Inflation Reduction Act Updates

Amid the 1,000’s of pages of official documents relating to the landmark legislation that was signed into law in August 2022 are a few very important provisions for folks interested in solar. LSC will continue to provide updates as they become available, but here is a quick guide for the solar provisions and a resource for a whole lot more. Tax-Exempt Organizations (TEOs) wanting to do solar can get our help immediately – we provide various solar consulting services to help bring your solar project to life.

Topics

How to Apply for the Low-Income Communities Bonus Credit Program Adder
Accessing Your Nonprofit Direct Pay

Inflation Reduction Act Overview

Disclaimer: Legacy Solar Co-op is trying to use best practices to inform our members of the changing requirements coming from the US Treasury Department and the Department of Energy. We cannot guarantee that your project will receive a payment from the IRS in a timely manner. Please consult your tax advisor or the IRS for more authoritative information as needed.

Residential Solar Customers

Residential solar customers will see the 30% investment tax credit extended for 10 years starting this year and being phased out after 2032. There really isn’t a lot more to say about that except we really wished we could have gotten a guaranteed payment provision so that you’d get a tax credit even if you didn’t owe taxes. That did not happen. But, 30% off of your solar is still a great deal and it helps that we don’t all have to rush to get solar built now that we have 9 more years after this year to get the full 30%.

Commercial Solar Customers

Commercial solar customers (up to 1,000kW or 1MW) will also enjoy the 30% tax credit for another 10 years with a similar step-down for 2033 and 2034 as was the case from 2022 and 2023 (before the IRS became law of the land). In addition, there are provisions for enhancing the tax credit by 10% each for specific types or locations of projects, including:

a. Energy Communities (10% adder) include census data tracts that have been developed to identify communities that have experienced a closure of a coal or other electric power plant. The adjacent communities also (should) receive the 10% added tax credit.

b. Domestic Content (10% adder) include solar projects where at least 40% of the materials (evidenced by the cost of materials) including steel (solar modules, inverters, racking, other balance of system) is sourced from manufacturers in the U.S. There are differences between “Made in America” and Domestic Content, so look at the Treasury Department’s rules on this.

c. Disadvantaged Communities. If your solar project is located in a low income community, you may be able to apply to be included in a limited allocation each year for another 10% (up to 20% if your project serves eligible LMI households directly) added on to the base credit of 30%. For all of these provisions, the Treasury Department continues to release updates and clarification on the proposed rules and eligibility criteria. See below instructions on how to apply for these funds.

d. How to File for Your Tax Credit. File your tax return (or 990 form) as you would ordinarily, and the IRS will flag your IRS form as being a recipient for the tax credit, and you should receive your tax credit just as you would any other tax return refund, regardless of whether you owe any taxes or not (if you are eligible).

Direct Pay (now called Elective Payment Election) for Tax Exempt Organizations (TEOs).

Legacy Solar Co-op works with A LOT of tax-exempt organizations to help them afford solar through using specialized tax financing arrangements to get access to lower cost (or no net-cost up-front) solar development for municipalities, churches, libraries, schools, and other tax-exempt organizations. The IRA will soon start processing requests from TEOs (estimated by the end of 2023) so that they will also receive the 30% (or greater) investment tax credit regardless of their tax liability.

How does this work? First, the TEO should check with Legacy Solar Co-op and/or the Treasury Department publications (a partial list here) on this subject. Then, if it looks like your organization is eligible, follow these steps:

Go ahead and plan your solar project (LSC can help you finance part of all of the project), then
If you don’t already have one, authorize a clean energy account with the IRS on their Elective Pay & Transferability webpage. You will be prompted to create or sign in with an “ID.me” account, which allows access to IRS online service.
Once the project is placed-in-service, register your intention for Elective Payment with the IRS registration tool. The IRS is recommending entities complete the pre-file registration process at least 120 days prior to when their tax returns are due (or extended) but in the same tax year when their solar array will be commissioned. Most entities will need to file for an extension in order to meet the 120 day horizon. Government entities that complete the pre-file registration process will automatically receive a 6-month extension. The applicant will receive a registration number (or numbers in the case of multiple solar projects) that will need to be included with the tax forms that you submit by the filing deadline
File your tax return, 990 or whichever form you file with the IRS as you would ordinarily by your due date (or extension date). The IRS will flag your IRS form as being a recipient for the tax credit, and you should receive your tax credit just as you would any other tax return refund, regardless of whether you owe any taxes or not (if you are eligible).

