Trump budget and renewable energy
The Trump budget delivered to Congress on February 10 would scale back tax incentives for renewable energy.
The proposals have no chance of clearing Congress this year. The document is a possible agenda if the president is re-elected and the Republicans retake control of the House and retain control of the Senate in November.
Each administration presents a budget in February for the fiscal year that starts on the following October 1. Congress has ultimate control over tax and spending decisions.
The president proposed in the latest budget to repeal the investment tax credit for projects on which construction starts after 2020. The investment tax credit is claimed currently on solar generating equipment, fuel cells, geothermal heat pumps and small combined heat and power facilities. Wind, biomass, landfill gas, incremental hydroelectric and run-of-the-river and ocean energy projects qualify for production tax credits instead of investment tax credits, but have a choice of claiming investment credits and foregoing production tax credits. The budget would leave production tax credits in place.
It would also repeal a residential solar credit for homeowners who install rooftop solar panels, solar hot water heaters and geothermal heat pumps after this year.
It would slow down depreciation on renewable energy facilities that are put in service after Congress acts on the proposal. Most such projects are depreciated currently over five years on a front-loaded basis. They would be depreciated instead over periods of from five to 20 years, depending on the “specific activity of the taxpayer and the type of property.” No other details are provided.
The budget would require homeowners to pay taxes on any payments received from the local utility as a reward for taking energy savings measures. Utilities in some states offer rebates to homeowners as an incentive to install solar equipment, better windows, more efficient lighting and similar equipment. Section 136 of the US tax code spares residential customers from having to report payments from the local utility that are inducements to take measures “to reduce consumption of electricity or natural gas or to improve management of energy demand with respect to a dwelling unit.” The section would be repealed.
Trump also proposed to repeal a tax credit of up to $7,500 for buying an electric vehicle. Credits could not be claimed on such vehicles put in service after this year. The credit phases out currently for any manufacturer’s vehicles over a one-year period starting in the second quarter after the manufacturer has sold 200,000 vehicles. Tesla and General Motors have already reached this threshold.
This is not the first time that proposals to scale back renewable energy tax credits have been sent to Congress. In the fall 2017, the House tax-writing committee, which was then under Republican control, voted to drop any inflation adjustment for production tax credits on electricity sold after November 2, 2017. The tax credits would have reverted to their 1992 level. The House committee bill would also have made it harder for renewable energy facilities to be considered under construction for tax purposes, and it would have repealed investment tax credits for solar and geothermal facilities that start construction after 2027. The proposals were not ultimately enacted, but they led tax equity investors to add protections in tax equity documents for future changes in tax law.