B). Section 48(a)(8)(B)

defines, in relevant part, the term “qualified interconnection property” to mean,

with respect to an energy project that is

not a microgrid controller, any tangible

property that is part of an addition, modification, or upgrade to a transmission

or distribution system that is required at

or beyond the point at which the energy

project interconnects to such transmission or distribution system in order to

accommodate such interconnection. Proposed §1.48E-4(a)(2) adopted this definition. The Treasury Department and the

IRS confirm that under this definition,

tangible property required to modify and

1120

upgrade transmission or distribution systems beyond the point of interconnection

would (provided the property satisfies the

other requirements of section 48(a)(8)(B))

be considered qualified interconnection

property and eligible for inclusion in basis

for purposes of the section 48E credit.

Another commenter requested that the

final regulations expand the definition

of qualified interconnection property to

include grid-enhancing property. A definitive response to this comment would

require the Treasury Department and the

IRS to conduct a complete factual analysis

of the property in question, which would

include information beyond that which

was provided by the commenter. Because

more information is needed to make the

determinations requested by the commenter, the requested clarifications are not

addressed in these final regulations.

A commenter requested that, in

instances in which the taxpayer funds

network upgrades and is then later reimbursed by the transmission owner, taxpayers not be required to account for any

reimbursements of interconnection-related expenses paid in later years to the

taxpayer. Another commenter requested

that in such a scenario, the final regulations should disregard reimbursements

to the extent that the reimbursement is

includable in the taxpayer’s gross income.

The commenter also asserted that in circumstances in which the taxpayer receives

a later payment from a customer utilizing

the qualified interconnection property, the

taxpayer be permitted to treat the payments

as revenue, rather than reimbursement.

One of the commenters also requested

confirmation that taxpayers can include

in their basis qualifying interconnection

costs recovered through “Transmission

Owner Initial Funding.” According to the

commenters, in certain regional markets,

the transmission owner funds the costs

of interconnection upgrades for which a

taxpayer is responsible, and the taxpayer

then reimburses the transmission owner

over a certain period, typically 20 years.

The commenters requested that a taxpayer

with such an arrangement be allowed to

include the full amount of interconnection

costs that it will ultimately pay over that

period in calculating their section 48E

credit for the taxable year that the qualified facility is placed in service.

Bulletin No. 2025–12

The Treasury Department and the IRS

note that the statute limits qualified interconnection property to tangible property. In the case of a taxpayer that pays

costs over 20 years, the commenters do

not describe whether these amounts paid

may include amounts that are not tangible property. To the extent commenters

are asking generally about the inclusion

of the full allocated cost of interconnection upgrades and, therefore, any

amounts paid or incurred by the taxpayer

for qualified interconnection property,

the Treasury Department and the IRS

recognize these payments could include

a number of markups that the utility that

builds and owns the relevant interconnection property might charge for that

property (whether currently or over a

later reimbursement period), such as the

markup for a rate of return or other costs

(for example, a tax gross-up). Whether

specific costs are allowable would be a

fact-specific inquiry related to, among

other things, whether such costs are

incurred with respect to eligible tangible

property. Therefore, the final regulations

do not adopt commenters’ suggestion

to provide that the full allocated cost of

interconnection upgrades is always eligible, although in many cases it may be.

However, the Treasury Department and

the IRS clarify that it is not determinative

whether such costs are charged upfront or

over time.

The final regulations under §1.48E-4(a)

(2) also clarify that for purposes of determining the original use of interconnection

property in the context of a sale-leaseback

or lease transaction, the principles of section 50(d)(4) must be taken into account,

as applicable, with such original use determined on the date of the sale-leaseback or

lease.

2. Interaction with Other Bonus Credit

Amounts

Commenters requested that the

final regulations clarify the interaction

between the rules for qualified interconnection costs and the computation

of the domestic content bonus credit

amount and the increased credit amount

for energy projects located in an energy

community since this clarification was

provided in section 48.

Bulletin No. 2025–12

Section 48E(b)(4) provides that the

term “qualified interconnection property” has the meaning given such term in

section 48(a)(8)(B). Section 48(a)(8)(B)

defines qualified interconnection property

as distinct from the definition of “energy

property” provided in section 48(a)(3).

Additionally, section 48(a)(8)(A) includes

amounts paid or incurred for qualified

interconnection property meeting certain

requirements for purposes of determining

the credit under section 48(a). Similarly,

section 48E(b)(1) includes expenditures

paid or incurred by the taxpayer for qualified interconnection property meeting

certain requirements for purposes of

determining a qualified investment under

section 48E(a) and defines qualified interconnection property discretely from a

qualified facility eligible under section

48E(a)(1). Given that qualified interconnection property is not part of a qualified

facility, §1.48E-4(a)(2) provides that qualified interconnection property is not taken

into account to determine if a qualified

facility meets the requirements for the

increase in credit rate for energy communities or domestic content. Therefore, no

further clarification is needed in the final

regulations.

