With the rise of the “Climate Economy,” recent legislation provides unprecedented efforts to incentivize energy efficiency and reduce carbon emissions. As part of the Inflation Reduction Act several new forms of clean energy activities and existing clean energy credits are now available for organizations.
This includes Section 48, a tax credit that supports renewable and energy efficient property.
Section 48 is an Investment Tax Credit (ITC) for renewable and energy efficient property, including solar and geothermal energy.
The credit reduces an organization’s federal tax liability by a percentage of qualifying energy property costs. Section 48 provides up to 6% or bonus rates of 30%, plus 10% domestic bonus, plus another 10% if in an energy community. Exempt Organizations are also invited to participate with the ability to receive direct pay.
Qualifying energy property for Section 48 includes:
Additional environmental justice bonus credits are available for eligible solar energy projects with the following guidelines.
To qualify for a bonus rate of Section 48, properties must meet certain qualifications, as well as domestic content and prevailing wage and apprenticeship requirements. It’s important to be aware of what qualifying project costs entails as well as effective dates.
Only active solar systems are eligible for the credit. Qualification is based on the use of mechanically forced energy transfer, such as the use of fans or pumps to circulate solar-generated energy to:
Be aware that passive solar systems and solar property used for heating swimming pools are ineligible property.
The taxpayer must construct or be the original user of the solar energy equipment to qualify for this ITC. Qualifying property includes the costs of:
Qualifying geothermal property costs include equipment used to produce, distribute, or use energy from a geothermal deposit. A geothermal deposit is a geothermal reservoir consisting of natural heat that is stored in rocks or in an aqueous liquid or vapor below the earth’s surface.
This equipment can include:
Be aware that equipment used in electrical transmission or geothermal fluid distribution as well as geothermal deposits located outside the United States, or a possession of the United States is ineligible property.
For clean energy projects with construction beginning after December 31, 2019, and a placed into service date before January 1, 2022, the credit percentage was 26%.
For projects with construction beginning after December 31, 2021 (January 1, 2025, for property using fiber-optic distributed sunlight), and prior to January 1, 2033, they will use the Inflation Reduction Act Provisions. The credit begins to phase out through December 31, 2034.
Qualified projects over 1 megawatt (MW) must meet prevailing wage and apprenticeship participation requirements.
|Stackable credit amounts
(% of total project costs)
|Meets wage and apprenticeship requirements||Does not meet wage and apprenticeship requirements|
|Meets domestic content requirements||10%||2%|
|Meets energy community requirements||10%||2%|
|Possible credit amount||50%||10%|
Ready to see if your organization qualifies for the Section 48 credit?
Our Energy Incentives Program team can help you maximize the full potential of available tax incentives.
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