Inflation Reduction Act tax credits

The Inflation Reduction Act’s tax credits and incentives opportunities are vast

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The Inflation Reduction Act of 2022 dramatically expanded the available tax credits, tax incentives, and other funding opportunities related to the green energy sector. Several of these are built on previously existing programs, but many are new and widely applicable. The breadth of qualifying activities is significant, including the production of electricity; production of solar, wind, and energy equipment; installation of energy-efficient upgrades to businesses and homes; and the acquisition of electric vehicles (EVs) and charging equipment.

Going further, new monetization options open the benefits of qualifying activities to nonprofits, governments, and other organizations that are tax-exempt. This vast array of new and enhanced options creates opportunities for almost all taxpayers and organizations.

The tax credits and incentives included in the IRA generally took effect at the beginning of 2023. Beyond tax programs, the IRA includes over $100 billion in funding for a vast array of programs, with considerable allocation to the Department of Energy for enhanced grant and loan programs. The combination of tax incentives and broader funding are expected to spur adoption of new energy-efficient technology and equipment while shaping the broader supply chain.

Wondering how the Inflation Reduction Act tax credits, incentives, and monetization options could impact your organization? Our multidisciplined team of tax professionals track the latest developments to keep you informed. Explore more from our tax leaders.

Inflation Reduction Act: Key topics and categories

Browse the available tax credits and incentives included in the IRA.

Carbon oxide sequestration credit

Qualifying facilities can claim an expanded IRA tax credit for the capture and use or storage of carbon oxide. The credit provides enhanced incentives for those that either capture carbon as part of an industrial facility or through direct air capture.

Electricity generated from renewable resources

Eligible taxpayers may claim expanded and new tax credits related to electricity production from specific energy resources. The expanded credits apply to solar and wind technologies but also go much further in many cases to include things such as biomass, biogas, and energy storage technologies. Beginning in 2025, two new credits will take effect and similarly apply to electricity production. However, the future credits mandate the release of zero greenhouse gas emissions rather than a focus on the resource generating the electricity.

Energy-efficient homes and commercial buildings

The IRA also expanded tax incentives related to the installation of energy-efficient building upgrades and the construction of energy-efficient homes.

New and enhanced monetization opportunities

The IRA amplified the cash benefit of tax credits through the creation of two new monetization options. One option, involving nontaxable sales of credits for cash, is especially useful where projected tax credits are likely to outweigh the current and near-term tax liabilities of those generating the credits. In addition, a second tax refund option paves the way for a variety of tax-exempt entities to obtain the cash benefit of tax credits in the absence of traditional tax liabilities.

Residential energy property

Tax credits for individuals have also been expanded for the installation of a variety of energy efficiency and green energy upgrades in their homes.

Tax credits for fuel production and use

The IRA created a new tax credit generated by the production of “qualified clean hydrogen” and modified the tax credits regime related to certain transportation fuels.

Tax credits for manufacturers

The IRA includes two tax credits for businesses that manufacture key components for the green energy sector: the Advanced Manufacturing Production Credit (Section 45X) and the Qualifying Advanced Energy Project Credit (Section 48C). The Section 48C credit is also available to many other manufacturers that plan to install equipment to reduce their greenhouse gas emissions. Also relevant to manufacturers, the CHIPS Act created a similar tax credit structure for businesses engaging in the production of semiconductors or semiconductor equipment.