Additionally, because the credit under

section 48E(a) is calculated by multiplying the applicable percentage – which

includes any domestic content bonus

credit amount – by the basis of the qualified facility – which includes amounts paid

or incurred by the taxpayer for qualified

interconnection property, qualified interconnection costs are taken into account

in calculating the domestic content bonus

credit amount and the increased credit

amounts for energy projects located in an

energy community and for certain facilities placed in service in connection with

low-income communities.

3. Basis Reduction

For purposes of section 48E(b), the

term “qualified interconnection property”

has the meaning given such term in section 48(a)(8)(B). There are no additional

references to section 48(a)(8) other than

section 48(a)(8)(B). As a result, the basis

reduction language in section 48(a)(8)(E),

which provides that in the case of expenses

paid or incurred for interconnection prop-

1121

erty, amounts otherwise chargeable to capital account with respect to such expenses

are to be reduced under rules similar to

the rules of section 50(c), is not explicitly incorporated. However, the Treasury

Department and the IRS determined that

the section 50(c) basis reduction rules

apply because section 50(c) provides for

basis adjustments to investment credit

property generally. Section 50(c) has two

basis adjustment rules that could apply to

interconnection property, section 50(c)(1)

or (3). Although interconnection property

is not part of a qualified facility as provided in proposed §1.48E-4(a)(2), qualified interconnection costs are included in

the basis used to calculate the section 48E

credit. Therefore, the Treasury Department and the IRS confirm the special rule

in section 50(c)(3)(A), which provides

for a basis reduction of 50 percent in the

case of any section 48E credit, applies to

qualified interconnection property that is

properly chargeable to capital account of

the taxpayer which is the amount included

in the basis used to calculate the section

48E credit.

4. Reimbursements and Other Cost

Reductions

The proposed regulations requested

comment on several issues related to

reimbursement. Generally, the proposed

regulations requested feedback on treatment of reimbursements in common situations in which a taxpayer could ultimately

receive a payment, credit, or service from

another entity, including a utility, related

to the costs the taxpayer pays or incurs

for qualified interconnection property.

The proposed regulations also requested

comments on the outcome when a different taxpayer makes payments to a utility

for the same additions, modifications, or

upgrades of another taxpayer. Comments

were also requested on industry practices

and tax implications of reimbursements.

In response to these requests, a commenter

requested the final regulations clarify that

a taxpayer is not required to reduce its

section 48E credit on account of any reimbursement of interconnection costs in the

absence of a fixed right (that is specific

in amount and time) to receive the reimbursement at the time the taxpayer incurs

the interconnection costs. This commenter

March 17, 2025

recommended that the final regulations

include rules that are administrable and

provide only a single credit on qualified

interconnection costs (for example, a case

in which another possible section 48E

claimant reimburses directly or indirectly

a first claimant).

Other commenters requested clarification

of the reimbursement rules under specific

scenarios. One commenter suggested that

for cases in which the taxpayer funds network upgrades and is later reimbursed

by the transmission owner, the final regulations should avoid accounting for any

reimbursements of interconnection-related expenses paid in later years to the

taxpayer.

Another commenter suggested that

including reimbursed interconnection

costs in the credit basis should be based

on whether the amounts are includible in

gross income. The commenter stated that

in circumstances in which a utility reimburses a qualified facility owner under a

set schedule, the final rule should disregard the utility’s reimbursements to the

extent that the reimbursement is includable in a taxpayer’s gross income. The

commenter added that if a subsequent

interconnection customer’s use of the

qualified interconnection property results

in a later payment or credit to the taxpayer,

the payment or credit should be treated as

revenue rather than reimbursement. The

commenter also requested clarification

that in circumstances in which a qualified

facility owner pays for qualified interconnection property without reimbursement,

the owner should be able to utilize the full

cost of those facilities in determining its

investment tax credit.

The Treasury Department and the IRS

recognize that situations may arise in

which the initial amount paid or incurred

for qualified interconnection property is

reduced after the taxable year in which

the taxpayer claims the section 48E

credit. The Treasury Department and the

IRS also recognize that other complicated situations may arise in determining

whether a taxpayer has paid or incurred

qualified interconnection costs. The

comments received confirmed that these

questions are not unique to the reimbursement of qualified interconnection

costs and may also arise in the context of

other tax credits. Therefore, the determi-

March 17, 2025

nation of whether qualified interconnection costs have been paid or incurred by

the taxpayer and whether such amounts

are reduced by virtue of transactions with

the utility or with a third party should be

based on generally applicable Federal tax

principles.

