Updated September 16, 2019 to accurately reflect residential guidance
The Federal Investment Tax Credit steps down over the next 4-years as shown by the schedule in the table below. In 2022 and beyond, the residential credit will drop to zero while the commercial credit will remain at 10 percent.
For residential projects, in order to qualify for the ITC during a specific tax year the project must be “placed in service” by December 31 of that year. Equipment is considered “placed in service” once it has been fully installed and is capable of being used by the owner for its “specifically assigned function.” For new residential construction the “placed in service” date is the date of occupancy by the homeowner.
For commercial projects, in order to qualify for the ITC during a specific tax year the project must “commence construction” by December 31 of that year and must be “placed in service” by January 1, 2024.
The IRS defines two methods for determining the “commence construction” date: 1) starting physical work of a significant nature; or, 2) meeting the “5 percent safe harbor test” by incurring 5 percent or more of the total cost of the facility in the year that construction begins. Both methods require that a taxpayer make continuous progress towards completion once construction has begun, and that the project be “placed in service” by January 1, 2024.
This article is for informational purposes only and does not constitute tax advice. Please direct your customer to their tax preparer to understand how the IRS guidance applies to their specific situation.