When the federal government passed the Inflation Reduction Act back in August of 2022, not only did homeowners and businesses receive big incentives for going solar, but governmental entities, religious organizations and nonprofits also saw financial benefits from investing in clean energy projects for the first time.
Direct pay allows these organizations to take advantage of clean energy tax credits, making it easier and more affordable to invest in improvements like solar power, energy storage, EV charging stations and purchasing electric vehicles. Now governments, nonprofits, tribes, publicly owned utilities and churches have access to the full value of clean energy tax credits just like individuals and businesses. Tax-exempt entities can now claim the equivalent amount of tax credit in the form of direct payment from the IRS.
With most solar projects, individuals and businesses receive a 30% tax credit towards the cost of the design, materials and installation. With direct pay, tax-exempt entities now have access to those same financial incentives.
The direct pay provision simplifies the process of claiming clean energy tax credits. Before the Inflation Reduction Act, tax-exempt entities had to endure a complex claims process that discouraged some organizations from investing in clean energy. Direct pay eliminates this process, making it easier and more affordable for these entities to claim the credits.
The Direct Pay Process
Eligible organizations need to complete the following steps to claim direct pay for the clean energy projects:
- Identify and confirm that the clean energy project in question qualifies under the Inflation Reduction Act.
- Complete the project, place it into service and determine the corresponding tax year.
- Determine when your organization’s tax return will be due.
- Complete pre-filing registration with the IRS before your organization’s tax return is due.
- Once your organization receives a valid registration number, file the tax return by the due date, including extensions.
- Receive your direct payment from the federal government.
While the IRS has published a full list of rules and resources on its website to help you through the process, our solar consultants can also assist you with working through the process of applying your clean energy project for direct pay.
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