IRS Releases Draft Regulation, FAQ on Transferability of Energy Tax Credits

The Internal Revenue Service released a draft regulation and a list of frequently asked questions regarding the new election taxpayers may take to transfer certain energy tax incentives to other parties. For purposes of residential construction, this option generally applies to the Investment Tax Credit (Sections 48 and 48E) and the Production Tax Credit (Sections 45 and 45Y).

Transferability allows a taxpayer who generates certain clean energy tax credits to elect to transfer (i.e., sell) all or a portion of a tax credit to an unrelated third-party transferee (i.e., buyer) in exchange for cash. In such transactions, the buyer and seller negotiate and agree to the terms and pricing.

This guidance also includes information on the “elective pay” option available to non-profits, state and local governments, and certain other eligible entities. Elective pay allows entities that do not have tax liability to take advantage of these clean energy tax incentives through a direct payment from the Treasury Department.

The Investment Tax Credit and the Production Tax Credit are federal tax credits for installing qualifying clean energy technology, such as solar panels, as part of a commercial project, such as a multifamily building.

The Treasury Department also announced it intends to hold a series of webinars on the topic during the summer, beginning Thursday, June 29. Information on how to register can be found here.