Rules for solar and wind credits in low-income communities finalized

The Internal Revenue Service and the Treasury Department released final regulations and a new revenue procedure Thursday to spur development of new solar and wind energy facilities in low-income communities that can qualify for tax credits under the Inflation Reduction Act.

Revenue Procedure 2023-27 provides guidance for the low-income communities bonus credit program and energy investment credit. Under the program, investors in solar and wind-powered electricity generation facilities can apply for credits for the tax year in which a facility is put in service. The rules provide guidance to implement the program, including the information an applicant needs to submit, the application review process, and how to get an allocation. 

The IRS predicts to receive thousands of applications from individuals, businesses and tax-exempt organizations (see story).The final regs outline the four project categories under which developers can apply for an allocation, and the increase of either 10% or 20% associated with a particular project category. They also define the financial benefits for two project categories, along with the energy storage technology installed in connection with a solar or wind facility.

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The rules detail the other selection criteria for potentially eligible applicants and remind applicants that facilities put in service before an allocation aren't eligible. The guidance also spells out the disqualification and credit recapture rules specific to the program. 

"One of the goals of Bidenomics is to ensure all Americans benefit from the growth of the clean energy economy," said Treasury deputy secretary Wally Adeyemo in a statement. "This new bonus incentive through the Inflation Reduction Act will drive investment to underserved communities to ensure they benefit from lower energy costs and reduced pollution and health hazards. Treasury has worked to get this program off the ground as quickly as possible, and in partnership with the Department of Energy, will be opening the application process and making awards to projects earlier than initially anticipated."  

The Energy Department opened a landing page for the program Thursday and plans to provide more information in conjunction with the IRS and the Treasury about the opening date and application materials in the weeks ahead. 

The Low-Income Communities Bonus Credit program will allocate 1.8 gigawatts of capacity for the 2023 program across four categories of solar or wind facilities, with maximum output of less than five megawatts. The IRS plans to allocate up to 700 megawatts to facilities located in low-income communities; 200 megawatts to facilities on Native American land; 200 megawatts to facilities that are part of federally-subsidized residential buildings, including housing supported by the Low-Income Housing Tax Credit and Section 8 of the Housing Act; and 700 megawatts to facilities where at least 50% of the financial benefits of the electricity go to households with incomes below 200% of the poverty line or below 80% of area median gross income.

The application process for all four categories in the Low-Income Communities Bonus Credit program will open in the fall, and awards will start going out by the end of the year. Depending on availability, applications for the 2023 program are expected to be accepted through early next year. The Treasury previously planned to open the application process in two phases — an initial window and a rolling application process. The IRS can opt to reallocate capacity between categories in the case any category gets oversubscribed, and the unclaimed allocations will roll over into next year, when another 1.8 or more of gigawatts of capacity will be available to applicants.