Clean Energy Tax Credits Gets a Boost in Energy Communities: IRS Expands Tax Credit Programs

Clean Energy Tax Credits in Energy Communities: IRS Issues Updated Guidance

The Internal Revenue Service (IRS) recently released Notice 2024-30, expanding the definition of “energy communities” for clean energy projects seeking tax credits under the Inflation Reduction Act. This is great news for developers and communities looking to harness renewable energy sources!

What are Energy Communities?

The Inflation Reduction Act offers increased tax credits for clean energy projects in “energy communities.” These communities are typically facing economic challenges due to declining fossil fuel industries.

There are three main ways a location can qualify as an energy community:

1. Brownfield Sites: These are previously developed properties that can be revitalized for clean energy projects.
2. Areas with High Fossil Fuel Dependence: This includes metropolitan and non-metropolitan areas with significant past or present reliance on fossil fuel extraction, processing, transportation, or storage, combined with higher unemployment rates.
3. Locations impacted by Coal Mine or Coal Plant Closures: Census tracts where coal mines closed after 1999 or coal-fired power plants retired after 2009 (including adjoining areas) qualify.

Increased Tax Credits for Energy Communities

Clean energy projects in qualifying energy communities are eligible for higher tax credits:

• Production Tax Credit: Generally increases by 10%.
• Investment Tax Credit: Typically increases by 2 percentage points, with an additional 10 percentage points possible if prevailing wage and apprenticeship requirements are met.

What’s New in Notice 2024-30?

This latest IRS notice clarifies and expands on previous guidance by:

• Expanding the Nameplate Capacity Attribution Rule: This allows for a broader range of clean energy projects to qualify for the bonus credit.
• Adding New Industry Codes: The notice incorporates additional industry codes to identify areas heavily reliant on fossil fuels.

Benefits for Clean Energy Developers

• Increased tax credits make clean energy projects in designated communities more financially attractive.
• This incentivizes investment in clean energy infrastructure in areas that have been negatively impacted by the transition away from fossil fuels.
• It can lead to job creation and economic development in these communities.

Resources for Developers and Communities

The IRS website provides helpful resources for those interested in the Energy Community bonus credit program:

• Notice 2024-30 [Download PDF]
• Appendix 1: Additional MSAs and Non-MSAs Meeting Fossil Fuel Employment Threshold [Download PDF]
• Appendix 2: Additional MSAs and Non-MSAs Qualifying as Energy Communities in 2023 [Download PDF]
• Inflation Reduction Act Page on IRS.gov

Clean energy developers interested in learning more about the Bonus Credit Program and how to qualify for increased tax credits should visit the IRS website (https://www.irs.gov/) and review Notice 2024-30 and the related appendices

Moving Forward: Clean Energy and Economic Renewal

The IRS’s updated guidance on energy communities opens doors for more clean energy projects in areas transitioning away from fossil fuels. This benefits the environment and creates opportunities for economic revitalization in these communities.

The Bottom Line

This expanded guidance from the IRS is a positive development for clean energy developers and investors. By targeting energy communities, the Inflation Reduction Act and the IRS’s ongoing clarifications incentivize clean energy projects in areas most in need of economic revitalization. This fosters a win-win situation for both the environment and economically challenged communities.

⋙ Read More: 7 Warning Signs of a Potentially Incorrect ERC Claims (IRS)

Get the Latest Financial News, Expert Insights, Trends, and Tips you need to make Informed Decisions about your Business, Taxes, and Investments at edueasify.