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Final Regulations Define the Details of Inflation Reduction Act Energy Tax Credits

By Jess LeDonne, on May 20th, 2024

Since the enactment of The Inflation Reduction Act (IRA) in 2022, additional guidance has been intermittently released to shine light on the law’s clean energy tax incentives. This guidance is robust and includes IRS Notices, updated FAQs, proposed and final regulations, among others. Wading through the expansive guidance is difficult and time consuming but exceedingly important for entities looking to secure IRA tax credits, engage in an IRA credit transfer, or to utilize the nonprofit elective pay program in the law.

Most recently, the IRS released final regulations describing rules, and defining important terms, around the transfer of eligible credits, including specific rules for partnerships and S corporations to be eligible for transfers. Specifically, eligible taxpayers can choose to transfer all or a portion of eligible credits to unrelated taxpayers for cash payments. The unrelated taxpayers may then claim the transferred credits on their tax returns. The cash payments are not included in gross income of the eligible taxpayers and are not deductible by the unrelated taxpayers. The final regulations describe the stringent eligibility requirements, rules around excessive credit transfers and recapture events, and information on the mandatory IRS pre-filing registration process. The final regulations are effective from July 1, 2024, and modify the previously issued temporary regulations, so it is important to familiarize yourself with them if considering an IRA credit transfer.

Additionally, the IRS recently released final regulations on the new (§30D) and previously owned (§25E) clean vehicle credits. The IRA created these credit programs which allow for up to $7,500 per new clean vehicles and up to $4,000 per previously owned clean vehicles. Importantly, to claim the credit, a qualified buyer must meet certain income limitations and the vehicle must meet specified eligibility requirements. The final regulations provide rules regarding the critical mineral and battery components requirements for the new clean vehicle credit. Additionally, they include specifics on the transfer of new and previously owned clean vehicle credits to dealers through the advance payment process. Again, these robust and important regulations that are essential for any taxpayer looking to claim the aforementioned IRA credits.

The IRA’s incentive programs, which aim to promote green energy initiatives by encouraging the investment in wind, biomass, geothermal, solar, hydropower, and more alternative fuel sources, represent a fantastic opportunity for potential cost offset for green energy initiatives that your institution may already be undertaking.

If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.

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.

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Written By

Jessica LeDonne Image
Jess LeDonne
Director, Policy and Legislative Affairs

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Jessica LeDonne Image
Jess LeDonne
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