Inflation Reduction Act Tax Credit Solutions

The Inflation Reduction Act includes four broad areas of credits. Many of these credits start with a base amount and can be increased by a factor of five if a project pays prevailing wages and employs apprentices. More details are found in the overview. Baker Tilly advisors are available to help address your project’s specific needs and prevailing wage requirements for clean energy incentive programs.

• Clean energy production and investment: Production tax credit (current section 45 and new section 45Y), investment tax credit (current section 48 and new section 48E clean electricity investment credit)
• Advanced manufacturing: Advanced energy project credit (section 48C), advanced manufacturing production credit (section 45X)
• Electric vehicles and alternative fuels: Clean vehicle credit (section 30D), previously owned clean vehicles (section 25E), new credit for qualified commercial clean vehicles (section 45W), alternative fuel vehicle refueling property (section 30C), biodiesel and renewable diesel used as fuel credit (section 40A), alcohol fuel, biodiesel and alternative fuel mixtures credit (section 6426), new sustainable aviation fuel credit (section 40B), new clean fuel production credit (section 45Z)
• Energy efficiency: Nonbusiness energy property credit (section 25C), residential clean energy credit (section 25D), new energy-efficient home credit (section 45L tax credits), energy-efficient commercial buildings deduction (section 179D tax credit)

The IRA provides for a direct offset to federal tax liability in the form of a tax credit. These credits represent a financial offset for an organization’s qualified construction or production costs, making the economics of many projects work better than they would have without the credits. Most credits are good through 2032, the longest U.S. “energy policy” time frame ever.

Three ways credits bring value to projects:

• Owner(s) can simply use the tax credit against their own tax liability, in most case back three-year and forward 22 years.
• If owner(s) doesn’t have tax liability or taxable income, they can now sell certain credits to another taxpayer* (clean energy tax credit transferability).
• Tax – exempt owners can receive a “direct payment” in the form of cash payment from the IRS. These include state and local governments, not-for-profits, tribes and others (Inflation Reduction Act Direct Pay) for certain credits.

Essentially, the IRA Act is enabling all entities to utilize this legislation regardless of tax status.

*passive activity rules can apply

There are many types of federal clean energy incentives under the IRA. The below provides an overview of the existing and new tax credits. Qualifying Energy Property projects has a broad definition and can include but is not limited to the following project types:

Existing credits with enhanced features are available in the following areas:

• Biomass
• Carbon capture utilization and storage
• Combined heat and power (CHP)
• Geothermal heating and cooling
• Low carbon fuels (biodiesel, ethanol, renewable diesel, renewable natural gas, propane)
• Waste to energy recycling
• Wind, solar, hydro electric

New qualifying advanced energy project tax credits are available for the following:

• Clean hydrogen
• Clean transportation fuels
• Electric vehicles (EVs) and EV infrastructure
• Energy efficiency construction
• Energy equipment and component manufacturing
• Energy storage (batteries)
• Qualifying biogas
• Solar production tax credit (PTC)
• Sustainable aviation fuels
• Zero emission nuclear