Treasury and The IRS have issued instructions on the low-income solar tax credit boost
Treasury and The IRS have issued instructions on the low-income solar tax credit boost. Yes this is right. Let’s find out in details.
The Treasury Department (Treasury) and the Internal Revenue Service (IRS) of the United States have issued instructions on the Low-Income Communities Bonus Credit Program.
According to IRS guidelines, 1.8 GW of solar is eligible for 40% and 50% tax credits through the IRA through the Low-Income Communities Bonus Credit Program.
The program offers an incentive that could enhance the investment tax credit from 30% to 40% for up to 900 MWdc of solar and wind power projects, and 50% for a further 900 MW of solar and wind power projects.
The Inflation Reduction Act of 2022 (IRA) includes the Low-Income Communities Adder and permits 1.8 gigatonnes (GW) of direct current (DC) capacity limits to be given to projects under the Allocation Program in calendar years 2023 and 2024. The instructions are useful in that they explain how the 1.8 GW (DC) will be allocated across project categories in 2023, as well as some other details (described below).
The instructions, however, do not describe the application process or offer other critical information that taxpayers have been waiting for. Treasury and the IRS aim to issue more guidance on these issues.
Projects in Categories 1 and 2 are eligible for a 10% increase in the Investment Tax Credit, while those in Categories 3 and 4 are eligible for a 20% increase.
|Category||Description||Credit Adder||Capacity Allocation 2023|
|Low-Income Community||The definition is the same as for the new markets tax credit. Section 48(e)(2)(A)(iii) of the Constitution (I).||10%||700 MW|
|Indian Land||Property designated by the federal government as a tribal reservation or land set aside for the use of an Indian tribe. Section 48(e)(2)(A)(iii) of the Constitution (I).||10%||200 MW|
|Qualified Low-Income Residential Building Project||Home construction project that takes part in one of the initiatives specified. Sec. 48(e)(2) (B).||20%||200 MW|
|Qualified Low-Income Economic Benefit Project||At least half of the financial advantages of the project's power are delivered to households earning less than 200% of the poverty level or less than 80% of the area median income. Sec. 48(e)(2) (C).||20%||700 MW|
Applications in categories 3 and 4 will be accepted first, possibly in the fall of 2023. The precise date will be disclosed on a yet-to-be-created website. After 60 days, the IRS will move on to Category 1 and 2 applications.
If the program receives more applications than it can accommodate, the selection will be made using a lottery system. Projects cannot be put into service before being accepted for the incentive.
Each project capacity is limited to five megawatts (ac). The facilities must be operational four years after obtaining their award letters.
The program described in the advice is available in 2023 and 2024, with any extra capacity from 2024 carried forward and employed in 2025.
The following project kinds are defined in the document:
Category 1 projects must be located in areas with a poverty rate of 20% or greater, or where the median family income is 80% of the statewide or metropolitan area median family income. Projects in Category 2 must be located on federally designated Native American land. Category 3 projects must be built on an affordable housing building, with power shared equally among the building’s tenants.
The final grouping, Category 4, requires at least 50% of the financial advantages of a facility’s power go to “households with income of less than 200% of the poverty line … or making less than 80% of area median gross income”.
If a Category 1 or 2 project also qualifies as a Category 3 or 4 project, it will be designated a Category 3 or 4 facility and so eligible for the 50% tax credit.