Alphabet Soup:

Highlighting Energy-Related Tax Credits from the IRA

Matt LaBorde | June 17, 2024

When the Inflation Reduction Act of 2022 (IRA) was passed, the legislation significantly expanded the US government’s role in investing in clean energy and emission reduction projects. In addition to expanding many federal grant programs, the IRA also created or expanded several tax credit programs to spur clean energy investments. Because these tax credits reference different sections in the IRA legislation, they can read more like algebra problems or alphabet soup rather than tax guidance. Additionally, some credits cannot be “stacked” on top of one another. To help our clients “digest” this information (pun intended) and decide which tax credits may be the most beneficial to their needs, we created the chart below to summarize the popular programs.

What are tax credits, and how are they different from grants?

Unlike grants, tax credits typically do not require a lengthy application process and are awarded solely on the applicant’s ability to meet the eligibility criteria. (Note: The 48(C) tax credit is implemented as a partnership between the Dept. of Energy and Treasury and requires a competitive application for award.)

Tax credits may be listed as “refundable” or “non-refundable.” If there is a remaining balance after an organization has met its tax liability, a refundable credit would allow for a cash refund to the organization. A non-refundable tax credit can only take the entity’s tax liability to $0, and the rest of the credit’s value is lost.

The IRA also created an “Elective Pay” (also called “Direct Pay”) system for applicants seeking tax credits. Because some of these technologies are still being scaled and developed, clean energy developers may not have sufficient tax liability to use the entire credit themselves. Elective pay makes certain clean energy tax credits effectively refundable. The entity can receive the full value of the credit because the IRS treats the elective payment amount as a tax payment. It is then counted as an overpayment on the return and is refunded to the entity. For additional information on Elective pay, visit the IRS website here.