In consideration of the comments, the

final regulations revise the rule under

§1.48E-4(a)(6) regarding reduction to

amounts chargeable to capital account to

reflect the application of Federal tax principles to such transactions in determining

the amount a taxpayer paid or incurred

for qualified interconnection costs. The

final regulations at §1.48E-4(a)(1) explain

that if the costs borne by the taxpayer are

reduced by utility or non-utility payments,

Federal tax principles may require the

taxpayer to reduce the amount treated as

paid or incurred for qualified interconnection property to determine a section 48E

credit. The final regulations at §1.48E4(a)(7) also include two additional examples related to reducing costs borne by the

taxpayer.

5. Five-Megawatt Limitation

Some commenters provided feedback on the measurement rule for the

Five-Megawatt Limitation provided at

proposed §1.48E-4(a)(3). Two commenters suggested that the Five-Megawatt Limitation be modified to clarify the relevant

measurement is performed at the point of

output (that is, 5 MW AC at the inverter)

rather than nameplate generation capacity

to better align with section 48E(b)(1)(B).

As described by one of the commenters,

the text of section 48E(b)(1)(B) does not

contain the words “nameplate” or “capacity” and instead it specifically refers to the

5 MW limit by reference to “output . . .

measured in alternating current” which,

for solar photovoltaic systems can only be

read to refer to post-inverter measurement.

Another commenter recommended that

the final regulations refer only to output

measured in alternating current, without

presuming that the direct current nameplate capacity is identical. Additionally,

this commenter requested that the final

regulations specifically clarify that qualified facilities be defined at the inverter

level for the limited purpose of evaluating

if they meet the Five-Megawatt Limita-

1122

tion, as this is the source of any alternating

current output.

Measuring output with accuracy and

consistency must be done using a defined

standard. The Treasury Department and

the IRS conclude that nameplate generating capacity is the best and most practical

measure of the maximum net output of a

unit of qualified facility. Nameplate generating capacity is an objective and identifiable standard that can be accurately

measured with consistency. Therefore, the

Treasury Department and the IRS do not

adopt the comment suggesting changes to

the use of nameplate capacity. The final

regulations at §1.48E-4(a)(3)(ii) retain the

rule that the determination of whether a

qualified facility has a maximum net output of not greater than 5 MW (as measured

in alternating current) is based on the

nameplate capacity of the unit of qualified

facility.

Regarding measurement of the

Five-Megawatt Limitation in alternating

or direct current, the Treasury Department

and the IRS understand the commenter’s

concerns and agree that the rule provided

in the proposed regulations should be

revised. Section 48E(b)(1)(B)(i)(I) refers

to a maximum net output of not greater

than five megawatts (as measured in alternating current). Proposed §1.48E-4(a)(3)

(ii) provided for nameplate capacity in

alternating current, without addressing

types of qualified facilities, such as solar

facilities, that generate electricity in direct

current. Nameplate capacity for these

types of qualified facilities is measured

before the facility’s output is converted to

alternating current by an inverter. Because

an inverter would be considered property

that is an integral part of the qualified

facility and not part of the unit of qualified

facility itself, measuring the nameplate

capacity of a qualified facility that generates electricity in direct current would be

difficult under the proposed regulations.

However, in response to comments, the

final regulations provide a method of measuring nameplate capacity for a qualified

facility that generates electricity in direct

current. The final regulations at §1.48E4(a)(3)(iii) provide that, for qualified

facilities that generate electricity in direct

current, the taxpayer determines whether a

qualified facility has a maximum net output of not greater than 5 MW (in alternat-

Bulletin No. 2025–12

ing current) by using the lesser of: (i) the

sum of the nameplate generating capacities within the unit of qualified facility

in direct current, which is deemed the

nameplate generating capacity of the unit

of qualified facility in alternating current;

or (ii) the nameplate capacity of the first

component of the qualified facility that

inverts the direct current electricity generated into alternating current. This rule

provides flexibility for taxpayers while

ensuring that the maximum net output (in

alternating current) of a qualified facility

can be determined in an administrable and

reasonably accurate manner for qualified

facilities that generate electricity in direct

current.

A few commenters suggested providing additional examples to illustrate output rules for interconnection property.

Another commenter recommended finalizing Example 1 in proposed §1.48E-4(a)

(7)(i) which specified that two section 48E

facilities, each with a maximum output of

5 MW AC, can share – and treat as qualified interconnection property – a step-up

transformer, which is integral to both

properties.

