The Low-Income Communities Bonus Credit Program: Categories and How to Apply

The IRS recently announced that the window for applying for the 2024 capacity limitation allocation (the Low-Income Communities Bonus Credit program) is scheduled to open May 28, 2024, at 9 a.m. Eastern Time. 

The program was significantly over-subscribed in 2023, receiving more than 46,000 applications, representing almost eight gigawatts of capacity. Only 1.8 gigawatts of capacity is being allocated in 2024, so it is important that you have a plan to put yourself in the best position to receive an allocation.  

Understanding the Low-Income Communities Bonus Credit Program 

The program includes four categories of applications, each with its credit percentage and capacity limitation. 

The definitions for the four categories of facilities can be found at Treas Reg 1.48(e)-1.  

Category 1 

Low-income communities follow the §45D New Market Tax Credit’s census tracts and poverty level percentages; it’s the project's location that matters. Additionally, the Category 1 allocation is separated into two groups:  

• 400 megawatts are reserved for behind-the-meter projects
• 200 megawatts are reserved for front-of-the-meter projects 

Behind-the-meter projects are connected on the customer side of a utility service meter. Front-of-the-meter projects are directly connected to the grid and their primary purpose is to provide electricity to one or more offsite locations via the grid.  

Category 2 

Indian land encompasses more than just land located within the boundaries of an Indian Reservation, Pueblo, or Rancheria. It also includes land held in trust by the U.S. for the benefit of an Indian tribe or any land located in a census tract in which the majority of the residents are persons who are enrolled members of a federally recognized tribe or village. 

Category 3  

Qualified low-income residential building projects are residential rental buildings that participate in a covered program (i.e., one of several Federal housing assistance programs listed in the regulations) and that meet the financial benefits test. A trap for the unwary are state-specific programs that are not twinned with one of the federal programs. Such programs do not qualify under Category 3.  

Category 4   

For a facility to be treated as part of a qualified low-income economic benefit project, section 48(e)(2)(C) requires that at least 50% of the financial benefits of the electricity produced by the facility be provided to qualifying low-income households.  

In addition to the basic criteria set forth in the definitions, Treasury and the IRS adopted Additional Selection Criteria (“ASC”), at least 50% of the 1.8 gigawatts being allocated is required to go to applications that meet the ASC ownership and geography criteria.   

The ownership criteria are based on applicants who qualify as one of the following: 

• Tribal enterprises
• Alaska native corporations
• Renewable energy cooperatives
• Qualified renewable energy companies
• Qualified tax-exempt entities: 
  • 501(c)(3) or 501(d) organizations
  • Any state in the District of Columbia, or political subdivision thereof, or any agency or instrumentality of any of the foregoing
  • Indian tribal government, a political subdivision thereof, or any agency or instrumentality of any of the foregoing
  • Any corporation described in section 501(c)(12) operating on a cooperative basis that is engaged in furnishing electric energy to persons in rural areas 

The geographic criteria are based on the county or census tract where the facility is located.  Facilities located in a persistent poverty county or that are located in a community identified as disadvantaged communities under the Climate and Economic Justic Screening Tool.   

How to Apply for the Low-Income Communities Bonus Credit Program 

Applicants must submit an extensive set of documents for each facility for which they are seeking an allocation. Consequently, all applicants should download a copy of the applicant checklist and make sure they have all of the required information prior to applying.   

Applications will include information such as the applicable category, ownership model, location (including latitude and longitude), facility technology type, facility name plate capacity, point of interconnection, whether the applicant or facility meets additional selection criteria, and other information.  

Application Process  

Applicants must register with the portal before they can begin the application process. An applicant user guide can be found on the Energy Justice and Equity webpage.  

To register, applicants must first create a login.gov account to access the portal. The login.gov help center has resources to assist applicants in setting up their login.gov account. There are several steps to creating the login account, so it is highly recommended that this is done prior to May 28th. 

Applicants may only submit one application per facility. If an applicant decides it would rather apply for an allocation under a different category, it must withdraw its first application and submit a new application under the other category. If an application submits multiple applications without withdrawing the initial application, all subsequent applications are treated as withdrawn. 

An applicant must be the owner of the solar or wind facility. The partnership or S-corporation is the owner and applicant for partnerships and S-corporations. For disregarded entities, the person who owns the DRE must apply for the allocation.  

Get Support While Applying for the Low-Income Communities Bonus Credit Program 

Solar ITC credits used to be straightforward. The credit was 30% times the solar equipment cost basis. The regulations are complicated, and with only 1.8 gigawatts of capacity being allocated in 2024, it is critical that your team has professionals to help you navigate the labyrinth of §48 rules and their exceptions.  

Contact EisnerAmper if you would like to discuss the application process for the Low-Income Communities Bonus Credit program or if you have any other renewable energy tax credit questions.