The Inflation Reduction Act offers organizations unique opportunities to leverage tax credits and drive innovation—unlock significant savings today by discovering how your organization can cash in on substantial discounts with these valuable incentives.
The Inflation Reduction Act (IRA) introduces over 70 dynamic tax credits—ranging from investment and excise to production incentives—designed to propel the transition to cleaner energy. These credits aim to foster advanced manufacturing, encourage clean vehicle adoption, and significantly cut greenhouse gas emissions through alternative fuels and energy-efficient technologies. Moreover, the act enhances loan programs from the U.S. Department of Agriculture (USDA) and the Department of Energy (DOE), broadening access to vital funding.
Beyond boosting investments in communities and workers, the IRA creates pathways for private sector engagement by opening clean energy tax incentives to tax-exempt entities, including state and local governments, Tribal authorities, and rural electric cooperatives. It also reinforces supply chains for essential materials and equipment, fortifying the infrastructure for clean energy initiatives.
With its ambitious scope, the IRA expands the range of tax credits and funding opportunities in the green energy sector, building on existing programs while introducing fresh, widely applicable initiatives. Eligible activities include electricity production, manufacturing solar and wind equipment, and installing energy-efficient upgrades in homes and businesses. New monetization options offer nonprofits and other tax-exempt organizations access to these benefits, creating exciting opportunities for various taxpayers. Overall, with over $100 billion allocated for diverse programs, the IRA is poised to drive the adoption of innovative energy-efficient technologies and reshape the energy supply chain for a sustainable future.
The Clean Electricity Investment Tax Credit (Section 48E) provides a 6% tax credit for investments in clean electricity and energy storage, increasing to 30% if certain wage requirements are met.
The Carbon Oxide Sequestration Credit (Section 45Q) incentivizes capturing and storing carbon dioxide emissions, with varying credits based on equipment age and wage compliance.
The Clean Vehicle Tax Credits (Sections 30D & 45W) provide up to $7,500 for new electric vehicles, $4,000 for used ones under $25,000, and up to $40,000 for businesses.
The Alternative Fuel Vehicle Refueling Property Credit (Section 30C) offers up to $1,000 for individuals and $100,000 for businesses.
Home Energy Tax Credits (Sections 25C & 25D) support upgrades, while Section 45L gives builders up to $5,000, and Section 179D incentivizes commercial energy improvements.
The Advanced Energy Project Credit (Section 45C) and the Advanced Manufacturing Production Credit (Section 45X) provide tax incentives for manufacturers investing in renewable energy. The Inflation Reduction Act allocates $10 billion for these credits, offering 30% for qualifying projects and supporting domestic production of clean hydrogen and electric vehicle batteries.
The Clean Hydrogen Production Tax Credit (Section 45V) provides up to $3.00 per kilogram based on carbon intensity, while the Clean Fuel Production Credit (Section 45Z) will incentivize registered producers of clean transportation fuels, including sustainable aviation fuel (SAF), starting January 1, 2025.
Electricity Generation & Carbon Capture
Clean Electricity Investment Tax Credit
A technology-neutral tax credit is available for investments in facilities that produce clean electricity and qualified energy storage technologies. The credit amount is 6% of the qualified investment (basis), increasing to 30% if the prevailing wage and apprenticeship (PWA) requirements are met.
Carbon Oxide Sequestration Credit
Starting January 1, 2023, carbon oxide sequestration credits under Section 45Q provide financial incentives for capturing and storing carbon dioxide emissions. Qualified carbon oxide captured with equipment placed before February 9, 2018, earns a $10 per metric ton credit if securely stored. For newer equipment, 2023 rates are $26.94 for secure storage and $13.47 for enhanced oil recovery. Meeting PWA requirements can increase credits to $60-$180 per metric ton. After 2022, these credits can be treated as income tax payments, and transfers to third parties are allowed under Section 6418.
Low-Income Communities Bonus Credit
An additional investment tax credit is available for small-scale solar and wind facilities (under 5 MW) on Indian land, federally subsidized housing, and in low-income communities, benefiting low-income households.
Production Tax Credit for Electricity from Renewables & Clean Electricity Production Tax Credit
This credit applies to the production of electricity from eligible renewable sources, including wind, biomass, geothermal, solar, small irrigation, landfill and trash, hydropower, and marine and hydrokinetic energy. The credit amount for qualified hydropower and marine and hydrokinetic renewable energy facilities placed in service after December 31, 2022, is 0.55 cents per kilowatt hour for renewable electricity production. (Notice 2023-51). Section 45Y supersedes Section 45 for facilities that commence construction and become operational after 2024.
What strategies can your company employ to benefit from the Clean Electricity Investment Tax Credit and enhance its competitive edge?
To benefit from the Clean Electricity Investment Tax Credit, businesses can invest in clean energy facilities and ensure compliance with prevailing wage and apprenticeship requirements to maximize the credit up to 30%. Integrating energy storage technologies can also enhance operational efficiency and reduce long-term costs, providing a competitive edge in the sustainable energy market.
Clean Vehicles and Homes
Clean Vehicle Tax Credits
- Under Internal Revenue Code Section 30D, you may qualify for a credit of up to $7,500 if you purchase a new, qualified plug-in electric vehicle (EV) or fuel cell electric vehicle (FCV) for vehicles bought between 2023 and 2032.
