Is your business using clean, or renewable, energy? You could qualify under the Inflation Reduction Act of 2022 (IRA) for renewable energy tax credits that reduce your federal tax liability. As part of IRA, the Investment Tax Credit (ITC) and Production Tax Credit (PTC) for businesses were both updated and extended and, in 2025, will expand even more — including direct pay and transfer options. In this article, we’ll detail the benefits offered and qualifications for each.
In this article:
- The Investment Tax Credit (ITC) allows companies a base tax credit of 6% (with bonus credits available) of the cost of projects involving the installation of renewable energy systems.
- The Production Tax Credit (PTC) accounts for a base tax credit of 0.3 cents per kilowatt-hour of clean energy produced through renewable energy practices.
- Bonus credits are available for companies that use domestic materials or conduct clean energy practices in certain “distressed” areas, such as energy communities or low-income communities.
How can my business generate renewable energy?
Renewable, or clean, energy is produced by eco-friendly sources (such as wind and solar, among others).
You may be thinking, “This must cost a lot more than traditional energy production” — but with the renewable energy tax credits the federal government offers, you could be looking at several credits for a good portion of your expenses.
For a family, generating clean energy could mean adding solar panels to their rooftop, purchasing an electric vehicle, or improving the energy efficiency of their home with new electric appliances.
For a business owner, this could mean installing similar energy-efficient systems in their commercial properties, purchasing clean vehicles for commercial use, or producing and manufacturing clean energy.
No matter the method, there are several renewable energy tax credits the federal government offers. You can take advantage of these credits to recoup some of the costs of installation (ITC) or production (PTC). To see which specific projects are eligible under ITC and PTC, see this handy table created by the EPA.
How can I benefit from the Inflation Reduction Act of 2022?
The IRA is a large-scale effort to invest in the production of clean energy right here in the U.S. As an incentive, the Internal Revenue Service (IRS) offers several tax credits for businesses in the energy generation and carbon capture, clean vehicles, manufacturing, commercial energy, and fuel industries. For a full breakdown, the IRS provides this resource page of all IRA credits and deductions.
Let’s take a closer look at how you can recoup the cost of some of your clean energy projects through ITC or PTC.
Investment Tax Credit
Note: Starting January 1, 2025, the Investment Tax Credit for Energy Property will become the Clean Electricity Investment Tax Credit. This credit will function similarly to the ITC, but will be technology-neutral for investment in any facility that produces clean energy.
The keyword here is “investment.” ITC is specific to the investments your company makes in establishing systems to create sustainable energy, including projects related to fuel cell, solar, geothermal, small wind, energy storage, biogas, microgrid controllers, and combined heat and power properties.
The ITC covers:
- Projects beginning construction prior to January 1, 2025
- 6% base credit as a percentage of the project’s value
The following bonus credits are available:
- 5x credit increase in credit for projects meeting labor standards (see below for more info on labor standards)
- Up to 10% credit increase for projects meeting certain domestic content requirements for steel, iron, and manufactured products
- Up to 10% credit increase if project is located in an “energy community”
Production Tax Credit
Note: Starting January 1, 2025 , the Production Tax Credit for Electricity from Renewables will become the Clean Energy Production Tax Credit. This will also function similarly to the PTC, but will be technology neutral.
Likewise, the keyword here is “production.” PTC supports the production of clean or renewable energy, including wind, biomass, geothermal, solar, landfill and trash, hydropower, and marine and hydrokinetic energy.
The PTC covers:
- Base credit on a per-kilowatt-hour basis of production
- 8 or 1.4 cents (depending on source) per kW for facilities placed in service before January 1, 2022
- 55 or 0.03 cents (depending on source) per kilowatt hour (kW) for facilities placed in service after December 31, 2021
- 55 cents per kW for marine and hydrokinetic for facilities placed in service after December 31, 2022
- Bonus credits available: domestic materials and energy community
- Projects exceeding certain power output must meet labor standards
What labor standards must be met to qualify?
For projects exceeding 1 megawatt alternating current (MWac) of power, employers must pay project laborers a fair wage (called a local prevailing wage) and hire a particular portion of those workers through specific apprenticeship programs to qualify for either ITC or PTC. Read more from the IRS here.
What bonus credits are available?
Depending on the tax credit, bonus credits are offered to companies that utilize domestic materials in their clean energy practices, choose energy communities for their projects or facilities, or invest in low-income areas — this includes Indian land and affordable housing developments. A separate application is necessary for the low-income community credit.
What happens to ITC and PTC in 2025, and how do those changes affect me?
In 2025, the traditional ITC will become the Clean Electricity Investment Tax Credit and PTC will become the Clean Energy Production Tax Credit. Despite snazzy new names, these credits will mostly function as they have previously — with one main difference. They are no longer specific to technology. Starting January 1, 2025, CEITC and CEPTC will apply to all facilities that generate clean energy — and all storage systems under CEITC — as long as they anticipate zero greenhouse gas emissions.
Need help applying for a renewable energy tax credit?
These just scratch the surface of the renewable energy tax credits available to business owners. Come tax time, if you’re looking for guidance on what tax credits would be the most beneficial to claim for your business, we are here to help.