Clean Electricity Investment Tax Credits for Tax-Exempt Entities

What does this funding get me?

If you install solar, wind, geothermal power, or battery storage on property belonging to your tax-exempt organization, you can get 30-70% of the price back as a “direct pay” or “elective pay” tax credit.

Note: the rules are different for commercial businesses (learn more here)

Am I eligible?

Local governments, faith groups, and other nonprofit and tax-exempt entities are eligible for a 30% investment tax credit (ITC). 

Additional credits of up to 40% depend on whether your project is located in an “energy community” or low-income community, and on the percentage domestic content in the materials used in the project.  

If your project is over 1 megawatt, there are additional wage and apprenticeship requirements. 

See below for more detail on these provisions.

How can I access the money?

For the first time, the IRA makes it possible for tax-exempt organizations to receive clean energy tax credits as “direct pay” or “elective pay” (that is, in cash), even though they don’t owe Federal taxes.

Depending on your project, you will receive 30-70% of the cost of the equipment. The credits and bonus credits are: 

• 30% base credit for projects under 1 megawatt (for a project over 1 MW, the base credit is reduced to 6% if it does not meet prevailing wage and apprenticeship requirements)
• 10% bonus for projects located in an “energy community” (2% if project is > 1 MW and does not satisfy wage/apprenticeship requirements) 
• 10% bonus for projects with minimum domestic content (2% if project is > 1 MW and does not satisfy wage/apprenticeship requirements) (domestic content rules are explained in this IRS notice, this updated notice, and this July 2024 webinar)
• Low-income credits (application required): 10% bonus for projects < 5 MW located in a low-income community or on Federally-recognized Tribal land OR 20% bonus for projects < 5 MW that are part of a qualified low-income residential project or otherwise provide financial benefit to low-income people. 

More on the low-income bonus credit

The 10% or 20% low-income credits are not guaranteed, because quantity is limited to 1.8 gigawatts per year through 2033. Therefore, unlike all the other credits, you must apply for them before putting the project in service. After being approved, you have 4 years to install the project.

The 2024 application period for the low-income bonus credit opens May 28, 2024. The application period will be 30 days (through June 27), with additional time after that to apply for any category that has not been fully subscribed. Detailed procedures and updates can be found on the Department of Energy and IRS websites and in this FAQ from DOE.

Once DOE starts reviewing applications each year, you can check this dashboard to see how much of the available capacity remains available in each category. Certain amounts are set aside for projects that meet additional ownership or geographic criteria (generally, projects owned by tax-exempt entities or located in disadvantaged communities). More info on the additional selection criteria can be found in this August 2023 IRS guidance and guidance for the 2024 allocation is here.

Although any business or nonprofit installing a project in a low-income area can apply for this bonus credit, it is low-wealth entities who most benefit since they might not otherwise have the funds to complete their projects.

You must pre-register with IRS for any direct-pay credit or bonus credit

Whether or not you are applying for the low-income bonus credits, you must pre-register with the IRS to notify them you will be claiming direct pay credits. You will be given a registration number that you will use to claim the credits when you file your IRS return for the year in which you installed the equipment. Register here and learn more about the registration process in this IRS pre-filing registration tool user guide.

Note that your credit may be reduced if the total of tax credits, grants, and forgivable loans that you receive for the project exceeds the project cost. For details on this “excess benefit” rule, see Q41 in this IRS FAQ.

Resources for help with registration:

• You can request help by sending an email to: irs.elective.payment.or.transfer.of.credit@irs.gov (only for technical questions regarding the preregistration tool, not for tax questions).
• You can register for IRS office hours on Sept. 4, Sept. 18 or Oct. 2 at 1pm EDT
• A presentation at 25:10 in this webinar walks you through the direct pay process.
• Lawyers for Good Government (L4GG) provides a Clean Energy Tax Navigator to help tax-exempt entities access direct pay tax credits. L4GG also offers pro bono assistance to underresourced organizations that need more help after using the navigator.

What is the timeline?

These tax credits are available through 2033, and will then gradually phase out (base credit from 30% to 22.5% in 2034, 15% in 2035, and 0% in 2036; low-income bonus from 10/20% to 7.5/15% in 2034, 5/10% in 2035, and 0% in 2036; domestic content and energy community bonus credits do not phase out). However, if national emissions reduction targets are not met by 2033, the credits may be extended. All credits are claimed on your tax return for the year in which your equipment becomes operational. 

What other incentives could I use to help me accomplish my goals?

By late 2024, the Greenhouse Gas Reduction Fund should make new, affordable loans available to help pay for renewable energy systems, including “bridge loans” to cover the amount of the direct pay credit until you receive it from the IRS.

Leasing solar instead of purchasing could help reduce the upfront cost. The companies approved as solar lessors in North Carolina are listed here and the companies approved in South Carolina are here.

Most organizations installing renewable energy systems for their own use will elect to take this investment tax credit (ITC), but another option is the production tax credit (PTC) that pays a credit over 10 years based not on the cost of the system but on the kilowatt-hour output. Learn more here.

Check the Database of State Incentives for Renewables & Efficiency (DSIRE) for additional incentives that may be offered by your state, local government, or utility, as well as important federal, state, and local policies. For questions regarding DSIRE, contact Justin Lindemann (NC Clean Energy Technology Center) at jplindem@ncsu.edu.

Where can I get more information?

• White House web page on direct pay with step-by-step instructions
• The company installing your clean energy equipment. Need to find one? Start your journey by getting quotes from one or more of the companies listed on the NC Sustainable Energy Association’s Solar Business Code of Conduct, the Amicus Cooperative membership list, or the NABCEP certification list. All these companies have made a commitment to good business practices. Use caution if responding to online or door-to-door solar sales pitches, some of which have been found to use fraudulent practices.
• Webinar recording on direct pay presented by Interfaith Power & Light and others
• Your tax preparer
• Randy Lucas (licensed CPA specializing in energy incentives), website, randy@lucastaxandenergy.com, 704-412-1522
• IRS FAQ page on elective pay credits for tax-exempt entities
• Department of Energy web page on solar tax credits
• Department of Energy web page for low-income bonus credits
• IRS web page for low-income bonus credits and guidance for 2024 allocation
• IRS page listing all direct pay credits available to tax-exempt organizations
• Solar United Neighbors’ Ready, Set, Solar! for Nonprofits program
• For specific questions or more assistance, contact Sally Robertson at info@energyfundsforall.org. Please note this contact is not a certified tax professional.

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