Tuesday, June 25, 2024

What Nonprofits Need to Know concerning the Investment Tax Credit

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The Inflation Reduction Act of 2022 (IRA) updates and expands the Investment Tax Credit (ITC) for photo voltaic and battery storage resilient energy initiatives. The ITC, which was beforehand set at a 26% credit score for 2023 and a ten% credit score for every year thereafter, has been up to date and elevated to cowl 30% of eligible venture set up prices. to 2032. This change considerably will increase the anticipated financial savings for photo voltaic initiatives and can assist create market stability over the following decade.

Congress additionally expanded the ITC in three necessary methods: 1) Nonprofits with no tax legal responsibility can now apply for direct wage funds equal to the quantity of the tax credit score 2) Storage-only initiatives are eligible for ITC. 3) The ITC now contains some ‘bonus credit’, which may considerably improve financial savings for initiatives serving low-income and underserved communities. These necessary adjustments are outlined in additional element under.

Can nonprofits profit from the Investment Tax Credit?

Importantly, the ITC will profit everybody, not simply those that are accountable for tax. Nonprofits and different tax-exempt entities – resembling municipalities and Tribal governments – are eligible to obtain the ITC within the type of a direct cost cost.

To study extra concerning the Direct Pay course of and venture eligibility, see the Direct Pay Fact Sheet.

Direct Pay, additionally known as Elective Pay, permits tax-exempt entities to obtain a cost equal to the total quantity of the Investment Tax Credit (ITC) and its bonus credit after a cleanup venture is accomplished. that vitality is “put into service”. To take part in Direct Pay, tax exempt entities should notify the IRS on that yr’s tax return and thru the IRS pre-filing registration type.

The Clean Energy Group revealed the information “What Nonprofits Need to Know When Applying for Direct Payments” to assist tax-exempt entities navigate the necessary steps to obtain the cost of direct cost. The information additionally features a customizable timeline, making it straightforward for initiatives to trace progress by way of steps and guarantee no deadlines are missed.

What sort of fresh vitality expertise qualifies?

ITC beforehand may solely be used for vitality storage if it was put in with photo voltaic or wind energy. Now standalone storage initiatives, along with photo voltaic solely and photo voltaic mixed with storage initiatives, are eligible for ITC. The change to incorporate storage-only initiatives will improve entry to storage, together with organizations which have already put in photo voltaic and will now wish to discover including sturdy battery storage to their facility.

Currently eligible initiatives embrace photo voltaic, vitality storage, microgrid controllers, and small wind initiatives. The credit score additionally extends to gas cells, biogas, and mixed warmth and energy property. Eligibility necessities will change for initiatives positioned in service after December 31, 2024, as described in Tax Code Section 48E. In 2025, to be eligible initiatives should generate electrical energy with a greenhouse fuel emissions price that doesn’t exceed zero, resembling photo voltaic and wind. It can even proceed to incorporate certified vitality storage applied sciences.

Energy storage, as outlined in 26 US Code §§ 48E(c)(2) and 48(c)(6), contains “property … not lower than 5 kilowatt hours”. It doesn’t embrace storage “primarily used for the transport of products or people and never for the manufacturing of electrical energy”.

How a lot is the ITC?

ITC is elevated by 30% baseline credit score for initiatives ‘positioned in service’ earlier than 2033 (or earlier if emissions targets have been met, see New Clean Electricity Tax Investment 48E). This applies to initiatives underneath one megawatt capability and to bigger initiatives that meet the above wage and apprenticeship necessities. Projects will probably be eligible for as much as six bonus credit that may improve the quantity of the ITC by as much as 70% of the venture’s eligible set up prices.

What are Bonus Credits?

The ITC contains six completely different bonus credit that initiatives can be utilized for. Four of these credit are inside the Low-Income Communities Bonus Credit Program. Projects can solely apply for in a of 4 bonus credit inside the Low-Income Communities Bonus Credit Program. This signifies that a venture can obtain a ten% or 20% bonus credit score, relying on their eligibility.

The 4 bonus credit inside the Low-Income Communities Bonus Credit Program are:

  • 10% bonus for initiatives positioned in a low-income group (mapping program exhibiting potential eligibility)
  • 10% bonus for initiatives positioned on Tribal Land
  • 20% bonus for initiatives if the power is a part of a certified low-income housing venture
  • 20% bonus for initiatives if the power is a part of a certified low-income financial profit venture

The ITC additionally contains two further 10% credit, that are stackable. Eligible initiatives can apply the 2 bonus credit, along with the 30% baseline credit score and one of many bonus credit inside the Low-Income Communities Bonus Credit Program.

