Government Offers Bigger Tax Breaks for Clean Energy Helping Poor
Published Date: 1/13/2025
Rule
Summary
Starting January 13, 2025, clean energy projects in low-income communities can get extra tax credits to help pay for building electricity facilities that don’t burn fuel. This new IRS rule explains who qualifies, how to apply, and what counts, making it easier for investors to boost their clean energy impact while saving money. If you’re planning a clean electricity project, this is your green light to grab bonus credits and power up your savings!
Analyzed Economic Effects
8 provisions identified: 1 benefits, 4 costs, 3 mixed.
Bonus Credit: +10% or +20% Points
Starting January 13, 2025, eligible clean electricity projects in qualifying categories can get an increase to the section 48E investment credit equal to either 10 percentage points or 20 percentage points. The Increase is 10 percentage points for facilities in low-income communities or on Indian land, and 20 percentage points for facilities that are part of qualified low-income residential building projects or qualified low-income economic benefit projects.
Annual Capacity Pool: 1.8 GW Limit
For each calendar year beginning January 1, 2025, the Program can allocate up to 1.8 gigawatts (GW) of direct current capacity toward these bonus credits. If allocations are unused in a year, the excess can carry forward to the next year but may not be carried beyond the third calendar year following the applicable year; 2024 excess capacity may be added to the 2025 annual amount.
Size Test & Aggregation Rules (<5 MW)
To qualify for the bonus, an applicable facility must have a maximum net output of less than 5 megawatts (MW) measured in alternating current (AC); facilities with 5 MW or more are not eligible. For the less-than-5-MW test, facilities with integrated operations must use the aggregate nameplate capacity (integration means same or related taxpayers, placed in service in the same taxable year, and same point of interconnection or able to support the same end user). For direct-current generators, taxpayers may choose the lesser of the DC nameplate or the first inverter's nameplate to determine AC output.
Energy Storage Not Eligible For Bonus
The final regulations state that energy storage technology is not eligible property for the section 48E(h) Increase; the bonus applies only to the qualified investment in the applicable facility itself. If a system includes both an applicable facility and energy storage, the applicable facility may still get the section 48E credit and the Increase, but storage is excluded from the Increase.
4-Year Place-in-Service Deadline
If a facility receives an allocation, the eligible property that is part of that facility must be placed in service within 4 years after the date of the allocation in order to claim the section 48E(h) Increase. Failure to place in service within 4 years can affect the ability to claim the Increase.
Category 3 Housing Programs Limited To Federal List
For Category 3 (qualified low-income residential building projects), the final rules limit eligible housing programs to Federal programs; for the 2025 Program year, HUD project-based vouchers and certain Department of Hawaiian Home Lands and Native Hawaiian program definitions were added to the list. The full list and updates will be published in the Internal Revenue Bulletin.
Applicant Must Be Taxpayer/Owner
The regulations clarify that the applicant for an allocation is the owner of the facility and the taxpayer who will claim the section 48E credit; disregarded entities may not apply — the regarded owner is the applicant. This affects how projects must be structured when applying for Capacity Limitation.
Low-Income Area Rules Use NMTC Data
Category 1 eligibility uses the New Markets Tax Credit (NMTC) section 45D(e) definition of low-income community and the CDFI Fund mapping tool to determine qualifying census tracts. When the CDFI Fund updates ACS low-income community data, applicants may choose the prior or updated data for a one-year transition period; the last update occurred September 1, 2023 and that transition period ended September 1, 2024, with the next update anticipated in 2028.
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