The U.S. Department of the Treasury and IRS have finalized rules on the Inflation Reduction Act’s (IRA) direct-pay provisions this Tuesday, clarifying how tax-exempt organizations can access solar tax credits. This update makes it easier for nonprofits, schools, tribal governments, and other entities to claim clean energy incentives, paving the way for more cost-effective solar adoption.
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.
What’s New?
The finalized regulations expand flexibility for co-owned clean energy projects. For example, tax-exempt entities can now partner with for-profit developers or other nonprofits in joint ownership arrangements while maintaining access to the full value of applicable tax credits. Previously, partnerships with commercial solar developers often disqualified projects from direct pay, limiting their financial viability for nonprofits.
The rules also enable organizations to exclude certain joint ventures from traditional partnership tax rules, simplifying how entities can claim direct-pay benefits. This creates a clearer and more efficient path for nonprofits to integrate solar into their operations.
Why This Matters for Nonprofits
These updates bring much-needed certainty for nonprofits looking to adopt solar, especially when they are joining forces with supportive businesses or other for-profit backers. By streamlining access to direct pay, nonprofits can unlock 30-50% of the project’s cost through federal tax credits—even without a tax liability. This means more organizations can afford the upfront investment in solar while reducing their long-term operational costs.
Importantly, with the finalized rules in place, projects initiated before potential legislative changes in the future administration will likely retain their eligibility. As a result, 2025 is shaping up to be a pivotal year for nonprofits to take advantage of these unprecedented opportunities to go solar.
Take Action Now
The new guidance underscores the urgency for nonprofits to act quickly. If you’re part of a tax-exempt organization exploring solar energy, now is the time to move forward. Access to solar projects is likely to be a rollercoaster in the future years, as utilities threaten net-metering in Virginia, and the Trump admin avows to recind unspent funds from the IRA.
To learn more about the solar tax credit and how it benefits nonprofits, check out our detailed guide: Can Nonprofits Claim Solar Tax Credits?. Let’s make 2025 your year to go solar!
