Under the Inflation Reduction Act (“IRA”), the investment tax credit (“ITC”) may be increased if the applicable energy property qualifies for certain bonus levels, including an increased ITC energy percentage of up to 10% or 20% for qualified solar and wind facilities placed into service in, or to benefit, low-income communities. Initial guidance on the low-income communities bonus program (the “Program”) was released in February 2023 in Notice 2023-17, and last month the Treasury Department released a notice of proposed rulemaking which expands upon, and makes some important changes to, the initial guidance.
The tax credits and other incentives in the IRA have been a game changer for a number of industries, including energy of course. However, the real estate industry should pay particular attention to the Program, since many real estate projects incorporating solar energy property are likely to qualify if they are in the right place on the map! If you are putting solar panels on the roof, especially for a smaller project, the Program could increase the ITC energy percentage when calculating your tax credit.
This update focuses primarily on the 10% bonus available for energy facilities located in low-income communities and on Indian Land, so please reach out directly to discuss any questions on the 20% bonus available for qualified low-income residential projects and qualified low-income economic benefit projects.
Authored by Jessica Millett and Sherry Haoran Gui.
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