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Clean Electricity Investment Tax Credits for Tax-Exempt Entities

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What is the current status of this program?

The IRA made these credits available through 2033, but the budget reconciliation bill signed July 4 ends them sooner for solar and wind projects. The IRA credits stay in place for storage, geothermal, biomass, and hydroelectric projects, which must start construction by the end of 2033 to claim the full credit (credits phase out gradually in 2034 and 2035).

For solar and wind projects to receive the credits described below, they must be placed in service by the end of 2027 or begin construction by July 4, 2026 (in which case, the project must be placed in service within 4 years of the beginning of construction). Beginning in 2026, projects are subject to new “foreign entity of concern” (FEOC) rules that deny credits to projects with too much equipment or involvement of parties from China, Russia, North Korea, or Iran (more info here and here). A July 7 Executive Order gave the Treasury Department 45 days to issue guidance on FEOC rules and on what constitutes beginning construction.

Beginning construction. Traditionally, a project was deemed to have begun construction if it had incurred at least 5% of total project cost or had performed “physical work of a significant nature.” Treasury issued new beginning-of-construction guidance on August 15. Rules are unchanged for projects less than 1.5 MW, but larger projects can no longer use the 5% rule. See details in the guidance and in articles from Lawyers for Good Government, Utility Dive and Canary Media.

FEOC. Treasury is expected to release FEOC guidance in January 2026, after which there will be a period of public comment before final rules are released toward the end of 2026. This Utility Dive article discusses what the rules are expected to be. They will apply to all projects, regardless of size, that have not begun construction by the end of 2025.

For a breakdown of changes to elective pay-eligible credits, check out this great resource from Lawyers For Good Government.

Note: some links to Federal websites below (the ones with “web.archive.org” or “bidenwhitehouse.archives.gov” in the URL) are archived versions no longer being updated.

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 project. The credits and bonus credits are: 

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 (plus any remaining unused capacity from previous years). 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 2025 application period for the low-income bonus credit ran from January 16 to August 1, 2025. Applications received by February 14 were reviewed first, after which remaining capacity will be awarded on a rolling basis to applications received after February 14. Detailed procedures and updates can be found on the IRS website.

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 can be found in the IRS guidance and final regulation.

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 Question 41 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). Or call the IRS nonprofit section at 877-829-5500 if you have not received a letter in response to your registration.
  • 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.
  • Watch a webinar presented by L4GG and others on February 27, 2025 on direct pay.
  • See the top section of these Recommendations for Local Governments and Their Community Partners from the Urban Sustainability Directors Network.

Filing your tax return

Tax e-filing services have been slow to include direct pay in their services. See the last bullet below under “Where can I get more information?” for a list of services that have begun to do so. Thus, most direct pay claims have been paper-filed, leading to slow response times from IRS. If you file your IRS return on paper, be sure to send it certified mail and request a return receipt. Keep these on file to prove your return was filed by the deadline.

IRS must pay you interest if your payment is not received by 45 days after the filing deadline. If you have not received the payment by 6-12 months after filing, you can sue for refusal to pay.

Lawyers for Good Government has compiled a resource page on IRA tax incentives, including annotated tax forms.

What is the timeline?

See “What is the current status of this program?” at the top of this page.

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

  • Affordable loans for clean energy projects should eventually be available through the Greenhouse Gas Reduction Fund, 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 but note that this credit is also subject to the changes described above under “What is the current status of this program?”
  • 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.
  • Check out our (non-exhaustive) list of non-federal funding from other sources that may fit your energy and cost-saving goals.

Where can I get more information?

Testimonials

If you received or will be receiving a direct pay credit for your clean energy project, consider filling out this survey, which a coalition of groups is using to track direct pay success stories and get the word out about their impact.

Learn how Rebuilding Broken Places Community Development Corporation and Greenleaf Christian Church in Goldsboro went solar in 2023 using the Clean Electricity Investment Tax Credit. Watch the video.

See more testimonials on our Testimonials page.

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