tax credits for business

Key highlights of the INFLATION REDUCTION ACT

Updated June 2023. The federal income tax credit is here to stay for 10 more years. The owner of the solar project receives the credits and these flow through via K-1s to the shareholders.

Thru 2032 - 30%

2033 - 22%

2034 and after - 10%

You can now CARRY BACK the tax credit 3 years under new rules from the Inflation Reduction Act.

This means that an owner of solar system placed in service in 2024 can go back to 2021 and amend their tax returns to receive a refund.

There are add-on tax credit incentives for solar projects as follows:

Brown fields (+10%)
Low income communities or tribal lands (+10%).
Projects serving qualified low income projects (+20%).
Energy communities with retired coal plants (+10%). See if your project is eligible by searching the map here.
Bonus for using American made solar equipment (+10%). IRS guidance here.
This means it is possible to receive up to 60 to 70% income tax credit
In addition, there are federal grants available under the Rural Energy for America Program. The deadlines to apply are at the end of each quarter (3/31, 6/30, 9/30, 12/31). Solar CFO can help you with the application. Check eligible rural areas.

This article put out by the U.S. Department of Energy is hands-down the most comprehensive solar tax webpage I have ever seen: click here.

See our article with example case study of how these add-on incentives can boost your solar IRR.

Projects >1MW will require prevailing wages to be paid by the installer (but Solar CFO believes that the labor market for solar talent is very tight right now and that many installers are already paying the equivalent of prevailing wages).

Additional information from the IRS and the EPA on the Inflation Reduction Act.

You can now CARRYBACK the tax credit 3 years under new rules from the Inflation Reduction Act.

You can now CARRY BACK the tax credit 3 years or sell the credits to another party for cash.

TAX CREDIT TRANSERABILITY

Can't use your 30% solar tax credit? Solar CFO can help you can sell it.

We are still waiting for guidance to clarify rules about direct sales of federal tax credits, but there will be new rules which allow the owners of the tax credits to sell the credits to others in the open market. Word on the street is that these credits are trading for $0.80 to $0.95 cents on the dollar and the buyer of the credits will require indemnification from the seller that the tax credit is valid (there are insurance products available for this).

The Inflation Reduction Act authorizes owners of solar projects to sell credits to others for cash, provided the credits originated in 2023 or later (Section 6418 of the US tax code).
The deadline to sell a tax credit is the year-end in which the seller becomes entitled to a tax credit or until the due date of tax returns for that year. For example, if your solar project is built in 2024, you could sell the credit until March 15, 2025 or whatever your due date is.
Sales proceeds from tax credits are NOT reported as income to the seller.
We are still waiting for guidance to see if buyers would pick up the difference between the amount paid and the value of the tax credit as income.
Tax credits can only be sold once, must be paid for in cash, cannot be carried from another year, and cannot be sold to a related party.
Sellers might need to buy insurance to backstop indemnities in the event that a tax credit is disallowed.
The IRA allows non-profits and other certain entities that directly own projects to apply to the IRS for direct cash payments.
Several points of clarification are expected from the Treasury, including whether tax credits transferred to another company can be sold, how to handle potential income from tax credit profits, and who is responsible for audit adjustments after tax credits have been sold.

Here is a link to a great article about tax credit transferability from a leading law firm in the renewable energy space.