Internal Revenue Service Issues Guidance on Investment Tax Credits for Solar and Wind Facilities

Earlier this year, the U.S. Department of the Treasury issued Notice 2023-17, which established a Low-Income Communities Bonus Credit Program providing up to an additional 20% investment tax credit for solar and wind energy projects in low-income communities. The Low-Income Community Enhancement was established by the Inflation Reduction Act of 2022 to increase the investment tax credit under IRC Section 48(e) by up to 20% for certain projects. Recently, final regulations and Revenue Procedure 2023-27 were released to provide guidance on the requirements and the application process opening in the fall.

Generally, the investment tax credit for a solar or wind facility is 30% of the eligible basis. The Low-Income Community Enhancement increases this rate for four types of qualifying facilities:

• Additional 10% credit is allowed for facilities located on census tracts that meet certain poverty rate and median income thresholds;
• Additional 10% credit is allowed for facilities located on tribal lands;
• Additional 20% credit is allowed for facilities located in residential rental buildings participating in specified affordable housing programs;
• Additional 20% credit is allowed for facilities producing electricity where 50% of the financial benefits are provided to households with income less than 200% of the applicable poverty line or less than 80% of the area median gross income.

The final regulations provide clarification of the above four categories of facilities and how allocations of energy allotments will be made between the categories each year. The capacity limitation for each program year will be distributed among the categories based on anticipated allocations and market participation goals. Many definitions from previous guidance will be retained, such as the ownership and geographic criteria, while some definitions are changed, such as the broadening of the definition of a qualified renewable energy company. Selection criteria for applicants is detailed, along with disqualification and credit recapture rules.

Applicants are directed to the Department of Energy (DOE) portal to apply for this enhanced program when the application process opens this fall. It is expected that the first awards will be made by year end. The application materials and dates available will be displayed on the DOE’s Low-Income Communities Bonus Credit Program page on its website.

The final regulations are effective for tax years ending on or after 60 days after publication in the Federal Register—October 16, 2023.

Please contact the Ryan tax professionals below for assistance in applying for this program. 

TECHNICAL INFORMATION CONTACTS: 

Ian Boccaccio
Principal
Ryan
469.399.4545
ian.boccaccio@ryan.com

Nicholaus List
Senior Manager
Ryan
917.472.9472
nicholaus.list@ryan.com

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.