Tax credit for qualified combined heat and power system property

(a)

Establishment of credit

(1)

In general

Subpart E of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 48E the following new section:

48F.

Credit for qualified combined heat and power system property

(a)

Credit for qualified combined heat and power system property

(1)

In general

For purposes of section 46, except as provided in subsection (c)(1)(B), the credit for qualified combined heat and power system property for any taxable year is an amount equal to 10 percent of the basis of each qualified combined heat and power system property placed in service during such taxable year. (2)

Coordination with rehabilitation credit

The percentage specified in paragraph (1) shall not apply to that portion of the basis of any property which is attributable to qualified rehabilitation expenditures (as defined in section 47(c)(2)). (3)

Qualified combined heat and power system property

For purposes of this section, the term qualified combined heat and power system property means any property— (A)which is combined heat and power system property, (B) (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, (C)with respect to which depreciation (or amortization in lieu of depreciation) is allowable, and (D)which meets the performance and quality standards (if any) which— (i)have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy), and (ii)are in effect at the time of the acquisition of the property.

Such term shall not include any property which is part of a facility the production from which is allowed as a credit under section 45 for the taxable year or any prior taxable year.

(4)

Special rule for property financed by tax-exempt bonds

Rules similar to the rule under section 45(b)(3) shall apply for purposes of this section. (5)

Domestic content bonus credit amount

(A)

In general

In the case of any energy project which satisfies the requirement under subparagraph (B), for purposes of applying paragraph (1) with respect to qualified combined heat and power system property that is part of such project, the percentage specified in paragraph (1) shall be increased by 10 percentage points. (B)

Requirement

Rules similar to the rules of section 45(b)(9)(B) shall apply. (6)

Increase in credit rate for energy communities

In the case of any energy project that is placed in service within an energy community (as defined in section 45(b)(11)(B), as applied by substituting energy project for qualified facility each place it appears), for purposes of applying paragraph (1) with respect to qualified combined heat and power system property which is part of such project, the percentage specified in paragraph (1) shall be increased by 10 percentage points. (7)

Regulations and guidance

The Secretary shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this subsection, including regulations or other guidance which provides for requirements for recordkeeping or information reporting for purposes of administering the requirements of this subsection. (b)

Certain progress expenditure rules made applicable

Rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of subsection (a). (c)

Definitions

For purposes of this section— (1)

Combined heat and power system property

(A)

Combined heat and power system property

The term combined heat and power system property means property comprising a system— (i)which uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including heating and cooling applications), (ii)which produces— (I)at least 20 percent of its total useful energy in the form of thermal energy which is not used to produce electrical or mechanical power (or combination thereof), and (II)at least 20 percent of its total useful energy in the form of electrical or mechanical power (or combination thereof), (iii)the energy efficiency percentage of which exceeds 60 percent, and (iv)the construction of which begins on or after January 1, 2025. (B)

Limitation

(i)

In general

In the case of combined heat and power system property with an electrical capacity in excess of the applicable capacity placed in service during the taxable year, the credit under subsection (a)(1) (determined without regard to this paragraph) for such year shall be equal to the amount which bears the same ratio to such credit as the applicable capacity bears to the capacity of such property. (ii)

Applicable capacity

For purposes of clause (i), the term applicable capacity means 25 megawatts or a mechanical energy capacity of more than 33,500 horsepower, or an equivalent combination of electrical and mechanical energy capacities. (iii)

Maximum capacity

The term combined heat and power system property shall not include any property comprising a system if such system has a capacity in excess of 50 megawatts or a mechanical energy capacity in excess of 67,000 horsepower, or an equivalent combination of electrical and mechanical energy capacities. (iv)

Clarification regarding capacity determinations

For purposes of this subparagraph, the determination of the electrical or mechanical energy capacity of any system shall be based on the normal operating rates of such system. (C)

Special rules

(i)

Energy efficiency percentage

For purposes of this paragraph, the energy efficiency percentage of a system is the 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 of which is the lower heating value of the fuel sources for the system. (ii)

Determinations made on Btu basis

The energy efficiency percentage and the percentages under subparagraph (A)(ii) shall be determined on a Btu basis. (iii)

Input and output property not included

The term combined heat and power system property does not include property used to transport the energy source to the facility or to distribute energy produced by the facility. (D)

Systems using biomass

If a system is designed to use biomass (within the meaning of paragraphs (2) and (3) of section 45(c) without regard to the last sentence of paragraph (3)(A)) for at least 90 percent of the energy source— (i)subparagraph (A)(iii) shall not apply, but (ii)the amount of credit determined under subsection (a) with respect to such system shall not exceed the amount which bears the same ratio to such amount of credit (determined without regard to this subparagraph) as the energy efficiency percentage of such system bears to 60 percent. (2)

Energy project

The term energy project means a project consisting of one or more qualified combined heat and power system properties that are part of a single project.

(2)

Clerical amendment

The table of sections for subpart E of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 48E the following new item:

48F. Credit for qualified combined heat and power system property.

(b)

Coordination with energy credit

Section 48(c)(3)(B) of such Code is amended by adding at the end the following new clause:

(iv)

Clarification regarding capacity determinations

For purposes of this subparagraph, the determination of the electrical or mechanical energy capacity of any system shall be based on the normal operating rates of such system.

(c)

Conforming amendments

(1)Section 38(c)(4)(B)(x) of such Code is amended by inserting or the credit for qualified combined heat and power system property determined under section 48F after section 48. (2)Section 45L(f) of such Code is amended by striking 47 or 48(a) and inserting 47, 48(a), or 48F(a). (3)Section 46 of such Code is amended by striking and at the end of paragraph (6), by striking the period at the end of paragraph (7) and inserting , and, and by adding at the end the following new paragraph:

(8)the credit for qualified combined heat and power system property.

(4)Section 48C(f) of such Code is amended by inserting 48F, after 48E,. (5)Section 50(a)(2)(E) of such Code is amended by striking or 48E(e) and inserting 48E(e), or 48F(b). (6)Section 59A(b)(3)(C) of such Code is amended by inserting or the credit for qualified combined heat and power system property determined under section 48F after section 48. (d)

Effective date

(1)

In general

Except as otherwise provided in this subsection, the amendments made by this section shall apply to property the construction of which begins after December 31, 2024. (2)

Coordination with energy credit

(A)

In general

The amendment made by subsection (b) shall apply to property— (i)the construction of which begins before January 1, 2025, and (ii)which is placed in service during taxable years beginning after December 31, 2024. (B)

No inference

The amendment made by subsection (b) shall not be construed to create any inference with respect to the proper application of section 48(c)(3)(B) of the Internal Revenue Code of 1986 with respect to taxable years beginning before January 1, 2025.