Internal Revenue Code Section 48 allows a credit to be claimed for renewable energy projects placed into service during the applicable tax year. This credit, commonly referred to as the Investment Tax Credit (ITC), was modified under the Inflation Reduction Act of 2022 (IRA) to add certain labor requirements as well as bonus credit opportunities. One of the bonus credits allowed by the IRA is the Low-Income Communities Bonus, which allows an increase in credit amount of up to 20%.
Annual Capacity Limitations
As of August 10, 2023, the IRS has provided guidance on applying for the credit, as well as how the credit will be allocated. The Low-Income Communities Bonus will be limited to a total annual capacity limitation of 1.8 gigawatts of DC capacity for each of the four defined categories for each of the calendar years 2023 and 2024. The allocation will be split as follows:
|Category 1: Located in a Low-Income Community
|Category 2: Located on Indian Land
|Category 3: Qualified Low-Income Residential Building Project
|Category 4: Qualified Low-Income Economic Benefit Project
The U.S. Department of the Treasury and the IRS may adjust the allocations of capacity in the future for categories that are oversubscribed or have excess capacity. In addition, at least 50% of the capacity within each category will be reserved for projects that meet certain ownership and/or geographic selection criteria. The ownership and geographic selection criteria can be found in §1.48(e)-1(h)(2).
How to Apply for the Bonus
Applications for the Low-Income Communities Bonus will be collected through the portal on the U.S. Department of Energy’s (DOE) website. The application will require information such as facility output, location, and applicable category. The required information will vary depending on type (front of the meter versus behind the meter) and category to which the applicant applies. Applicants will only be able to submit one application per facility per the allocation year.
There will be a 30-day period at the start of each program year where applications will be accepted for each category. Applications received within this 30-day period will all be treated as being received on the same day and time. Once the 30-day period is over, the DOE will accept applications on a rolling basis and recommend applicants to the IRS until the entire capacity limitation within the applicable category is diminished.
Once submitted, the DOE will review the applications and recommend projects eligible for the bonus to the IRS. The IRS will then award the applicant with an allocation of the capacity limitation or reject the application. The DOE will stop reviewing applications once the entire capacity limitation is awarded. Applicants can reapply for the bonus credit in the next program year if they remain eligible.
We recommend that taxpayers seeking to take advantage of the bonus credit apply within the 30-day window to increase their chances of obtaining an allocation of the credit. If you have any questions or need assistance, please reach out to a renewable energy professional at FORVIS or use the Contact Us form below.