The Department of Treasury and Internal Revenue Service released IRS Notice 2023-17, which details a new bonus tax credit for certain low-income multifamily projects, including Low-Income House Tax Credit (LIHTC) projects, that include eligible solar or wind energy technologies.
Qualifying solar and wind equipment is eligible for a federal tax credit of up to 30% of the cost as part of the Section 48 Investment Tax Credit. Under the Inflation Reduction Act enacted into law last year, Congress established a low-income communities bonus credit program, which allows certain Section 48-eligible projects to receive an additional 10% or 20% credit.
Unlike traditional tax credits, the low-income communities bonus credit program is capacity limited, meaning eligible taxpayers must apply for an allocation of "capacity limitation" in order to claim the bonus credit. This notice provides initial guidance regarding the application process and criteria that will be considered for applications. Additional guidance will be released later this year with the specific application procedures.
Projects located on Indian land or in a low-income community are eligible for a 10% bonus credit. This generally includes census tracts with a poverty rate of at least 20% or with a median family income of 80% of a metropolitan area or state.
Projects are eligible for a 20% bonus credit if the project is a qualifying low-income residential building. A qualified low-income residential building must participate in an affordable housing program, which includes the "covered housing programs" defined in the Violence Against Women Act (34 USC 12491(a)(3), which includes a number of U.S. Housing and Urban Development and U.S Department of Agriculture programs as well as LIHTC.
A low-income economic benefit project may also be eligible for a 2% bonus credit if at least half of the financial benefits of the electricity produced are provided to eligible low-income households.