Reg. § 1.45V-6 Rules for determining the placed in service date for an existing facility that is modified or retrofitted to produce qualified clean hydrogen.
(a) Modification of an existing facility
(1) In general Under section 45V(d)(4) of the Code, in the case of an existing facility that—
(i) Was originally placed in service before January 1, 2023, and, prior to the modification described in this , did not produce qualified clean hydrogen, and after the date such facility was originally placed in service—
(A) Is modified to produce qualified clean hydrogen; and
(B) Amounts paid or incurred with respect to such modification are properly chargeable to the taxpayer's capital account for the facility,
(ii) Such facility will be deemed to have been originally placed in service as of the date the property required to complete the modification described in this is placed in service.
(2) Modification requirements For purposes of section and of this section, an existing facility will not be deemed to have been originally placed in service as of the date the property required to complete the modification is placed in service unless the modification is made for the purpose of enabling the facility to produce qualified clean hydrogen and amounts paid or incurred with respect to the modification are properly chargeable to the taxpayer's capital account. A modification is made for the purpose of enabling the facility to produce qualified clean hydrogen if the facility could not produce hydrogen with a lifecycle GHG emissions rate that is less than or equal to 4 kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen but for the modification. For example, if a taxpayer solely pays or incurs capital expenses to modify existing components of a hydrogen production facility that are not necessary for the production of hydrogen with a lifecycle GHG emissions rate that is less than or equal to 4 kilograms of CO2e per kilogram of hydrogen, such modification does not entitle the facility to a new placed in service date. A modification does not include changing fuel inputs to the hydrogen production facility. For example, changing from using conventional natural gas to using renewable natural gas as a feedstock, is not a modification under this paragraph.
(3) Interaction with 80/20 Rule An existing facility that satisfies the requirements of section and and of this section is deemed to be originally placed in service as of the date that the property required to complete the modification described in section is placed in service regardless of whether such facility satisfies the requirements of of this section.
(b) Retrofit of an existing facility (80/20 Rule) For purposes of section , a retrofitted hydrogen production facility may establish a new date on which it is considered originally placed in service, even though the facility contains some used components of property of a single production line, provided the fair market value of the used property is not more than 20 percent of the facility's total value, calculated by adding the cost of the new property to the value of the used property (80/20 Rule). For purposes of the 80/20 Rule, the cost of new property includes all properly capitalized costs of the new property included within the facility. If a facility satisfies the requirements of the 80/20 Rule, then the date on which such facility is considered originally placed in service for purposes of section is the date on which the new property added to the facility is placed in service.
(c) Examples The following examples illustrate the application of and of this section:
(1) Example 1: Modification of an existing facility
(i) Facts Facility X, a hydrogen production facility that was originally placed in service on January 1, 2018, could not produce qualified clean hydrogen as described in section . After January 1, 2023, Facility X was modified to produce qualified clean hydrogen, and all amounts paid or incurred with respect to such modifications were properly chargeable to the taxpayer's capital account for Facility X. The property required to complete the modification was placed in service on June 1, 2023.
(ii) Analysis Under section and of this section, because Facility X was originally placed in service before January 1, 2023, and before the modification could not produce qualified clean hydrogen, it is deemed to be originally placed in service as of the date the property required to complete the modification is placed in service. Accordingly, for purposes of section and (d)(4), Facility X is deemed to have been originally placed in service on June 1, 2023.
(2) Example 2: Modification of an existing facility; coordination with the section 45Q credit previously allowed
(i) Facts The facts are the same as in of this section (Example 1), except that taxpayer was allowed a section credit with respect to carbon capture equipment (CCE) included at Facility X before June 1, 2023.
(ii) Analysis Under of this section and , although Facility X is deemed to have been originally placed in service on June 1, 2023, because taxpayer had previously been allowed a section credit with respect to the CCE included at Facility X, no section credit is allowable for qualified clean hydrogen produced at Facility X, despite the modification. The result would be the same if the section credit with respect to the CCE included at Facility X were allowed to a person other than the taxpayer.
(3) Example 3: Modification of an existing facility and coordination with section 45Q credit not previously allowed
(i) Facts Facility Y, a hydrogen production facility that was originally placed in service on February 1, 2020, could not previously produce qualified clean hydrogen as described in section . On February 1, 2026, Facility Y was modified to produce qualified clean hydrogen by adding new CCE to allow Facility Y to capture, process, and prepare carbon dioxide for transport for disposal, injection, or utilization. All amounts paid or incurred with respect to such modifications were properly chargeable to the taxpayer's capital account for Facility Y. The property required to complete the modification of Facility Y was placed in service on February 1, 2026, and as a result, Facility Y, including the new CCE, is deemed to be originally placed in service on February 1, 2026, for purposes of sections and . No section credit has been allowed to any taxpayer with respect to the new CCE located at Facility Y.
(ii) Analysis Under of this section and , because no section credit has been allowed to any taxpayer with respect to the new CCE located at Facility Y, a section credit is allowable for the qualified clean hydrogen produced at Facility Y, assuming all other requirements of section are met.
(4) Example 4: Retrofit of an existing facility (80/20 Rule)
(i) Facts Facility Z, a hydrogen production facility that was originally placed in service on February 1, 2023, does not produce qualified clean hydrogen as described in section . On January 1, 2026, Facility Z was retrofitted to produce qualified clean hydrogen. After the retrofit, the cost of the new property included in Facility Z is greater than 80 percent of Facility Z's total value.
(ii) Analysis Even though Facility Z does not satisfy the requirements of section because Facility Z was not originally placed in service before January 1, 2023, under of this section, Facility Z is deemed to be originally placed in service on January 1, 2026, because Facility Z meets the 80/20 Rule. Thus, a section credit is allowable for qualified clean hydrogen produced at Facility Z during the 10-year period beginning on January 1, 2026, assuming all other requirements of section are met.
(5) Example 5: Retrofit of an Existing Facility (80/20 Rule) and coordination with section 45Q credit previously allowed
(i) Facts The facts are the same as in of this section (Example 4), except that before the retrofit, Facility Z included CCE for which a section credit was allowed to a taxpayer.
(ii) Analysis Under of this section and , Facility Z is deemed to be originally placed in service on January 1, 2026, because Facility Z meets the 80/20 Rule. However, a section credit is not allowable for qualified clean hydrogen produced at Facility Z during the 10-year period beginning on January 1, 2026, because a section credit has been allowed to a taxpayer with regard to the CCE included in Facility Z.
(d) Applicability date This section applies to taxable years beginning after December 26, 2023.
[T.D 10023, 90 FR 2309, Jan. 10, 2025]