How to Apply for Clean Energy Tax Credits and Refunds
The process for claiming IRA clean energy tax credits and incentives depends on the type of credit you're claiming. Some credits require a detailed application detailing your eligible investments, while others only require you to file a tax return.
For example, to apply for the Advanced Energy Project Credit, applicants typically must go through a four-step review process that requires approval from the U.S. Department of Energy. But for the new Qualified Commercial Clean Vehicle Credit, only one taxpayer within a business needs to fill out Form 8936, according to the IRS.
Additionally, IRAs have created two new ways for companies to monetize tax credits generated by their projects: direct payments and transferability. Both are available to energy project owners and sponsors of such products.
Direct payment
The direct payment election (also known as the elective payment election) makes certain clean energy tax credits effectively refundable to eligible entities that:
Tax-exempt organizations State and local governments and their political subdivisions, agencies, and instrumentalities Indian tribal governments Alaska Native corporations Tennessee Valley Authority Rural electric cooperatives
These entities may elect to be deemed to have paid the tax instead of claiming a credit. The entity that elects will receive a refund for any amount of the credit that exceeds the entity's income tax liability.
In addition, all taxpayers may elect to receive direct payments for three credits: the Clean Hydrogen Production Credit, the Carbon Dioxide Sequestration Credit, and the Advanced Manufacturing Production Credit, but only during the first five tax years beginning with the year in which the eligible project begins operation.
Transferability
On the other hand, transferability allows a person who is eligible for a tax credit but not eligible for a direct payment to choose to sell some or all of the tax credit to an unrelated purchaser in a tax-free transaction in exchange for cash. To be eligible to sell a tax credit, the seller must be subject to U.S. internal revenue tax. This includes entities that have U.S. employment or excise tax liability even if they have no U.S. income tax liability. If the establishment or property eligible for the credit is held directly by a partnership or S corporation, only the partnership or S corporation, not a partner or shareholder, can choose to transfer.