Leveraging Inflation Reduction Act Tax Credits to Help Pay for Clean Energy Projects

By Tom Williard, Vice President of NV5 Clean Energy

The tax deadline is looming, but be aware that new guidelines from the IRS as part of the Inflation Reduction Act make investment tax credits (ITCs) available for both public and private organizations implementing clean energy and decarbonization projects. 

If your project began operating after January 1, 2023, you may be eligible for a significant tax benefit from the IRS. But you must apply for credits in the tax year your system became operational. If your project was completed in 2023, you’ll need to act soon to apply for and claim your credits by your 2023 tax filing deadline.

Who is eligible?

Almost any organization is eligible to receive benefits, assuming the project meets certain qualifications. How entities are compensated for their clean energy projects depends on the type of organization. 

Taxable entities receive a tax credit. Tax-exempt entities can either receive a cash payment through “Direct Pay” or a one-time “Transfer of Credits.” As an example, a public agency could receive 30 to 50 percent of the cost of its solar project back from the IRS.

Businesses or organizations that pay taxes include publicly traded companies and privately held businesses. These entities can receive tax credits. 

Tax exempt organizations include 501(a)s, 501(c)s, 501(d)s; states, cities, counties, local governments; public entities, such as water districts, school districts, economic development agencies, public universities, public hospitals. These can receive a cash payment from the IRS or a one-time transfer of credits to another entity.  

What types of projects qualify?

Clean energy projects such as solar, electric vehicle and charging stations, energy efficiency, battery energy storage, microgrid, and wind projects all can receive various amounts of credits, depending on several factors, including labor requirements, materials, and where projects are located. Importantly, electric vehicle infrastructure projects only qualify if the projects were built in low-income or rural areas.

Factors that impact Inflation Reduction Act Direct Payments or Tax Credits include the following:

  • When did you start and finish the project?
  • Is the project in a bonus tax credit area? These include an Energy Community Site or low-income or rural community.
  • What percentage of “domestic material” was used?
  • Did the project follow prevailing wage and apprenticeship guidelines?
  • For energy efficient building projects (Section 179D), what’s the percentage of energy savings reduction?

Case Study: Public School District

Consider a school district that finished several clean energy projects in 2023. Because the district is in a low-income community that is also an “Energy Community Site,” it qualified for bonus tax credits. Here are some of the details:

  • Solar PV eligible project cost: $2,978,400
  • Battery energy storage system eligible project cost: $816,000
  • Microgrid eligible project cost: $24,000
  • EVSE infrastructure for electric school fleet eligible project cost: $300,000

Bonus checklist:

  • Project placed in service in 2023
  • Project followed prevailing wage and apprenticeship guidelines
  • School district is in a designated Energy Community and qualifies for a 10 percent bonus
  • Location is in a low-income community and qualifies for a 10 percent bonus

Total direct payment from the IRS from successful application: $1,999,200.

Rules around clean energy tax credits from the Inflation Reduction Act (IRA) aren’t just tricky to navigate, they are also changing regularly. But if you take the time to do your homework, there significant potential tax benefits. 



Thursday, March 28, 2024 - 09:07

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