Note: the rules are different for commercial businesses
If you install solar (or certain other technologies) on property belonging to your tax-exempt organization, you can get 30-70% of the price back.
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.
Am I eligible?
Local governments, nonprofit organizations, and other 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 like local governments 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 as follows:
- 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)
- Low-income credits: 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.
The 10% or 20% low-income credits are not guaranteed, because quantity is limited. 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.
Detailed procedures and updates on the low-income credits can be found on the Department of Energy and IRS websites. Check this DOE dashboard to see how much of the available capacity for the current year remains available. 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.
Register with the IRS to notify them you will be claiming the direct pay credits. A registration number will be supplied, which you will use to claim the credits when you file your IRS return for the year in which you installed the equipment.
What is the timeline?
These tax credits are available through 2033, and will then gradually phase out (to 22.5% in 2034, 15% in 2035, and 0% in 2036). 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?
There may be new, low-interest loans developed to help cover the upfront cost of renewable energy systems until you receive the direct pay credit from the IRS. We will update this website with any information about such loans.
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.
Where can I get more information?
- Department of Energy web page
- The company installing your clean energy equipment (Need to find one? Start your journey by getting quotes from one or more of the resources listed such as the Amicus Cooperative membership list, or 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.)
- Your tax preparer
- IRS FAQ page on elective pay credits for tax-exempt entities
- Department of Energy web page for low-income bonus credits
- IRS web page for low-income bonus credits
- IRS page listing all direct pay credits available to tax-exempt organizations
- For specific questions on this program or for more assistance, contact Matt Salton at cleanenergy@conservationpa.org.