IRA New or Expanded Tax Credits

IRA Section	Tax Credit Name	Credit Type	Description
45(V)	New Clean Hydrogen Production Tax Credit	Clean Energy	Creates a new 10-year incentive for clean hydrogen production with four tiers and a maximum of 4 kilograms of CO2 equivalent per kilogram of hydrogen. Projects must begin construction by 2033. Eligibility includes retrofit facilities. Cannot stack with the Carbon Capture and Sequestration Tax Credit (45Q).
45(X)	New Advanced Manufacturing Production Tax Credit	Clean Energy	Creates a tax credit for the production of clean energy technology components that are produced in the United States. Eligible components include solar components, wind turbine and offshore wind components, inverters, many battery components, and the critical minerals needed to produce these components. Begins to phase out in 2029 and phases out completely in 2032.
45(U)	Nuclear Power Production Tax Credit	Clean Energy	Provides a nuclear power production credit of 1.5 cents multiplied by kilowatt hours (kWh) of electricity produced minus 16% of the facility’s gross recipients in excess of 2.5 cents per kWh. Becomes available to facilities already in service in 2024 and ends after 2032.
Sec. 45	Extension of Renewable Electricity Production Tax Credit	Clean Energy	Extends the existing production tax credit for applicable renewable energy sources. This tech-specific PTC ends in 2024 and is replaced by the new tech-neutral Clean Electricity PTC (45Y) which begins in 2025
45(Y)	New Clean Electricity Production Tax Credit	Clean Energy	Replaces Renewable Electricity Production Tax Credit once it phases out at the end of 2024. 45Y is an emissions-based incentive that is neutral and flexible between clean electricity technologies. Taxpayers choose between a PTC (45Y) and an ITC (48E). Credits are set to phase out the later of 2032 or when emission targets are achieved (i.e., the electric power sector emits 75% less carbon than 2022 levels). Facilities will be able to claim a credit at 100% value in the first year, then 75%, then 50%, and then 0%.
Sec. 48	Extension of Energy Investment Tax Credit	Clean Energy	Extends the existing energy investment tax credit for applicable energy projects. This tech-specific ITC ends in 2024 for most technologies and is replaced by the new tech-neutral Clean Electricity ITC (48E), which begins in 2025.
48(E)	New Clean Electricity Investment Tax Credit	Clean Energy	Replaces the above Energy ITC once it phases out at the end of 2024. 48E is an emissions-based incentive that is neutral and flexible between clean electricity technologies. Taxpayers choose between a PTC (45Y) and an ITC (48E). Creates an ITC credit of 30% of the investment in the year the facility is placed in service along with other bonuses based on project locations, manufacturing components and other factors.
48(C)	Advanced Energy Project Credit	Clean Energy	Extends the 30% investment tax credit to clean energy projects to strengthen domestic energy manufacturing and support the production and recycling of clean energy products. It also expands credit to include projects at manufacturing facilities that want to reduce their GHG emissions by at least 20%.
45(Z)	New Clean Fuel Production Credit	Fuel	Creates a new technology neutral 2-year tax credit for low-carbon transportation fuel. Maximum credit is $1 per gallon (or $1.75 per gallon for sustainable aviation fuel) multiplied by an emissions factor.
40(B)	New Sustainable Aviation Fuel (SAF) Credit	Fuel	Creates an incentive to lower aviation transportation emissions. Authorized through 2026. Credit starts at $1.25 per gallon for aviation fuel that reduces GHG emissions by 50% and increases by one cent for each additional percent reduction, maxing at $1.75 per gallon.
45(Q)	Carbon Capture and Sequestration Tax Credit	Carbon Management	Enhances the tax credit for carbon capture and direct air capture (DAC). Extends the deadline for construction to January 1, 2033 and increases the credit amounts based on a number of factors. Decreases the minimum plant size eligibility threshold. Adds a design capacity requirement for Point-source carbon capture projects on electric generating units.
30(D)	Clean Vehicle Credit	Clean Vehicles	Maintains the existing $7,500 consumer credit for the purchase of a qualified new clean vehicle, including electric vehicles, plug-in hybrids, and hydrogen fuel cell vehicles.
25(E)	New Previously Owned Clean Vehicle Credit	Clean Vehicles	Creates a consumer tax credit for the purchase of previously owned clean non-commercial vehicles, including electric vehicles and plug-in hybrids. Credit is equal to the lesser of $4,000 or 30% of the vehicle cost. Sets a maximum sale price of $25,000. Model must be at least 2 years older than the year of sale. Implements an income eligibility limit of $75,000 or $150,000 for joint filers.
45(W)	New Commercial Clean Vehicle Credit	Clean Vehicles	For class 1-3 (under 14,000 lbs.) vehicles for commercial use, creates a $7,500 tax credit tax for the purchase of electric vehicles or other qualified clean vehicles. For class 4 and above (over 14,000 lbs.) vehicles for commercial use, increases the credit to $40,000. Clean Vehicle
30(C)	Extension of Alternative Fuel Refueling Property Credit	Clean Vehicles	Extends tax credit for alternative fuel refueling property credit to property placed into service before 2033. Increases the tax credit to 30% of the cost of alternative fuel refueling property up to $100,000.
25(C)	Credit for Energy Efficiency Home Improvements	Residential Energy Efficiency	Extends credit for energy efficiency home improvements through 2032. Increases credit from 10% to 30%. Replaces lifetime cap on credits with a $1,200 annual credit limit, including $600 for windows and $500 for doors. Increases the limit to $2,000 for heat pumps and biomass stoves. Removes eligibility on roofs.
25(D)	Credit for Residential Clean Energy	Residential Energy Efficiency	Extends credit through 2034 for residential solar, wind, geothermal, and biomass fuel. Maintains the previous credit rate but adjusts the project dates. Applies a 30% credit for projects started between 2022 and 2032. Credit decreases to 26% for projects started in 2033 and 22% for projects started in 2034. Expands eligibility to battery storage technology.