In response to commenters that

requested additional clarification of the

Five-Megawatt Limitation, the final regulations add an additional example under

§1.48E-4(a)(7) as well as provide clarifications to the existing examples. These

clarifications illustrate the revised method

of measuring nameplate capacity for a

qualified facility that generates electricity in direct current. The clarifications

also demonstrate the application of the

Five-Megawatt Limitation in cases in

which the nameplate capacity differs from

the maximum output provided in the interconnection agreement. Specifically, the

newly added example describes the application of the Five-Megawatt Limitation to

separate interconnection agreements for a

single qualified facility made up of units

of a qualified facility owned by a single

taxpayer. In that example, although the

taxpayer has interconnection agreements

with the utility that each allow for a maximum output of 10 MW (as measured in

alternating current), the taxpayer may

include the costs taxpayer paid or incurred

for qualified interconnection property,

1

subject to the terms of the interconnection

agreement, to calculate the taxpayer’s section 48E credits for each of the qualified

facilities because each has a maximum net

output of not greater than 5 MW (alternating current).

6. Energy Storage Technology

Two commenters suggested that the

final regulations permit interconnection

costs for stand-alone EST. Both commenters explained that although sections

48E(b) and (c) do not mention eligible

interconnection costs in the context of

stand-alone EST, the term “qualified

interconnection property” is defined by

reference to section 48(a)(8). Therefore,

according to the commenters, this result

is supported because the statutory text of

that section expressly includes “amounts

paid or incurred by the taxpayer for qualified interconnection property … to provide for the transmission or distribution of

the electricity produced or stored by such

property.” These commenters also added

that this result would reconcile sections

48 and 48E and would advance the IRA’s

express policy of encouraging storage

deployment.

Based on the explicit language of section 48E, the Treasury Department and

the IRS disagree that including costs for

qualified interconnection property for a

standalone EST is supported by the statute. Section 48E(c)(1), which describes

the qualified investment with respect to

EST, does not refer to qualified interconnection property.

Section 48E(b)(1) generally provides,

in part, that the qualified investment

with respect to any qualified facility for

any taxable year includes the amount of

any expenditures which are both paid or

incurred by the taxpayer for qualified interconnection property in connection with a

qualified facility which has a maximum

net output of not greater than 5 megawatts

(as measured in alternating current), and

placed in service during the taxable year

of the taxpayer. The amount of any expenditures which are paid or incurred by the

taxpayer for qualified interconnection

property must also be properly chargeable

to capital account of the taxpayer. Section

48E(b)(4) defines qualified interconnection property by reference to section 48(a)

(8)(B). While commenters are correct that

the reference to qualified interconnection

property in section 48(a)(8)(A) also refers

to “electricity stored,” the cross-reference

applicable for qualified facilities is to section 48(a)(8)(B) (the definition of qualified interconnection property) and there is

no similar cross-reference in section 48E

to support including the costs of qualified

interconnection property for an EST. The

overt omission of a reference to qualified interconnection property in section

48E(c), which provides rules for determining qualified investment with respect

to an EST is instructive. The clear exclusion of qualified interconnection property

for EST under section 48E(c)(1), particularly when compared to its inclusion in

section 48E(b)(1)(B)(i)(I), demonstrates

Congressional intent. Therefore, the final

regulations do not adopt commenters’

recommendation that expenditures paid

or incurred by the taxpayer for qualified

interconnection property are includible in

the section 48E credit for EST.

As discussed earlier, the Treasury

Department and the IRS understand that

some hybrid systems (such as those for

a solar qualified facility and EST) operate under a single interconnection agreement.1 In these situations, while expenditures paid or incurred by a taxpayer for

qualified interconnection property are not

includible in the section 48E credit for an

EST, those expenditures paid or incurred

for qualified interconnection property

that are properly allocated to the qualified

facility (for example, the solar qualified

facility) may be included in the credit base

for the qualified facility’s qualified investment for the section 48E credit.

E. 80/20 rule

As noted earlier, the 80/20 Rule is

designed to broaden the availability of

the investment credit by providing a new

original placed in service date for a qualified facility that includes some components of property previously placed in

service, rather than requiring the qualified

facility to be composed entirely of new

components of property. In the context of

In some configurations, the addition of EST to a qualified facility may have no or limited impact on the interconnection costs of that hybrid facility.

Bulletin No. 2025–12

1123

March 17, 2025

section 48E, the 80/20 Rule applies at the

qualified facility level to the components

of property within the unit of qualified

facility or unit of EST.

Proposed §1.48E-4(c)(1) provided that

for purposes of section 48E(b)(3)(A)(ii), a

facility may qualify as originally placed in

service even if it contains some used components of property within the unit of qualified facility, provided that the fair market

value of the used components of the unit

of qualified facility is not more than 20

percent of the unit of qualified facility’s

total value (that is, the cost of the new

components of property plus the value of

the used components of property within

the unit of qualified facility). In addition

to providing a new placed in service date

for a qualified facility that includes some

components of property that have previously been placed in service, the 80/20

Rule also encourages investment in the

retrofitting of existing facilities.

