The Inflation Reduction Act of 2022 (“IRA”) created an “elective pay” or “direct pay” option by which tax-exempt entities may still use tax credits. This elective pay option makes certain “applicable credits” effectively refundable to “applicable entities”. Importantly, the elective pay option is NOT available for all IRA energy credits, only those applicable credits shown on the next page.
Applicable entities are defined as tax-exempt organizations, state and local governments, Indian tribal governments, and agencies and instrumentalities of state, local, tribal, and U.S. territorial governments.
Two of the most popular applicable credits with elective pay available are:
§ 30C: Alternative Fuel Vehicle Refueling Property Credit
- This credit would include charging stations for electric vehicles (“EVs”).
- Importantly, this credit is only available if the refueling property – likely an EV charger – is located in specifically designated low-income or rural areas.
- The credit amount starts at 6% of the cost of the property and may go up to 30% if certain wage and apprenticeship requirements are met.
- For businesses, the credit is limited to $100,000 per item of property.
§ 45W: Credit for Qualified Commercial Clean Vehicles
- The per vehicle amount of credit is equal to the lessor of:
- 15 percent of the basis of such vehicle (30 percent in the case of a vehicle not powered by a gasoline or diesel internal combustion engine), or
- the incremental cost of such vehicle.
- The amount of credit determined with respect to any qualified commercial clean vehicle shall not exceed –
- in the case of a vehicle which has a gross vehicle weight rating of less than 14,000 pounds, $7,500, and
- in the case of any other vehicle not described above, $40,000.
The other IRA applicable credits, for which elective pay is available, are:
- Production Tax Credit for Electricity from Renewables (§ 45, pre-2025)
- Clean Electricity Production Tax Credit (§ 45Y, 2025 and forward)
- Investment Tax Credit for Energy Property (§ 48, pre-2025)
- Clean Electricity Investment Tax Credit (§ 48E, 2025 and forward)
- Credit for Carbon Oxide Sequestration (§ 45Q)
- Zero-Emission Nuclear Power Production Credit (§ 45U)
- Advanced Energy Project Credit (§ 48C)
- Advanced Manufacturing Production Credit (§ 45X)
- Clean Hydrogen Production Tax Credit (§ 45V)
- Clean Fuel Production Credit (§ 45Z, 2025 and forward)
To utilize elective pay, applicable entities must complete a mandatory pre-filing electronic registration via the IRS Energy Credits Online tool.
If you need further guidance or have any questions, we are here to help. Please do not hesitate to reach out to discuss your specific situation. We look forward to helping you through the process of identifying and securing these lucrative credits!
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
