On Thursday, Representative Kevin Brady (R. Tex.), Chairman of the House Ways and Means Committee, introduced the Tax Cuts and Jobs Act (TCJA), the long-awaited and much-anticipated tax reform bill, along with a summary and FAQs . The TCJA contains several provisions of interest to the renewable energy industry.


The TCJA would have a significant adverse impact on the PTC. Under current law the PTC is adjusted for inflation, and the inflation-adjusted amount for 2017 is 2.4 cents per kWh. The TCJA would repeal the inflation adjustment for electricity produced at a facility the construction of which begins after the date of enactment. (We note that the summary of the bill states that the cutoff date is November 2, but the bill itself states that it is the date of enactment.) As a result, the PTC for such facilities would be 1.5 cents per kWh throughout the 10-year PTC period. This would represent a significant reduction in the amount of the PTC.

In addition, the TCJA would clarify that the construction of any facility would not be treated as beginning before any date unless there is a continuous program of construction that begins before the date and ends on the date the property is placed in service. This clarification is effective for all tax years. The term “continuous program of construction” is similar to a term used in the IRS guidance concerning beginning of construction issues, but it is unclear whether the legislation is intended to mirror the applicable IRS guidance or represents a new standard. If it represents a new standard, a project owner who structured its PTC safe-harboring strategy to satisfy the IRS guidance may not satisfy the new standard under the TCJA, a potentially disastrous outcome. (For prior coverage on beginning of construction issues, please see our alerts concerning Notices 2013-29 , 2013-60 , 2014-46 , 2015-25 , 2016-31 , and 2017-04 .)


Several changes to the ITC are favorable developments for the industry. The TCJA generally would harmonize the expiration dates and phase-out schedules for different properties, many of which have not been eligible for the ITC since December 31, 2016 under existing law. (The solar ITC was extended pursuant to the Protecting Americans from Tax Hikes Act in 2015, but most of the other ITC-eligible properties were excluded from the extension.) Accordingly, the 30% ITC for solar, fiber-optic solar, qualified fuel cell, and qualified small wind energy property would be available for property the construction of which begins before 2020, and would be phased out for property the construction of which begins before 2022. The 10% ITC for qualified microturbine, combined heat and power system property, and thermal energy property would be available for property construction of which begins before 2022.

The TCJA would eliminate the permanent 10% ITC for solar and geothermal property the construction of which begins after 2027.

In addition, the TCJA would clarify that the “continuous program of construction” requirement that applies to the PTC also would apply to the ITC.

Corporate Tax Rates

As expected, the TCJA would lower the highest corporate tax rate from 35% to 20%. Although there has been recent discussion that the reduction would be phased in over several years, the current draft of the bill calls for the full reduction to take effect for tax years beginning after 2017.

Bonus Depreciation/Expensing

As expected, the TCJA would increase bonus depreciation from 50% to 100%. The increase generally would be effective for property acquired and placed in service after September 27, 2017 and before January 1, 2023. The bill would eliminate the requirement that the original use of the property begin with the taxpayer, meaning that a subsequent purchaser of property would be able to claim the 100% bonus with respect to the property. Property used by a regulated public utility or in a real property trade or business generally would not qualify for bonus depreciation. Under a special transition rule, a taxpayer could elect to apply the prior law with respect to depreciation for its first taxable year ending after September 27, 2017.

We note that the TCJA would preserve the ability to elect out of bonus depreciation. Before the bill was released, there was some concern that 100% expensing would be mandatory, which could have created significant structuring issues for partnership flip deals. (Full expensing could have forced a difficult choice between having the investor accept a larger deficit restoration obligation, reallocating losses and potentially credits to sponsors, and electing out of MACRS depreciation altogether.) The ability to elect out of 100% bonus depreciation will allow tax equity partnerships to claim ordinary MACRS depreciation, as they typically have done until recently.

Interest Deduction

The TCJA would disallow a deduction for net interest expense in excess of 30 percent of the business’s adjusted taxable income—i.e., taxable income computed without regard to business interest income or expense, net operating losses, and depreciation, amortization, and depletion. Disallowed amounts could be carried forward for five years. Property used by a regulated public utility generally would not be subject to the disallowance. The interest disallowance could have an adverse impact on partnership flip deals with project-level debt, though the magnitude of the impact will depend on the particular characteristics of the deal (among other things, on the amount of debt).

If enacted in its current form, the TCJA would have a significant impact on the renewable energy industry. However, it is important to keep in mind that there is still a long way to go before the bill (or any successor) can become law. In the meantime, the bill itself will have a significant impact on renewable energy projects being structured and financed over the next few months, given that most tax equity transactions have conditions precedent and pricing constraints that are tied to proposed tax law changes