The Section 48 Energy Credit is a tax credit available to taxpayers who invest in eligible renewable energy projects. This credit aims to stimulate the adoption of clean energy technologies by reducing the overall financial burden on investors and developers. Initially introduced as part of the Energy Policy Act of 2005, the ITC has been expanded and modified multiple times, most recently in the Inflation Reduction Act of 2022 (IRA).
Projects that may qualify for the Energy Credit must involve the construction or installation of at least one category of the energy properties listed below.
For eligible projects where construction began prior to January 29, 2023, the base credit is 30% of the basis of each qualified energy property that has been placed into service.
For eligible projects where construction began after January 29, 2023, the base credit is 6% of the basis of each qualified energy property that has been placed into service. However, if the project meets prevailing wage and apprenticeship requirements, the credit increases to 30% of each qualified energy project.
Regardless of the construction start date, the credit may increase by an additional 10% if it meets certain domestic content, energy community, or low-income community requirements.
The credit is claimed on the tax return for the tax year in which the energy property was placed into service.
The credit can be claimed by the taxpayer that has basis in the energy property (the owner of the property.) Further, that taxpayer must be the original user of the energy property. If a taxpayer purchases qualified energy property that had already been in use prior to the purchase, they would not be entitled to claim the Energy Credit as the original use of the energy property did not begin with them. A constructor/designer/installer of the energy property is not able to receive the credit (unless the original owner of the energy property also constructed/designed/installed.)
Yes. The energy property must meet certain energy performance requirements that are specific to each category of energy property to be eligible for the credit.
Yes. The Energy Credit allows most taxpayers to sell their tax credits to an unrelated party in exchange for cash. This facilitates alternative options for renewable energy developers with limited tax capacity to utilize the Energy Credit.