The power of energy tax incentives for tax-exempt entities and tribal nations
Nonprofit and tribal entities could get paid to “go green.”
Several federal tax incentives are available to encourage the use of energy-friendly systems and materials. Some programs even offer direct pay benefits (also known as elective pay), where the federal government issues a check for the full value of eligible tax credits.
501(c)(3) organizations, religious organizations and tribal nations that are considering an expansion or renovation project should explore federal energy tax credits before breaking ground. Doing your homework could substantially pay off.
Here’s what you should know.
Federal energy incentive programs for nonprofit and tax-exempt entities
Two federal incentive programs apply to most nonprofit, government and tribal projects:
- Section 48: Advanced Renewable Energy Tax Credit: If you install renewable energy projects, you could obtain a tax credit worth 6% of the project costs or 30% if the system’s net output is less than one megawatt. Additionally, there are three 10% bonuses you can add on to the tax credit if the project is located in an energy zone, is located in a low-income community and uses manufacturing components made in the U.S. The tax credit applies to solar, geothermal, wind, energy storage, biogas, microgrid controllers and combined heating and power systems. To be eligible for the credit, you must own the renewable energy system.
- Section 30C: Alternative Fuel Vehicle Refueling Property Credit: Section 30C provides a tax credit for alternative fuel charging properties, including electric vehicle charging stations, capped at $100,000 per charging station or installation. The charging property must be used for business or trade purposes. The tax credit starts at 6% and goes up to 30% if the you and your contractors pay workers and their apprentices the prevailing wage for the local area. (You can find the prevailing wage for your locality at SAM.gov.)
How to qualify for federal energy credits
The Internal Revenue Service (IRS) maintains a list of eligible, energy-efficient technologies and refueling properties. Work with a knowledgeable CPA firm that specializes in energy tax credits to ensure you understand the qualifications, filing requirements and activation timelines. This firm can also work with your general contractor and architect to help ensure the project qualifies. Credits must be claimed during the tax year a system goes into service — so leaders need to carefully coordinate construction and tax planning.
Some Section 48 criteria are slated to change in 2025. However, if 5% or more of a project’s costs are incurred before 2025, the project will be “grandfathered” into the current requirements and benefits.
How to get paid for federal energy credits
Since nonprofit organizations and tribal entities are tax-exempt, you can elect to receive a direct payment through the Inflation Reduction Act’s elective payment program. To apply for direct pay for a qualifying project:
- Determine when you must file: Since most tribes do not file tax returns, the filing deadline to claim these energy tax credits is four and a half months after the end of the tribe’s accounting year. If that year-end is December 31, 2024, the filing deadline is May 15, 2025. Note that you can extend the filing deadline if needed.
- Preregister with the IRS: Organizations must register with the IRS before filing for credit or receiving payment. To preregister, submit information about your entity, the credits you want to earn, and your eligible project in an online portal. Generally, you should preregister 120 days before your filing deadline.
- File your tax return by the due date: Most tribes will file Form 990-T to claim the credit since they don’t file a federal tax return. Include the registration number for your qualified project, plus any required documentation. Let the IRS know how you’d like to receive the elective pay. It’s a good idea to work with a CPA firm to file the correct forms by the deadline and ensure no documentation is missed.
- Get paid: Direct payment is sent after the return is successfully filed and after the due date for the return. Payment is sent electronically or by mail, based on your election during the filing.
How to maximize federal energy tax credits
The simplest way to increase your energy tax credit eligibility is to start early.
Bring an energy tax expert into design and development conversations to help you find incentives and determine eligibility. With more insight into the project, a tax advisor can recommend architectural and engineering adjustments to maximize the tax advantages of your construction project.
A tax professional can also help you estimate how tax credits will affect other financing strategies, such as grants or federal assistance. “Double-dipping” isn’t allowed in most cases, so you want to determine the most tax-efficient way to pay for energy projects and overall construction expenses.
Your tax advisor can also provide a list of documentation requirements upfront, so you can build support for your energy credits throughout the construction process.
Plan your clean energy future
Federal energy tax incentives are a powerful tool to enhance your facilities. Make sure you’re considering energy credits in your long-term strategic and facility plans. Most incentives are scheduled to be available through 2033, although eligibility requirements could change and should be monitored.
Take the time to explore what’s available and integrate energy credits into your construction, tax and financial planning processes. The potential savings could empower your future.
How Wipfli can help
We’re a full-service tax and advisory firm that wants you to access and monetize the tax incentives available to you. We work with architects and construction companies to help clients leverage renewable energy strategies, improve their financial positions and grow. Our proactive approach to tax planning helps owners gain more control over their futures. Contact us for straightforward tax planning and energy advisory services.