Although this section focuses on the

80/20 Rule in the section 48E context, section II.F. of this Summary of Comments

and Explanation of Revisions describes

comments received on both sections 45Y

and 48E. As described in that section, the

Treasury Department and the IRS confirm

that if a qualified facility under section 45

or energy property or EST under section

48 is later retrofitted in a manner that satisfies the 80/20 Rule, it will be considered

a new qualified facility or a new EST and

may be eligible for a section 48E credit so

long as the qualified facility or EST meets

all requirements of section 48E. Additionally, the Treasury Department and the IRS

confirm that section 48E does not refer to

a project or system but in the case of section 48E to a qualified facility and an EST.

1. Relevance of Prior Section 48

Guidance

Prior guidance and regulations under

section 48 are not binding for purposes of

section 48E. However, several commenters stated that application of the 80/20

Rule as proposed violated longstanding

precedent under section 48. These commenters stated that under section 48 as

previously applied, taxpayers would be

allowed to claim the section 48E credit

for capital improvements as well as additions or modifications to existing prop-

March 17, 2025

erty without regard to the 80/20 Rule.

Further, some commenters suggested that

the 80/20 Rule as originally applied in

the section 48 context was only relevant

for addressing the “original use requirement” for property and was not intended

to prevent additions of new property from

qualifying for a credit. These commenters pointed to Example 2 in §1.48-2(b)

(7) and Examples 4 and 5 in §1.48-2(c), to

illustrate that, in the context of the section

48 credit, the 80/20 Rule was intended to

address the “original use requirement.”

Consistent with this view, several commenters asserted that the prohibition

against claiming the section 48E credit for

additions that do not meet the 80/20 Rule

(Excluded Costs Rule) is inconsistent with

the statute and regulations and should be

removed.

One commenter, like many others that

asserted that the application of the 80/20

Rule for purposes of section 48E is contrary to historical precedent, also focused

on the negative economic impact. The

commenter stated that the proposed regulations would negatively impact the economics of both existing and future development of clean energy projects and that

existing project investments were based

on reasonable reliance that future capital

improvements would be eligible for the

section 48E credit without regard to the

80/20 Rule. Similarly, another commenter

stated it did not see a policy rationale for

application of the 80/20 Rule in the manner provided in the proposed regulations,

as it would lead to uneconomic decisions,

such as favoring demolition and rebuilding instead of capital expenditures to

modify an existing energy property and,

like others, pointed to what they view as

inconsistency with more than 60 years of

prior investment tax credit (ITC) precedent.

The Treasury Department and the IRS

understand the concerns raised by commenters. However, prior guidance and

regulations based on section 48 are not

binding for purposes of section 48E. Section 48E provides a credit only for a qualified investment with respect to a qualified

facility or an EST and not for components

of property within a qualified facility or

an EST. For the reasons provided here, the

Treasury Department and the IRS believe

that the best interpretation of “qualified

1124

investment with respect to a qualified

facility or an EST” is that if a taxpayer

does not place in service a qualified facility or an EST, a taxpayer is not eligible for

a credit. Therefore, the application of the

80/20 Rule to the section 48E credit in the

proposed regulations benefits taxpayers

by providing a path to access the section

48E credit when less than an entirely new

qualified facility or EST is placed in service.

Section 48E contains several features

that require the credit to be analyzed

at the level of a qualified facility or an

EST. The PWA requirements are applied

to a qualified facility or an EST under

section 48E(a)(2)(A) and (B). Likewise,

determining whether the increased credit

amounts for domestic content and energy

communities also apply to a qualified

facility or an EST. Finally, determining

whether a taxpayer may include qualified

interconnection property expenditures is

tied to the maximum net output of a qualified facility. These determinations cannot

be made with respect to individual components of property. This statutory construction clearly contemplates calculating

the credit on the basis of an entire qualified facility or EST. Applying the 80/20

Rule for purposes of section 48E provides

taxpayers with an opportunity for additions of property to an existing facility or

an EST to be eligible for the section 48E

credit if the rule is satisfied.

Other commenters pointed to what they

describe as longstanding rules that otherwise ITC-eligible improvements made to

existing energy property may qualify for

the ITC. One commenter stated that the

IRA did not change this rule in any way.

According to this commenter, application

of the 80/20 Rule has always uniquely

been relevant for purposes of the production tax credit (PTC) and is simply not relevant for purposes of the ITC. The Treasury Department and the IRS affirm the

role of the 80/20 Rule in the ITC context

to allow for additions of new property to

an existing facility or EST to be eligible

for the section 48E credit if the rule is satisfied.

