Transferable tax credits are federal clean energy tax credits that eligible taxpayers can sell for cash to an unrelated buyer under Internal Revenue Code §6418. Created by the Inflation Reduction Act of 2022, transferability allows renewable energy developers and manufacturers to monetize credits immediately rather than carrying them forward. This provision expands the market beyond traditional tax equity investors and improves liquidity for clean energy projects. Buyers use the credits to offset federal income tax liability.

Eleven federal clean energy tax credits qualify for transfer under §6418, including the §45 Production Tax Credit (PTC), §48 Investment Tax Credit (ITC), §45Q Carbon Capture Credit, §45V Clean Hydrogen Credit, §45X Advanced Manufacturing Credit, and §48C Advanced Energy Project Credit. For projects placed in service after 2024, the technology-neutral §45Y and §48E credits replace the legacy PTC and ITC programs and are also transferable. These credits apply across solar, wind, energy storage, hydrogen, carbon capture, and advanced manufacturing projects. Eligibility depends on meeting labor and other statutory requirements.

Prior to the IRA, developers relied primarily on tax equity partnerships or lease structures to monetize energy tax credits and depreciation benefits. Transferability allows project owners to sell eligible tax credits directly for cash without forming a partnership or giving up ownership. This reduces structural complexity, broadens the investor pool, and often lowers transaction costs. Tax equity remains relevant for projects seeking to monetize depreciation or multi-year credit streams.

Sellers must pre-register eligible credits through the IRS Energy Credits Online portal and obtain a registration number before filing their tax return. The parties execute a Tax Credit Purchase Agreement and a Transfer Election Statement detailing the credit amount and tax year. The credit may only be transferred once and must be sold for cash consideration. Both buyer and seller report the transaction on their respective federal income tax returns.

Buyers must be unrelated taxpayers with sufficient federal income tax liability to utilize the credit. Common purchasers include large C-corporations, insurance companies, and financial institutions with predictable taxable income. Passive activity rules limit the ability of individuals and closely held corporations to use transferred credits. Tax-exempt entities generally rely on elective pay under §6417 rather than transferability.

Primary risks include IRS credit disallowance, recapture for certain Investment Tax Credits, and penalties for excessive credit transfers. Treasury regulations impose a 20% penalty on excessive transfers unless reasonable cause is established. Buyers typically conduct tax and engineering diligence and may obtain tax credit insurance to mitigate exposure. Strong documentation and compliance with labor and domestic content rules are essential.

For federal tax purposes, the seller does not recognize income from the credit sale, and the buyer does not recognize income from the discount. Buyers also cannot deduct the purchase price paid for the credit. Under U.S. GAAP, purchased credits are generally accounted for under ASC 740 as deferred tax assets. State tax treatment may vary and should be evaluated separately.

Yes. Projects that qualify for bonus credit adders—such as domestic content, energy community, or low-income community bonuses—may transfer the enhanced credit amount. Compliance with prevailing wage and apprenticeship requirements is often necessary to access full credit value. IRS guidance provides safe harbors for certain bonus qualifications. Proper substantiation is critical to preserve enhanced credit amounts.