The Inflation Reduction Act (IRA) of 2022 vastly increased funding and expanded federal tax credits available for renewable energy projects. In addition to expanding investment tax credits, production tax credits, and the Internal Revenue Code (IRC) Section 48C credit for clean energy technology, the IRA created new credits for energy efficiency improvements. Many businesses should be able to take advantage of these credits by continuing their usual efforts around green energy projects. These new credits include:
- IRC 45Q – Carbon Oxide Sequestration Credit
- IRC 40A – Biodiesel and Alternative Fuels Credit
- IRC 40B – Sustainable Aviation Fuel Credit
- IRC 45V – Production of Clean Hydrogen Credit
- IRC 25C – Residential Energy Efficiency Improvements Credit
- IRC 25D – Battery Storage Technology Expenditures Credit
- IRC 45L – Energy Efficient Home Credit
- IRC 30C – Alternative Fuel Vehicle Refueling Property Credit
Internal Revenue Service Notice 2023-29 was issued on April 4, 2023, detailing some of the forthcoming proposed regulation provisions. Some credits will qualify for a 10% increase in credit if the project is located in an “energy community.” The Notice defines an “energy community” as the following:
- A brownfield site
- A metropolitan or nonmetropolitan statistical area with specified levels of direct employment or local tax revenue related to certain fossil fuel activities, and an unemployment rate at or above the national average
- A census tract in which a coal mine has closed or a coal-fired electric generating unit has been retired
A searchable mapping tool is being developed to assist in identifying qualifying energy communities. Until the issuance of the proposed regulations, taxpayers can rely on the guidance in the Notice for taxable years ending after April 4, 2023.
The most important change to these federal investment tax credits provided in the IRA involves the transferability of the credits. Prior to the IRA, the only way to monetize credits involved a complex tax equity partnership arrangement. The new transferability allows for a simpler transfer of credits to unrelated qualified taxpayers.
The easiest way to transfer these beneficial credits is through the use of a marketplace clearinghouse. The benefits include:
- Reduction of effective tax rate
- Purchases of credits at a discount
- Streamlined legal process
- Indemnity protections from credit sellers
A marketplace clearinghouse allows investors to search credit portfolios available for projects based on their investment needs, project type and size, geographic location, and rate of return. Real-time updates can be provided for notification of new credits as they become available.
Ryan hosts the first of its kind web-based Investment Tax Credit Marketplace for renewable credits. Our team of ITC experts provides a turnkey solution, making the renewable tax credit market accessible for all corporate taxpayers. A full-service approach includes project identification, pre-transaction diligence, tax consulting throughout implementation, and coordination of compliance requirements for every investment.
No other firm has the expertise in this space that Ryan offers. Contact us today to take advantage of these new and expanded tax credits and grow your business.
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.
- Topics
- Ian Boccaccio
- Income Tax