New guidance on tax credits for clean energy projects

In an article with Accounting Today, Baker Tilly Director Chad Resner and Principal Michelle Abel were quoted regarding available tax credits for renewable energy projects under the Inflation Reduction Act (IRA) of 2022. They highlight the importance of meeting specific deadlines for tax credit applications under the Section 48C program and incentives for developments in low-income communities.

Key takeaways:

1. The Internal Revenue Service (IRS) has released a fact sheet on tax credits for renewable energy projects as part of the Biden administration's efforts to incentivize green energy. The IRS issued Notice 2023-18 and Notice 2023-44 to establish and provide guidance on the program, which offers incentives for clean energy in manufacturing, recycling, industrial decarbonization and critical materials processing.
2. The Inflation Reduction Act included $10 billion in funding for the Qualifying Advanced Energy Project Credit Allocation Program, which renewed and expanded the investment credit for qualifying advanced energy projects.
3. The additional guidance includes examples of eligible projects and outlines the base credit rate, which is 6% of the qualified investment and increases to 30% if certain requirements are met.
4. At least $4 billion is required to be reserved for projects in specific energy communities census tracts with no pre-IRA qualified advanced energy projects or related coal mines and power plants. Check out Baker Tilly's Energy Community Mapping tool to see if your project may qualify.
5. The IRS expects to provide at least two allocation rounds under the program, and projects placed in service before the award allocation will be ineligible. Companies and tax advisors are showing interest in the tax incentives however, tax professionals are also waiting for final regulations on various renewable energy tax credits. Taxpayers applying for the program need to be aware of deadlines and submit their application through the Department of Energy. Need assistance assessing your current or future projects eligibility? Contact a Baker Tilly Inflation Reduction Act specialist.
6. The Inflation Reduction Act includes programs that incentivize development in low-income communities, such as the Low-Income Communities Bonus Credit Program for solar and wind projects. Proposed rules for the Low-Income Communities Bonus Credit Program have been released, providing a 20% bonus to investment tax credits for solar and wind facilities in low-income areas. The proposed rules have limitations and a lottery system for allocation, creating uncertainty for developers and their spending plans.