2. Excluded Costs

Several commenters asserted that section 48E allows a credit for adding com-

Bulletin No. 2025–12

ponents or making capital additions to a

qualified facility. One commenter concluded that capital improvements should

not be penalized under the 80/20 Rule.

According to the commenter, owners of a

qualified facility, such as a solar qualified

facility, should be allowed to upgrade or

replace components and claim new section 48E credits. The commenter pointed

to two examples in the existing Treasury

Regulations under section 48 that the

commenter stated illustrate the proper

interpretation of the original use requirement in §1.48-2(b)(7) and the difference

between a reconditioned or rebuilt unit

of property previously placed in service

and/or the use of “some used parts,” on

the one hand, and the addition of new

property or capital improvements, on the

other.

Another commenter stated that the

excluded costs described in proposed

§1.48E-4(c)(5) are unclear because a taxpayer is always adding new components

to used components, and it should be

reworded to clarify that it does not imply

that the taxpayer must exclude the cost of

new components when a taxpayer adds

them to used components.

Some of these commenters requested

that the 80/20 Rule and the Excluded Costs

Rule provided at proposed §1.48E-4(c)

(5) not apply for section 48E purposes to

additions of otherwise eligible new components of property added to an existing

qualified facility on which a PTC was not

claimed. As an example, the commenter

asserted that the owner of a solar qualified facility should be able to make capital

improvements to upgrade or replace existing solar modules or inverters and claim a

new section 48E credit without regard to

the 80/20 Rule on such capital improvements. This commenter stated that the

80/20 Rule should only apply when a

new category of components is added to

an existing qualified facility comprised

of different categories of components

(such as wind being added to solar), then

that new category of component should

be treated as a separate “unit of qualified

facility.” The commenter stated that this

result is also consistent with the IRA generally, which does not prevent a taxpayer

from claiming both a PTC with respect to

the output of a qualified facility and an

ITC with respect to any associated EST.

Bulletin No. 2025–12

The commenter stated that this is also consistent with Notice 2018-59.

Another commenter explained that the

80/20 Rule has its origins under the section 48 credit and in the context of the

section 48 regulations the phrase, “some

used parts,” that has been the focus of

the IRS’s administrative practice for

almost 60 years. According to the commenter, Rev. Rul. 68-111, 1968-1 C.B.

29, reflects the proper application of the

80/20 Rule albeit under a prior version

of the section 48 credit. The commenter

asserted that the Excluded Costs Rule

in proposed §1.48E-4(c)(5) distorts the

80/20 Rule by shifting the focus from the

use of “used parts” at the time the unit

of property is originally placed in service

to “new” property and capital improvements that are added later.

The Treasury Department and the IRS

note that the application of the 80/20 Rule

clarifies that expenditures for components

of property that are not a unit of qualified facility can only qualify if the 80/20

Rule is satisfied, and thus any new property and capital improvements added later

that are not a unit of qualified facility are

ineligible for a section 48E credit unless

the 80/20 Rule is satisfied. In response

to the commenters that asserted that section 48E allows a credit for a component

of property rather than a qualified facility, the Treasury Department and the IRS

disagree with commenters’ interpretation

of the statutory language. The Treasury

Department and the IRS also emphasize

that existing regulations under §1.48-2

do not reflect the current version of section 48 and are not applicable to section

48E. Additionally, a taxpayer who makes

a capital improvement to an existing facility should consider the application of the

Incremental Production Rule provided in

§1.45Y-4(d). Similarly, a taxpayer that

makes modifications to an EST should

consider the application of the rule provided at §1.48E-2(g)(7).

Another commenter suggested that

the purpose of the 80/20 Rule is to allow

a facility that was placed in service prior

to January 1, 2025, to nevertheless satisfy the requirement in section 48E(b)(3)

(A)(ii) that a qualified facility be placed

in service after December 31, 2024, if a

substantial portion of the facility is reconstructed after 2024.

1125

The Treasury Department and the IRS

disagree that the 80/20 Rule is tied to a

particular year. The 80/20 Rule allows

a taxpayer to treat an existing facility as

originally placed in service at a later date

by adding new components of property

that represent at least 80 percent of the

value of the unit of qualified facility. A

retrofitted qualified facility or EST will

be eligible for the section 48E credit if it

meets the requirements of the 80/20 Rule

before the section 48E credit phases out.

3. Recapture

A commenter stated that if the Treasury Department and the IRS retain the

Excluded Costs Rule as written, the final

regulations should further clarify that

investment tax credit recapture rules will

not apply to additions of property that

do not satisfy the 80/20 Rule. Generally,

recapture under section 48E is governed

by section 50(a)(1)(A), which provides

for recapture of the credit if property

ceases to be investment credit property.