– Non-profit entities will file Form 3800, as well as Form 3468, in addition to their usual IRS form/s

– For-profit entities will apply for their tax credit on Form 3800 (General Business Credit), in addition to their usual IRS form/s

Other Considerations

Entities are only allowed to claim the Elective Payment once per tax year. For this reason, if your entity is planning to complete more than one solar project in a single tax year, you may want to wait until all projects are complete before filing.
The Low-Income Communities Bonus Credit Program Adder is accessed through a separate application process. You should wait to hear back from the IRS regarding this allocation until completing the pre-registration for the Elective Pay.
All other adder provisions (for instance, the domestic content and energy community adders) under the IRA can be explored under the instructions for line 12 of Form 3468.
Check the IRS Elective Pay FAQ page as a reference for eligibility and further instructions.

For more guidance on the Direct Pay, see the White House’s page on Direct Pay Through the Inflation Reduction Act.

There are anti-fraud and “double-dipping” protections to minimize misuse and abuse of this provision, but most TEOs should be able to access this credit just like a tax-paying entity would. In fact, tax-paying entities cannot get a payment from the IRS if they don’t owe taxes; so in some respects, the TEO is in a better position to benefit, except for the fact that tax-paying entities do have the ability to depreciate the solar property at 80% in year 1 (2023) or 60% in 2024, with the rest of the basis being handled along more traditional 5-year recovery schedules. TEO’s don’t really use this benefit for the most part.

Legacy Solar Co-op would love to help you shepherd your solar project through to and beyond completion. We can help you “right-size” your project, design and implement a Request-for-Proposal process (or simply get a 2nd bid for comparison), finance and even help fund your project through our Slice-of-Sun Bond Subscription program. We even help write grants for 10’s of thousands and hundreds of thousands of dollars. And, now we can help you keep track of your solar project and the Inflation Reduction Act incentives and help you process your tax credit with documentation or even legal referrals for more certainty. Let us know how we can help you today by emailing us at info@legacysolarcoop.org.

Low-Income Communities Bonus Credit Program Adder

Please note: you should consult your tax professional, accountant, or attorney for tax-related guidance or filing support.

Who is eligible for the low-income adder to the Inflation Reduction Act in Wisconsin?

2023 and 2024 projects need to register with the Department of Energy AND apply for a possible 10% low income adder, AND receive notice of a possible allocation for this 10% BEFORE continuing on to commissioning in order to be eligible to receive an allocation from this limited pool. Even those projects eligible and applying for this 10% additional credit are not guaranteed an allocation. Allocations are first come, first served. Projects already constructed and commissioned before the current application period that opened up October 19th, 2023 are ineligible.

Instructions and a timeline for how to access these additional funds:

Choose a Contact person/email from your organization to be the go-between with the Federal Treasury for this incentive. Let Legacy Solar Co-op know who is going to be the registered contact person.
Anytime: Register for a Login.gov account (see “Create an account”) in order to access the Applicant Portal. We recommend getting this done as soon as possible to avoid delays when submitting your application in a few weeks.
End of 2023 through early 2024: The 2023 program will be open for applications. Rolling application submissions continue until the close of the program year. Applications that are received after the initial 30-day window are ordered based on their submission timestamp.
Q2 2024: 2024 program opens
You’ll be able to track your application on the DOE Applicant Portal with your Login.gov credentials.

If your project was completed with LSC’s help and you are ready to register your organization and your solar project on the DOE Applicant Portal (at Login.gov), let us know so we can verify your system information, including project cost, location and size of the array.

When you are ready to apply, be sure to have the following documents:

Final executed interconnection agreement with your electric utility for your project.
Signed Contract (with your solar installer) in its entirety and inclusive of any amendments, appendices, consumer disclosures, and schedules thereto
If applying under Additional Selection Criteria, documentation demonstrating the applicant meets Ownership Criteria.
Permission to Operate (PTO) letter (or dated interconnection agreement accompanying commissioning documentation confirming date of commissioning and location of facility) confirming that the facility has been placed in service and the location of the facility.
Final, Professional Engineer (PE) stamped (if required by applicable state or local law) as- built design plan, PTO letter with nameplate capacity listed, or other documentation from an unrelated party verifying as-built nameplate capacity. (The Interconnection Agreement and/or the PE stamped structural engineering plans (if roof-mounted), may be sufficient for this step.)

* See Application Checklist for specifications