Opportunities in the Transferability of Renewable Energy Tax Credits
By Kimberly Carlini, Senior VP, Investments and Bryen Alperin, Managing Director
This blog is the first in a series that will explore the opportunities in the transferability of renewable tax credits for investing in renewable energy and reducing tax liability.
The Inflation Reduction Act, signed into law on August 16, 2022, has created new opportunities to invest in a sustainable future. There are many options, but one of the more promising is new transfer provisions which allow for the transfer of renewable energy tax credits between taxpayers. With these new transfer provisions, a taxpayer can purchase a tax credit generated from an eligible project, for example, at $0.90 per $1 of tax credit and then apply the credit to reduce required tax payments to the IRS by the full $1.
Transferable credits allow taxpayers to access credits free of ongoing ownership interests and related accounting effort. Tax credit investing isn’t new, but some investors prefer not to account for a longer-term investment to access them. The purchase of transferred tax credits may be the solution.
These tax credits can also offer benefits to the renewable energy projects themselves. By allowing credits to be transferred, it opens the pool of potential investors and can increase the amount of funding available for these types of projects. This can help to accelerate the transition to renewable energy and contribute to the goal of reducing carbon emissions.
The ability to transfer renewable energy tax credits provides flexibility. For example, a company that has a high tax liability in a particular year may not have the ability to fully utilize all the credits that it generates. By being able to transfer those credits to another taxpayer, the company can still receive some value for the credits and the other taxpayer can use them to offset their own tax liability.
The eligibility of credits is as critical as ever to verify. The renewable technologies generating the tax credits are still subject to a compliance period, and tax credits could still be recaptured or disallowed. That’s where Foss & Company comes in. We can do the work to screen, underwrite and monitor the tax credit eligible projects so you can feel confident you get what you’re paying for.
Overall, the introduction of transferability can be a win-win for both investors and renewable energy projects. It allows investors to access credits without the need for ongoing ownership, while also providing a source of funding for renewable energy projects and helping to drive the transition to a more sustainable future.
Don’t take any chances with your investment. Contact Foss & Company today to learn more about how we can help you make the most of transferrable tax credits and contribute to a sustainable future.