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January 6, 2021 IRS ISSUES FINAL 45Q RULE FOR CARBON CAPTURE TAX CREDITSpdf

On January 6, 2021, the U.S. Treasury Department and Internal Revenue Service issued final regulations for carbon oxide sequestration tax credits under section 45Q of the Internal Revenue Code (Code). The rule establishes who may qualify for tax credits available for carbon capture equipment placed in service on or after February 9, 2018. Facilities begun prior to 2025 may be eligible under the new rule, extended from 2023 under the previous regulation.

The rule clarifies tax credit qualification for two amounts: (a) up to $50 per metric ton of qualified carbon oxide for permanent sequestration; and (b) up to $35 per metric ton of qualified carbon oxide for Enhanced Oil or Natural Gas Recovery purposes.

Under the new rule, there is no longer a 75,000,000 metric ton limit on captured carbon eligible for the tax credit. Additionally, the definition of carbon capture has been broadened to include “carbon oxide,” rather than “carbon dioxide” under the previous regulation. The final rule provides a recapture period of three years and offers guidance on determining adequate security measures for geological storage and allowing third-party tax credit claims, among other guidance. The new rule also allows smaller carbon capture facilities to be aggregated into one project for purposes of claiming the credit when, for instance, common ownership and location are present. The full text of the final rule is available on the attached PDF.

Docket information on the rule, including all comments received on the proposed rule may be found at: 

https://www.regulations.gov/docket?D=IRS-2020-0013.