Specialty Tax Group

Clean Energy (CE)

Investment Tax Credit (ITC)

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Background

The Federal Clean Energy Investment Tax Credit (ITC) was enacted in 2006 through Code Section 48. It was renewed and improved for periods after 2022 in the August 2022 Inflation Reduction Act (IRA). The Internal Revenue Code (IRC) Section 48 has historically provided an investment tax credit (ITC) for qualifying energy-related investments. The credit is established as a percentage of the project owner's (taxpayer) basis in the eligible property.

Energy Property Project Requirements


A project meets the project requirements if it is one of the following:

  • A project with a maximum net output of less than 1 megawatt of electrical or thermal energy.
  • A project the construction of which begins before January 29, 2023.
  • A project that satisfies the prevailing wage and apprenticeship requirements.


Qualified Energy Property Includes:

  • Geothermal energy property
  • Qualified fuel cell property
  • Qualified microturbine property
  • Combined heat and power system property
  • Qualified small wind energy property
  • Solar energy property to generate electricity or to illuminate
  • Waste energy recovery property
  • Geothermal heat pump system property
  • Energy storage technology property
  • Qualified biogas property
  • Microgrid controllers property

How Is The Credit Quantified?

The base ITC rate for energy storage projects is 6%, and the bonus rate is 30%. The bonus rate is available if the project is under 1 MW of energy storage capacity or if it meets the new prevailing wage and apprenticeship requirements. An additional 10% bonus is available if a facility meets domestic content requirements, as well as an additional 10% bonus if placed in service in an "energy community," for a total potential credit amount of 50%.


Utilization

The Investment Tax Credit (ITC) is a dollar-for-dollar reduction against the federal tax liability of commercial and utility entities (under Section 48). The business that installs, develops, and/or finances the project claims the credit. Under new Section 6417, the Act allows for certain clean energy credits to be refundable (through "Direct Pay") for tax-exempt entities. Section 6418 provides that non-tax-exempt entities can sell Section 48 energy investment tax credits to unrelated parties.

Download The Tax Credit guide

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