Section 48 or 48E: Which Credit Is Your Project?

Which credit your project claims comes down to two dates. The old Section 48 credit turns on when construction began. Section 48E turns on when the facility is placed in service. Treasury’s final regulations for the clean electricity credits under Sections 45Y and 48E, published January 15, 2025, set everything else.

Those two tests overlap, so a project can sit inside both, and the regulations resolve it without using a date at all.

The line between the two credits

Section 48E applies to a qualified facility the taxpayer places in service after December 31, 2024. Section 48 property generally had to begin construction before January 1, 2025 to reach its 6% tier for solar.

A project that began construction in 2024 and energizes in 2025 or later can look eligible under either. The regulations don’t settle that with a date. They settle it with a rule against double dipping: a facility isn’t a qualified facility under 48E if a credit under Section 45, 48, or several others was allowed for it in this year or a prior year, where allowed means actually claimed on a return and not challenged. Which credit you claim first decides the answer.

Co-location is fine. A 48E facility sitting next to a Section 48 or Section 45 facility doesn’t lose its status by proximity.

What counts as a qualified facility

A qualified facility is used for generating electricity, meaning it’s a net generator after accounting for what it consumes; is placed in service after December 31, 2024; and has an anticipated greenhouse gas emissions rate not greater than zero.

That last condition sounds technical and is not an obstacle for the usual nonprofit project. The annual table in effect lists wind, solar photovoltaic and concentrating solar, hydropower, marine and hydrokinetic, geothermal, nuclear fission, fusion energy, and waste energy recovery property drawing on any of those, all at a rate not greater than zero. A taxpayer can rely on the table in effect when construction began, as long as the facility keeps operating in that category.

The unit of a facility is built the same way as under Section 48: functionally interdependent components that can operate apart from other property to produce electricity, plus integral parts you own. Interconnection property is treated separately and stays outside the facility, but for a facility with a maximum net output of 5 MW or less measured in alternating current, capitalized interconnection expenditures still go into the qualified investment. Almost every nonprofit project sits under that threshold, so don’t let those costs get dropped.

One difference matters for portfolios. Section 48E works facility by facility. It has no equivalent of the Section 48 energy project concept that let several properties be grouped, and the regulations say each facility must separately qualify for the domestic content increase. A district with eight rooftop arrays runs that calculation eight times.

Energy storage is credited separately from the generating facility

Energy storage technology is credited separately from the generating facility, not as part of it. Electrical storage needs nameplate capacity of at least 5 kWh, and the list runs past lithium-ion to flow batteries, sodium sulfur, lead-acid, ultracapacitors, pumped storage hydropower, compressed air, flywheels, and reversible fuel cells.

Thermal storage is the provision that matters if your campus has ground-source heat pumps. It covers a system directly connected to an HVAC system that moves heat into or out of a storage medium for later use, and the regulations name underground tanks, artificial pits, aqueous solutions, borehole fields, and phase change materials as qualifying media. A system is deemed to have the required purpose if it can heat or cool the building interior for at least one hour. Basis is measured incrementally: the cost of the storage plus HVAC system, less what an HVAC system without storage capacity meeting the same need would have cost.

Swimming pools, combined heat and power property, and building structural components are excluded.

The 80/20 retrofit rule under Section 48E

A retrofitted facility or storage unit can count as originally placed in service if the fair market value of used components is not more than 20% of the total value of the unit, counting the cost of new components plus the value of used ones.

If the test is met, new costs for integral property can go into basis too. If it isn’t met, costs of new components added to used ones can’t be taken into account at all. The regulations include an example running a 1982 nuclear facility through the test, which makes the point that original vintage is irrelevant.

What changes in a direct pay claim under Section 48E

Section 48E is on the list of credits an applicable entity can claim as an elective payment. The mechanics don’t change: pre-filing registration for each credit property, which means a separate registration for the facility and a separate one for the storage, the registration number on Form 3468 and on Form 3800, and the election on a timely filed Form 990-T.

What changes is which part of Form 3468 you use and which regulations govern the substantive tests, so a claim that cites Section 48 rules for a 48E facility is answering the wrong questions.

What to do next

Establish and document the construction start date, then the placed in service date, before you decide which credit the return claims. Those two dates, in that order, answer the question.

This article is general information, not tax advice, and it reflects IRS guidance as of January 21, 2025. Deadlines and eligibility depend on your organization's tax year and entity type. Please confirm your own facts with a qualified tax professional before relying on anything here.