Additions of property that do not satisfy

the 80/20 Rule and that are thus subject to

the Excluded Costs Rule are not included

in the calculation of the section 48E credit.

Accordingly, there is no credit to recapture

with respect to such additions of property.

4. Original Use Requirement

Some commenters asserted that the

original use requirement applies only

to acquired property, and therefore, the

80/20 Rule is unnecessary for other types

of property. These commenters pointed to

section 48E(b)(2)(C), which provides, in

part, that qualified property means property (i) the construction, reconstruction,

or erection of which is completed by the

taxpayer, or (ii) which is acquired by the

taxpayer if the original use of such property commences with the taxpayer. This

language was incorporated at proposed

§1.48E-2(f)(3) through (5). The commenters cited this language to support

their view that the original use requirement applies only to acquired property.

Therefore, according to the commenters,

the “original use” requirement applies to

property acquired by a taxpayer, but does

not apply to property the construction,

reconstruction, or erection of which is

March 17, 2025

completed by the taxpayer. The commenters concluded that this statutory language

supports the position that capital additions

to an existing qualified facility or EST

qualify for the section 48E credit.

The Treasury Department and the IRS

disagree with the commenters’ interpretation of the statutory language and corresponding language in the proposed regulations. The commenters are correct that

section 48E(b)(2)(C)(ii) requires original

use for acquired property, whereas section

48E(b)(2)(C)(i) does not mention original

use with respect to property that is constructed, reconstructed, or erected by or

for the taxpayer, however, that is because

an original use requirement is unnecessary in the latter context. The taxpayer

that is claiming a credit for property that

it constructed, reconstructed, or erected

by or for such taxpayer will necessarily be the original user of such property.

Although some commenters suggested the

80/20 Rule has historically been applied

in the section 48 context with respect to

the original use requirement, the Treasury

Department and the IRS emphasize that

the 80/20 Rule was first applied to the section 48 credit through guidance issued in

the Internal Revenue Bulletin providing

beginning of construction guidance. The

Treasury Department and the IRS reiterate

that for section 48E purposes, the 80/20

Rule allows a taxpayer that retrofits an

existing facility to treat such facility as a

new qualified facility or EST.

5. EST

In the context of section 48E, the proposed regulations discussed the 80/20

Rule for purposes of retrofitting a qualified facility but did not specifically

address the application of the 80/20 Rule

to EST. Some commenters asked if the

80/20 Rule applied to EST. Commenters

requested that the final regulations clarify

that the 80/20 Rule also applies to EST,

including battery energy storage systems

and pumped storage hydropower. Another

commenter stated that new component

categories, like EST, added to existing

facilities should be treated as separate

units of qualifying facility and exempted

from the 80/20 Rule.

In response to these comments, the

Treasury Department and the IRS note that

March 17, 2025

the 80/20 Rule applies to EST. The 80/20

Rule, as it is applied to EST, is a separate

rule from the modification of EST provided by the section 48E(c)(2) reference

incorporating section 48(c)(6)(B) (modifications of EST). The final regulations

adopt the application of the 80/20 Rule for

EST, and this Summary of Comments and

Explanation of Revisions addresses EST

in regard to the 80/20 Rule. With respect

to the addition of EST to a site with an

existing qualified facility, the Treasury

Department and the IRS note that an EST

is separate from a qualified facility as discussed in section III.C.2. of this Summary

of Comments and Explanation of Revisions. As a result, merely adding an EST

to a site with an existing qualified facility

does not require application of the 80/20

Rule.

6. Specific Technologies

Some commenters asked for specific

clarifications regarding the 80/20 Rule

and particular technologies. A commenter

suggested that in the case of a hydropower facility combined with a pumped

storage hydropower facility, each powerhouse generating unit (turbine or pump

turbine, generator and controls) should be

considered a unit of qualified facility for

purposes of the final regulations. Additionally, this commenter asserted, that, in

the case of a wind facility, the functionally interdependent components of a unit

of qualified facility should be the turbine,

tower, and foundation pad. In both cases,

the commenter requested that the 80/20

Rule apply to the functionally interdependent components of the unit of qualified

facility.

