IRS Releases Draft Rule on Low-Income Community Bonus Credit for Solar and Wind Projects

The Internal Revenue Service (IRS) has released a Notice of Proposed Rulemaking that would provide additional guidance on the Low-Income Community Bonus Credit Program relating to certain solar and wind projects. This follows an IRS notice released in February. Public comments on the latest release are due by June 30.

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. Within residential development, this credit is typically claimed for installing eligible solar or wind projects as part of a multifamily project.

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.

Projects located on Indian land or in a low-income community are eligible for a 10% bonus credit. Projects are eligible for a 20% bonus credit if the project is a qualifying low-income residential building, which includes projects financed with Low-Income Housing Tax Credits.

The proposed rules released by the IRS would establish the requirements to apply for the 2023 “capacity limitation” as well as for future years.