He provided an overview of the IRA and presented the slides below.
“Transferability” of Tax Credits
Transferability – selling tax credits to unrelated parties for cash
- Seeing term sheets to buy tax credits in lower 90 cents for $1.00 of tax credit.
- Only one sale allowed, no brokers acting as buyers to re-sell
- Can be sold after close of tax year but before buyer files its tax return.
- No taxable income to seller; no deduction for buyer.
- Sale election is made at “partnership” level, not partner level.
- Need guidance on whether buyer or seller suffers recapture from a transfer/casualty.
- Need guidance on application of passive activity loss rules & at-risk rules to individual.
Direct Pay for Tax Credits
- Available for all owners claiming the manufacturers’ tax credits (45X and 48C), hydrogen tax credits (45V), or carbon capture tax credits (45Q).
- For wind, solar, storage and other types of energy generation projects, direct pay is only available if the project is owned by tax-exempt entity (e.g., a solar project owned by a school district).
- IRS pays 100 cents on the dollar.
Post-IRA Tax Credit Rates
ITC credit rate is 30% and the PTC rate is $27.50/MWh for:
- Projects that start construction before January 29, 2023;
- Projects that satisfy the wage and apprenticeship rules; or
- Projects that are less than 1 MW (a/c).
ITC and PTC levels may be increased by domestic content , energy community and LMI bonuses, see ‘Credit Adders’ section.
Domestic Content (starting in 2023) – ITC 10 percentage points or PTC 10% bonus
- Must include 100% domestic iron and steel and 40% domestic content for manufactured products (increases after 2024).
Energy Communities (starting in 2023) – ITC 10 percentage points or PTC 10% bonus
- Brownfield sites (as identified in CERCLA);
- An area which has (or at any time after December 31, 1999, had) (i) (a) significant employment (>.17%) related to the extraction, processing, transport, or storage of coal, oil, or natural gas (as determined by the Secretary) or (b) 25% or greater local tax revenue from the foregoing activities, and (ii) higher unemployment than the national average for the “previous year”; or
- A census tract in which (I) after December 31, 1999, a coal mine has closed, or after December 31, 2009, a coal-fired electric generating unit has been retired, or (II) which is directly adjoining to any census tract described in subclause (I).
Environmental justice credit (LMI) – 10 or 20 ITC percentage points (no PTC adder)
- Only applies to solar & wind projects <5 MW of capacity.
- IRS will start accepting applications in 3Q 2023. IRS saying can’t be in service before allocation granted.
- Key concept of “benefiting” low-income communities and residents remains to be defined by IRS.
ITC for Standalone Storage
- Standalone storage qualifies for an ITC for systems placed in service after December 31, 2022.
- Same ITC rate, adders and requirements as solar.