- Starting January 1, 2023, buying a qualified used electric vehicle (EV) or fuel cell vehicle (FCV) for $25,000 or less may qualify you for a tax credit of 30% of the sale price, up to $4,000.
- Businesses and tax-exempt organizations purchasing a qualified commercial clean vehicle may qualify for a tax credit of up to $40,000 under IRC 45W.
Alternative Fuel Vehicle Refueling Property Credit
The Clean Electricity Production Tax Credit is available for individuals, businesses, and tax-exempt entities that install qualified refueling property, offering credits of up to $1,000 for individuals and $100,000 for businesses and tax-exempt organizations. To qualify, the property must be used for clean fuel or electric vehicle recharging, placed in service during the tax year, and located in eligible low-income or non-urban census tracts.
Home Energy Tax Credits
Homeowners can claim the Energy Efficient Home Improvement Credit or the Residential Clean Energy Credit for qualifying improvements made to their primary residence, while renters and owners of second homes used as residences may also be eligible, but credits are not available for improvements to non-residential properties.
Energy Efficiency Home Improvement Credit
A tax credit of up to $3,200 may be available for energy-efficient home improvements made after January 1, 2023, through 2032.
Residential Clean Energy Credit
The Residential Clean Energy Credit provides 30% of the costs for new, qualified clean energy property installed in homes from 2022 through 2032. This credit phases down to 26% for property placed in service in 2033 and 22% for property placed in service in 2034, and it may apply to energy-saving improvements made in the U.S.
Credit for Builders of New Energy-efficient Home
Eligible contractors can claim tax credits up to $5,000 for building or reconstructing qualified energy-efficient homes.
Energy Efficient Commercial Buildings Deduction
Starting January 1, 2023, the deduction is available to owners of qualified commercial buildings and designers of energy-efficient commercial building property (EECBP) in certain tax-exempt entities, including government and tribal organizations. EECBP must be installed in U.S. buildings that meet Reference Standard 90.1 and be certified to reduce energy costs by at least 25%. Energy-efficient building retrofit property (EEBRP) also qualifies if installed in buildings at least five years old and eligible for depreciation or amortization.
How does the Inflation Reduction Act (IRA) promote the adoption of clean vehicles and energy-efficient home upgrades, and what implications does this have for consumers and manufacturers in the renewable energy sector?
To leverage the Clean Electricity Investment Tax Credit, businesses should first conduct a comprehensive assessment of their energy needs and potential for clean energy integration. Investing in qualifying facilities for renewable energy and energy storage can significantly enhance operational efficiency. Ensuring compliance with prevailing wage and apprenticeship requirements can maximize the tax credit to 30%. Additionally, collaborating with energy consultants can help identify suitable projects and navigate the application process. By actively promoting sustainability initiatives and showcasing tax incentives, businesses can enhance their brand reputation and gain a competitive edge in an increasingly eco-conscious market.
Manufacturing
Advanced Energy Project Credit (Section 45C)
Manufacturers and entities investing in advanced energy projects can apply for tax credits through the U.S. Department of Energy, with $10 billion allocated under the Inflation Reduction Act, including $4 billion for specific energy communities. The tax credit is 30% for projects meeting prevailing wage and apprenticeship requirements, or 6% for those that do not. Qualifying projects include establishing facilities for advanced energy property or reducing greenhouse gas emissions by at least 20%, excluding those for refining non-renewable fuels.
Advanced Manufacturing Production Credit (Section 45X)
This credit encourages domestic production of renewable energy technologies and components, which includes clean hydrogen and batteries for electric vehicles.
Fuel Production
Clean Hydrogen Production Tax Credit (Section 45V)
The Clean Hydrogen Production Tax Credit introduces a 10-year incentive for producing clean hydrogen, providing up to $3.00 per kilogram. The credit amount depends on carbon intensity, with a cap of four kilograms of CO2-equivalent for each kilogram of hydrogen.
Clean Fuel Production Credit
Starting January 1, 2025, the Clean Fuel Production Credit is a tax credit for domestic production of clean transportation fuels, including sustainable aviation fuel (SAF). Taxpayers must be registered as clean fuel producers to claim the credit.
The Inflation Reduction Act presents a transformative opportunity for organizations to harness a wide array of tax credits aimed at fostering innovation and promoting clean energy. By leveraging these incentives, businesses and individuals can unlock substantial savings while contributing to a sustainable future. At the same time, the IRA enables entities, including tax-exempt organizations and governments, to take advantage of certain clean energy tax credits through its elective pay provision.
With its comprehensive provisions for electricity generation, clean vehicles, and advanced manufacturing, the IRA not only accelerates the transition to greener technologies but also strengthens community investments and supports economic growth. Now is the time to explore how your organization can benefit from these valuable incentives and play a pivotal role in the transition to a cleaner, more resilient energy landscape.
Related Topics: Tax Credit, Corporate Tax, Technology, Inflation Reduction Act
Related Services: Tax Returns & Planning, Tax Policy & Compliance, Tax Credits & Incentives, Industry strategy, Investment Advisory
Related Industries: Technology, Power, Utilities & Renewables, Manufacturing
