Energy-Efficient Tax Incentives: The Investment Tax Credit

This is the third in a 3-part series focusing on energy-efficient tax incentives.    

The Inflation Reduction Act of 2022 has brought energy incentives back into the spotlight, and taxpayers are eager to leverage the expanded opportunities. The Investment Tax Credit—or ITC—will be modified for 2025, so it behooves taxpayers to understand the changes ahead.   

What is the ITC?  

The Investment Tax Credit is a dollar-for-dollar incentive supporting the growth of renewable energy properties like:  

• Solar panel systems 
• Geothermal systems
• Energy storage systems
• Small wind systems 

Taxpayers may claim a credit valued at 30% or more of the system’s purchase price.   Eligible costs include equipment, mounting hardware, and installation costs.   

This substantial credit can help offset the initial expense of installing renewable systems. 

The Credit is generally claimed by the business that installs, develops, and/or finances the system. Still, tax-exempt organizations may also benefit from the Credit through direct pay or transfer.   

Traditional ITC Program: Sec. 48 

If construction commenced before 1/1/2025, properties are eligible for the traditional Credit.   

The rate simply depends on when the system was placed-in-service:  

• Placed-in-service 2021: 26%
• Placed-in-service 2022-2024: 30% 

Traditional ITC Program: Sec. 48 Under the IRA 

If construction commenced between 1/30/2023-1/1/2025, properties are eligible for the traditional Credit, but the rate depends on the satisfaction of the Prevailing Wage and Apprenticeship Requirements (PWA).   

• PWA Satisfied: 30%
• PWA Not Satisfied: 6% 

Recall that the PWA Requirements state that mechanics and laborers must be paid no less than the prevailing wages required to be paid for federal construction work. (The wage will vary based on exact job description and geographic location.)  Additionally, taxpayers must satisfy two sets of apprenticeship requirements. Sufficient records must be kept.  

Modified ITC Program: Sec. 48E  

If construction commenced on/after 1/1/2025, properties are eligible for the modified credit or the “Technology Neutral ITC.” 

Systems must meet a new requirement – the technologies must have zero or net-negative carbon emissions.  Carbon emission rates were not considered in the traditional version of the program.   

Taxpayers should note that certain systems (biogas, fuel cells, microgrid controllers) will be eligible under the traditional version of the program but not under the modified version. These taxpayers must commence construction before 2025.  

The rate remains dependent on the satisfaction of the PWA Requirements, with the exception of small-scale projects under 1MW capacity.   

Maximizing Sec. 48E ITC Credit Benefit 

If certain additional criteria are met, the modified ITC Credit can reduce tax liability by up to 70%.  The following “boosts” are available, and the EisnerAmper team can guide taxpayers in maximizing the benefit wherever possible:  

• Domestic Content Bonus
• Energy Community Bonus
• Low-Income Bonus 

Beyond these “add-ons,” the key to optimizing the ITC Credit is the satisfaction of the PWA Requirements.  If the PWA Requirements are not met, the benefit will drop significantly.   

Ready to Maximize Your Energy Tax Credits?  

Don’t miss out on these valuable tax incentives. Our team of specialists can guide you through the complexities and help you maximize your savings. Use the form below to schedule time with our team.