Business Energy Investment Tax Credit (ITC)

Program Overview

Implementing Sector Federal
Category Financial Incentive
State Federal
Incentive Type Corporate Tax Credit
Web Site https://www.energy.gov/eere/solar/federal-solar-tax-credits-businesses
Administrator U.S. Internal Revenue Service
Eligible Renewable/Other Technologies Solar Water Heat, Solar Space Heat, Geothermal Electric, Solar Thermal Electric, Solar Thermal Process Heat, Solar Photovoltaics, Wind (All), Geothermal Heat Pumps, Municipal Solid Waste, Combined Heat & Power, Fuel Cells using Non-Renewable Fuels, Tidal, Wind (Small), Geothermal Direct-Use, Fuel Cells using Renewable Fuels, Microturbines, Offshore Wind, Biogas, Microgrid Controllers, Interconnection Property
Eligible Storage Technologies Lithium-ion
Applicable Sectors Commercial, Industrial, Investor-Owned Utility, Cooperative Utilities, Agricultural
Incentive Amount Base Credit: 6% - 30% (depending on project status and labor factors)
Domestic Content Bonus: 10% additional
Energy Community Bonus: 10% additional
Low-Income Community Bonus: 10% additional
Low-income Residential Building or Low-Income Economic Benefit Bonus: 20% additional

Incentives

Technologies Solar Water Heat, Solar Space Heat, Geothermal Electric, Solar Thermal Electric, Solar Thermal Process Heat, Solar Photovoltaics, Wind (All), Geothermal Heat Pumps, Municipal Solid Waste, Combined Heat & Power, Fuel Cells using Non-Renewable Fuels, Tidal, Wind (Small), Geothermal Direct-Use, Fuel Cells using Renewable Fuels, Microturbines, Lithium-ion, Offshore Wind
Sectors Commercial, Industrial, Investor-Owned Utility, Municipal Utilities, Cooperative Utilities, Agricultural
Parameters The incentive is 30.00%

Summary

The Inflation Reduction Act of 2022 (H.R. 5376) introduced several key updates to the federal Business Energy Investment Tax Credit (ITC), including broadening eligible technologies, extending its validity period, altering its reduction schedule, introducing new bonus credits, and setting fresh eligibility criteria for the complete credit. It also transitions the tax credit from section 48 of the Internal Revenue Code to a new, technology-neutral credit under section 48E. Below is a summary of the revised section 48 tax credit as per the Inflation Reduction Act, followed by details of the new 48E tax credit.

Federal Business Energy Investment Tax Credit (ITC):

  • Amended several times, most notably by the Inflation Reduction Act of 2022.
  • The Act introduces new prevailing wage and apprenticeship standards for larger systems to access the full 30% credit.
  • Initial guidelines issued by the Department of the Treasury on November 30, 2022, state that these labor provisions apply to projects starting construction 60 days after this date, making them effective from January 30, 2023.

Base Credit:

  • Projects under 1 MW or those started within 60 days of the labor guidelines release can receive the full 30% credit without meeting the new labor criteria.
  • For projects over 1 MW starting post January 29, 2023, and before January 1, 2025, the base credit is 6%, with eligibility for the full 30% credit if labor standards are met.

Bonus Credits:

  • The Domestic Content Bonus offers an additional 10 percentage points for projects using specified U.S. materials, with different rates for projects meeting or not meeting labor criteria.
  • The Energy Community Bonus provides an additional 10 or 2 percentage points for projects in certain locations, with guidance provided by the Treasury Department.
  • Low-income bonuses are available for solar and wind facilities under 5 MW located in specific communities or associated with low-income residential projects, with increased credit rates and an annual cap.

Eligible Technologies:

  • Includes a wide range of solar, wind, geothermal, and other renewable energy technologies, along with energy storage systems and specific energy recovery and interconnection properties.

Credit Monetization:

  • The Inflation Reduction Act enables non-taxable entities to directly monetize credits and allows eligible taxpayers to transfer credits to unrelated taxpayers.

Clean Electricity Investment Tax Credit (48E):

  • Starting January 1, 2025, this new tax credit replaces the traditional ITC.
  • Applies to all zero-emission generation facilities and energy storage systems, with credit calculations similar to the ITC.
  • The credit phases out based on U.S. greenhouse gas emission reduction milestones.

Authorities

Name 26 USC ยง 48
Name Instructions for IRS Form 3468
Name IRS Form 3468

Contact

Public Information – IRS
Organization:
U.S. Internal Revenue Service
Address:
1111 Constitution Avenue, N.W.
Washington, DC 20224
Phone:
(800) 829-1040