How the ITC and PTC have changed under the Inflation Reduction Act

Provisions to clean energy tax incentives

The Investment Tax Credit (ITC) and the Production Tax Credit (PTC) provide taxpayers with the opportunity to receive a percentage of the cost of their renewable energy systems as a credit on their federal taxes. Similarly, the Commercial Building Energy-Efficiency Deduction (179D) enables building owners to claim a tax deduction based on their property’s increased energy efficiency with verified documentation from a third party.

Under the recently enacted Inflation Reduction Act (IRA), the values of these tax credits and deductions have been modified. For projects under 5 MW, the ITC now covers up to 70%, a significant increase compared to the previous 26% coverage. The PTC has been enhanced to offer up to $30 per MWh for utility-scale projects, up from the previous $26 per MWh. The 179D deduction has risen from $1.88 per square foot up to $5.00 per square foot.

Expanded qualifying technologies

Additionally, the list of qualifying technologies for both the ITC and PTC has been expanded by the IRA.

Eligibility under the Inflation Reduction Act

The IRA has introduced provisions to extend the benefits of the ITC, PTC, and 179D to non-taxable entities. This is achieved through the implementation of direct pay or transfer options, eliminating the requirement for tax liability. As a result, public and not-for-profit organizations can now take advantage of clean energy tax credits for equipment placed in service from January 1, 2023, through December 31, 2032.

Taxable Entities 

• Commercial
• Industrial
• Agricultural

Non-Taxable Entities 

• State Governments
• Local Governments
• Tribal Governments
• Rural Electric Cooperatives
• Tennessee Valley Authority
• Schools
• Churches
• Non-Profits
• Charitable Organizations

Direct Pay
The tax credit direct pay option enables non-taxable recipients of the ITC or PTC to convert their tax incentives into a direct payment from the Internal Revenue Service (IRS), or they can sell or transfer the credits to a separate entity. View our simplified guide on how to elect for a direct payment here. 

Deduction Transfer
The tax deduction transfer option allows qualifying non-taxable entities to use the 179D program and transfer the credit to the property or project’s designers, which can include architects, engineers, and energy service providers.

Stacking value of tax credits and deductions

By meeting prevailing wage, apprenticeship, and domestic content standards established in the IRA, organizations can increase the overall value of their tax credits and deductions. Implementing a project in an energy or low-income community can further improve your incentive value.

Improved clean energy project feasibility

With the Inflation Reduction Act, the total clean energy project investment can be offset significantly with a tax credit or direct pay, enabling organizations nationwide to address deferred maintenance, improve energy and operational efficiency, and progress sustainability goals.