The U.S. Department of Treasury and the Internal Revenue Service (IRS) have unveiled a comprehensive final rule and procedural guidance detailing the parameters of the bonus credit that can be claimed in conjunction with qualified solar or wind facilities under the Section 48 Investment Tax Credit (ITC). This regulatory step is in line with the broader push to promote cleaner energy sources and incentivize sustainable practices.

 
Under the newly released guidance, the focus is on the Low-Income Communities Bonus Credit, which forms a critical component of the ITC. This credit enhancement is one of several included in the Inflation Reduction Act, intended to reward taxpayers who invest in eligible clean energy equipment. While the ITC traditionally aligns with solar and wind technologies, it also encompasses a range of other clean energy sources such as geothermal and biogas.

This bonus credit structure offers a tiered approach, wherein the base tax credit of 6% of project costs can be augmented by factors that include prevailing wage and apprenticeship requirements, net output, U.S. domestic content, and the project's location in an "energy community." Additionally, projects associated with low-income communities may qualify for supplementary bonuses of up to 20%, depending on specific criteria.

However, the distinct feature of the Low-Income Communities Bonus Credit is its limited applicability to solar and wind technologies. Unlike other bonus credit tiers, this bonus is subject to a capacity limitation known as the "environmental justice solar and wind capacity limitation." This specific limitation, set at 1.8 gigawatts of direct current capacity for each of the calendar years 2023 and 2024, introduces a competitive allocation process administered by the Department of Energy (DOE).

The application portal for this allocation process is anticipated to open in the early fall, with further guidance expected from the DOE. While the clean energy sector and investors eagerly await this opportunity, the IRS's finalized rules provide clarity and structure to a complex incentive framework, aligning incentives with broader sustainability goals and fostering cleaner energy practices across the nation. This proactive stance reflects a crucial stride toward a greener and more resilient energy future.

https://www.nahb.org/blog/2023/08/solar-tax