Virtue Solar

Your Charlottesville, VA Solar Installation Company

Can Nonprofits Claim Solar Tax Credits?

Can nonprofits claim solar tax credits?

While nonprofits previously could not claim any  solar tax credits, the Inflation Reduction Act (IRA) added a new provision known as “Direct Pay” that allows tax-exempt entities to receive a direct payment equivalent to the ITC value (30% – 50% of project costs). This change is great for nonprofits that want to offset their energy with solar, as they can now get a solar incentive that was previously only available to businesses & individuals.

Note: Virtue Solar does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to contitute tax, legal or accounting advice.

The Direct Pay program is designed to allow various organizations to monetize the ITC solar tax credit. Tax-exempt entities under § 501(a), § 501(c), and § 501(d), such as schools, charities, churchs and religious entities, can benefit from this program and use the ITC to help pay for their solar project. This program also extends to state and local governments, Tribal governments, and certain other entities. 

While the IRA was passed in 2022, information on Direct Pay was hard to obtain, as guidelines were still being developed. The IRS has now formalized its instructions and guidelines on eligibility, and how to claim the credit. Read on to see if your nonprofit organization can use tax credits to go solar!

Solar panels installed on a tax-exempt school in Virginia, by Virtue Solar
Direct Pay allows schools to access the ITC solar tax credit, which were previously only available to businesses.

Who Is Eligible for the ITC Direct Pay Program?

  • Tax-exempt organizations under § 501(a), § 501(c), and § 501(d) (including religious organizations)
  • States (including DC), counties, cities, and other political subdivisions such as school districts
  • Indian Tribal governments and political subdivisions thereof
  • Alaska Native Corporations
  • The Tennessee Valley Authority
  • Rural electric cooperatives

Benefits of the ITC Direct Pay Program for Nonprofits

  • Financial Savings: Receive a direct payment equivalent to the federal ITC, reducing the upfront costs of solar projects.
  • Energy Cost Reduction: Lower operational energy costs and overhead, allowing more funds to be allocated to core goals.
  • Enhanced Sustainability: Supports environmental goals and reduces carbon footprint.

How Can Nonprofits Claim the Direct Pay ITC?

  1. Identify the Project: Select the solar energy proposal and determine the applicable credits.
  2. Complete the Project: Ensure the project is fully completed and placed into service.
  3. Pre-Filing Registration: Register with the IRS to obtain a registration number necessary for filing a tax return.
  4. File Tax Return: Submit your tax return by the due date to claim the ITC.
  5. Receive Direct Payment: Upon successful filing and approval, receive the direct payment from the IRS.

 

Sources:

  1. Elective pay and transferability (IRS.gov)
  2. Direct Pay Through the Inflation Reduction Act (Whitehouse.gov)
  3. Register for elective payment or transfer of credits (IRS.gov)