Updates on Energy Tax Credits under the Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022 (IRA) has opened up new opportunities for firms in the clean energy sector with the recent release of final regulations by the Treasury and IRS. The regulations reaffirm the transferability provisions for sales of tax credits, solidifying the rules that have been in place since June 2023.

While some had hoped for broader market opportunities for credits, the final regulations maintain the existing rules, which have already proven to be efficient in facilitating several billion dollars in energy tax credit sales in 2023. One key aspect clarified in the regulations is that purchased credits will only offset passive income of buyers unless the buyer “materially participates” in the seller’s business.

Another important development is the introduction of a new round of credit allocations totaling $6 billion, bringing the total amount of credit allocations to $10 billion. Additionally, new regulations have been released for aviation fuel credits, clean vehicle tax credits, and bonus credits for domestic content, providing more clarity and opportunities for developers in the clean energy space.

As Treasury works to finalize IRA guidance, more updates and guidance may be released in the coming weeks. The market for clean energy tax credits is rapidly evolving, and firms in the sector are poised to take advantage of these new opportunities to drive innovation and sustainability in the industry.