As we discussed recently, the Inflation Reduction Act supercharges the solar tax incentives. A particularly bright spot in all this is that organizations now have two mechanisms for monetizing solar tax credits. This change is excellent news for tax-exempt organizations that couldn’t previously directly benefit from the solar investment tax credit.
Direct Pay Election by Tax-exempt Organizations for Solar Tax Credits
Until now, tax-exempt organizations, such as many schools, government entities, non-profits, condominium associations, tribal governments, electric cooperatives, and medical facilities, could not benefit directly from solar and wind energy tax incentives. Therefore, they often used solar energy from third-party-owned PV systems or else passed up valuable incentives.
Under Section 6417 of the Inflation Reduction Act, tax-exempt organizations can monetize the federal solar tax credits, effective January 1, 2023. This makes the tax credit refundable, allowing direct payment of the solar energy tax credit. In other words, qualifying organizations can get cash refunds for the value of the tax credit on eligible clean energy projects.
It is also possible under Section 6418 to transfer all or part of the solar tax credit to another taxpayer in exchange for a cash payment. Although there is a lot of information on the solar tax credits in the Act, we are still waiting for guidance from the U.S. Department of Treasury on applying some of the tax credits and adders. We recommend speaking with a tax expert to determine how your organization can take advantage of the solar energy tax credits.
How Will the Changes to the Solar Tax Credits Impact Verde Solutions Clients?
As a company dedicated to making renewable energy affordable for non-profit organizations and governmental agencies, these changes are excellent news for eligible clients. The changes can result in substantial cost savings for organizations that do not pay federal income taxes and could not otherwise use the solar investment tax credit. The act also eliminates the need for complex tax equity structures for solar power project owners to help tax-exempt organizations indirectly benefit from the tax credits.
In addition, it is possible to combine tax credits with other solar energy incentives, such as Solar Renewable Energy Certificates (SRECs), Illinois Adjustable Block Program (ABP), and Smart Inverter Incentive for our Illinois clients. Some other states have additional incentives, and we are happy to help clients take full advantage of such programs.
At Verde Solutions, we are looking forward to 2023 and helping clients transition to renewable energy. Here’s to lower operating expenses and a cleaner environment!
Verde Solutions does not provide legal or tax advice. Therefore, this information should not be considered legal or tax advice. Please consult an attorney or tax specialist regarding your organization’s specific situation.