For purposes of the section 45Y and

section 48E credits, the unit of qualified

facility includes all functionally interdependent components of property (as

defined in proposed §1.48E-2(d)(2)(ii))

owned by the taxpayer that are operated

together and that can operate apart from

other property to produce electricity. The

final regulations adopt these rules, which

provide a function-oriented approach to

determine if property is considered part of

the qualified facility that generates electricity, to ensure that the final regulations

are broad enough to encompass nascent

technologies without rendering the regu-

1126

lations quickly obsolete. After consideration of the comments, an example of the

application of the 80/20 Rule to a qualified hydropower production facility has

been added to the final regulations under

§1.48E-4(c)(6)(v). Additionally, the Treasury Department and the IRS made revisions to Example 3 of §1.48E-4(c)(6)(iii),

similar to those made for §1.45Y-4(d)

(3)(iii), that removed the reference to a

decommissioned nuclear facility to avoid

referring to decommissioned and restarted

nuclear facilities in the Incremental Production Rule and the 80/20 Rule.

Another commenter specifically asked

that the 80/20 Rule be eliminated for certain types of facilities such as power generation, thermal generation, or CHP facilities upgraded to be carbon neutral. To

support this request, the commenter noted

that the 80/20 Rule discourages the use

of existing infrastructure in CHP applications. While the Treasury Department

and the IRS appreciate the concerns raised

for particular technologies, as described

in the preamble to the proposed regulations, a qualified facility generally does

not include equipment that is an addition

or modification to an existing qualified

facility or EST. However, see §1.48E4(b) regarding the Incremental Production

Rule.

7. Interaction Between the Incremental

Production Rule and the 80/20 Rule

Some commenters were concerned

about the interaction of the Incremental

Production Rule and the 80/20 Rule and

the provided at proposed §§1.45Y-4(c)

and 1.48E-4(b). One commenter requested

that the Treasury Department and the IRS

make clear that the provision for retrofitted facilities is separate and distinct

from the requirements for the Incremental

Production Rule, and that if there is any

overlap between the two, the 80/20 Rule

should control. The commenter stated that

a retrofitted facility that results in the addition of capacity should be treated as newly

placed in service if it meets the 80/20 Rule

(rather than requiring the retrofitted facility to follow the Incremental Production

Rule).

Another commenter recommended

clarifying when to apply one rule or the

other in situations in which both the 80/20

Bulletin No. 2025–12

and Incremental Production rules could

apply. A commenter also asserted that the

statutory text under sections 45Y(b)(1)(C)

and 48E(b)(3)(B)(i), regarding the Incremental Production Rule, is without regard

to the 80/20 Rule or the facility’s original

placed in service date, and that, therefore,

Congress sought to incentivize investment

in existing facilities without requiring taxpayers to meet the 80/20 Rule. Similarly,

commenters recommended providing an

example of a decommissioned facility

without any reference to the 80/20 Rule,

and to revise Example 3 in proposed

§1.45Y-4(d)(3)(iii), regarding the 80/20

Rule, to remove the reference to decommissioning.

The Treasury Department and the IRS

agree that the Incremental Production

Rule provided in sections 45Y(b)(1)(C)

and 48E(b)(3)(B)(i) are separate and distinct from the 80/20 Rule. If a retrofitted

facility satisfies the 80/20 Rule, the final

regulations provide that the facility will be

treated as newly placed in service even if

the taxpayer also satisfies the Incremental

Production Rule. Separately, these final

regulations provide an additional example, in §1.48E-4(b)(5), which specifically

addresses decommissioned and restarted

facilities. Additionally, §1.48E-4(c)(1) is

clarified to confirm that a qualified facility

or EST may claim the full available credit

rather than the credit resulting from an

addition of capacity. Finally, Example 3 in

§1.45Y-4(d)(3)(iii) is modified to remove

the reference to decommissioning.

Another commenter requested clarification that even if a facility placed in service before 2025 (pre-2025 facility) fails

the 80/20 Rule, property that is added to

the facility may still qualify for the section 48E credit under the Incremental

Production Rule in section 48E(b)(3)(B)

(i). Proposed §1.48E-4(b)(1) provided,

in part, that the term qualified facility

includes either a new unit or an addition

of capacity placed in service after December 31, 2024, in connection with a facility

described in section 48E(b)(3)(A) (without regard to section 48E(b)(3)(A)(ii)),

which was placed in service before January 1, 2025, but only to the extent of the

increased amount of electricity produced

at the facility by reason of such new unit

or addition of capacity. Thus, a pre-2025

facility that fails the 80/20 Rule may still

Bulletin No. 2025–12

qualify for the section 48E credit under

the Incremental Production Rule. Additionally, the Treasury Department and the

IRS confirm that this rule will apply to a

pre-2025 facility regardless of whether it

satisfies the 80/20 Rule.

8. Other Comments

While the majority of commenters that

opposed the 80/20 Rule suggested eliminating it, particularly the Excluded Costs

Rule, one commenter provided an additional recommendation. This commenter

recommended that the proposed regulations be revised to permit taxpayers to

elect either the 80/20 Rule or a rule based

on the original cost of the qualified facility

(Original Cost Rule). Under the Or

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