The two stackable bonus credit (§ 48) are:

  • 10% bonus for initiatives positioned in an “vitality group” (mapping program exhibiting potential eligibility)
  • 10% bonus for initiatives that meet home manufacturing necessities

Learn extra about every of those six bonus credit in a sequence of truth sheets revealed by CEG. To learn concerning the software course of for the Low-Income Communities Bonus Credit Program, see this submit.

What is the applying course of for these incentives?

ITC baseline credit score and Direct Pay aren’t topic to aggressive software cycles. However, all eligible tax-exempt entities that meet the necessities for ITC and that file correctly will obtain ITC by way of Direct Pay. Projects should file for Direct Pay after the clear vitality venture is “positioned in service”, proven in Step 2 of the Project Development Timeline determine, proven under. Learn extra concerning the technique of making use of for Direct Pay on this information.

Although ITC and Direct Pay can be found to all eligible initiatives, the 4 bonus credit inside the Low-Income Communities Bonus Credit Program have restricted annual capability. Eligible venture groups can apply for a “capability allocation” as soon as they’ve a contract for the venture, proven in Step 1 of the Project Development Timeline determine. Projects may require further documentation relying on which bonus credit the venture is requesting. The venture workforce should apply for and obtain a capability allocation earlier than placing the venture into service. Learn extra concerning the software course of for the Low-Income Communities Bonus Credit Program on this submit.

Resource Library

Direct Payments for Tax Exempt Entities

Tax exempt entities and authorities entities can now entry the Investment Tax Credit and its bonuses by way of Direct Pay reimbursement, additionally known as Elective Pay. To study extra concerning the Direct Pay possibility and the method of receiving a Direct Pay reimbursement, go to:

Investment Tax Credit and its Bonus Credits

The Clean Energy Group and Clean Energy States Alliance have revealed a number of weblog posts and sources about updates to the Investment Tax Credit and the affect of the Inflation Reduction Act together with:

What if I’ve extra questions?

You can contact Anna from the Clean Energy Group ([email protected]). The Clean Energy Group or its staff are or might act as tax advisors. Projects ought to search skilled tax recommendation earlier than making any selections.

Treasury Department Guide

program Existing Guidance Expected Guidance for the Future Applications Process
Direct Payment Payment Notice of Proposed Rulemaking (2023-12798, June 14, 2023) Pre-Filing Registration Temporary Regulations (2023-12797, June 14, 2023) The IRS should launch the ultimate rules. Projects put in within the 2023 tax yr should file for direct funds this spring. Learn extra.
10% Bonus Credit Low-Income Community Initial Guidance (Notice 2023-17, February 13, 2023) Notice of Proposed Rulemaking (2023-13510, June 1, 2023) Final Regulations (2023-17078, August 15, 2023) Revenue Procedure (Rev.2, Rev. August 15, 2023) The IRS might change the capability allocation and software course of (described on this 2023 weblog submit) for future software cycles. The 2023 software portal opened on October 19, 2023. As of February 2024, restricted capability stays obtainable. The 2024 cycle of this system will open later this yr.
10% Bonus Credit Tribal Land
20% Bonus Credit Affordable Housing
20% Bonus Credit Economic Benefit Project
10% Bonus Credit Energy Community Initial Guidance (Notice 2023-45, April 7, 2023) Updated Guidance (Notice 2023-29, June 15, 2023) The IRS should difficulty proposed rules and, later, ultimate rules. Projects that start building on or after 1/1/2023 will probably be eligible.
10% Bonus Credit Domestic Manufacturing Initial Guidance (Notice 2023-38, May 12, 2023) Supplementary Guidance (Notice 2024-9, Dec. 28, 2023) The IRS should difficulty proposed rules and, later, ultimate rules. Projects that start building on or after 1/1/2023 will probably be eligible.

Visit the Treasury Department’s webpage for an up-to-date index of all notices and procedures revealed on Inflation Reduction Act-related tax incentives and insurance policies together with Direct Pay, the Investment Tax Credit (§ 48), the Low-Income Communities Bonus Credit Program (§ 48(e)), and the bonus credit for vitality communities and for residence contents. The Inflation Reduction Act (Public Law No: 117-169 (8/16/2022)) lays the groundwork for every of those applications.



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