Inflation Reduction Act: Clean Energy Incentives

The Inflation Reduction Act of 2022 (signed August 2022) now allows tax-exempt entities to receive the full value of the tax credit for qualifying clean energy projects. Projects are eligible for tax-exempt entities starting in 2023, and the credit availability will remain until 2032 after which the tax credits begin to phase out under the Inflation Reduction Act.

• Tax Credit Name: Investment Tax Credit for Energy Property (pre-2025) and Clean Electricity Investment Tax Credit (2025 onwards). These tax credits award a percentage of the construction cost of the clean energy project. For a solar system project this would include panels, inverters, battery storage, labor costs, and other equipment infrastructure. The tax credit base percentage is 30% of the construction cost and can receive bonuses, +10% for domestic content and/or +10% for being in an energy community.
• Eligible Clean Energy Technologies: Fuel cell, Solar, Geothermal (plant), Small Wind, Energy Storage (Solar Battery), Biogas, Microgrid Controllers, and Combined Heat & Power Systems.
• The payment method to tax-exempt entities is called elective pay/payment or direct pay that provides applicable entities eligibility to claim these credits even though they do not owe federal income tax.

Who falls under direct pay?

Tax-Exempt Organizations: Governmental agencies (school districts and certain public universities), non-profit organizations (public charities, private foundations, schools, houses of worship, etc.) under 501(c)(3), religious organizations 501(d), and other organization under 501(2).though they do not owe federal income tax.

What is the IRS process? How to get your district’s money back

1. Identify a clean energy project and procure the necessary documentation for the tax credit that the building qualifies for.
2. Complete the clean energy project and place in service. The tax year to receive the tax credit is the same year the clean energy project comes online.
3. Register with the IRS (Pre-Filing Registration) and obtain a registration number from the IRS before being eligible to file a tax return and receive payment.
4. File tax return by due date (before May 15 of the following year). Provide registration number and make the elective payment selection on tax return (typically IRS Form 990-T).
5. Receive direct payment after tax return processed.

Example Junior High School: