News & Insights

Navigating IRA Elective Pay for Nonprofits and Governmental Entities

The 2022 Inflation Reduction Act (IRA) opened new opportunities in tax credits. Nonprofits and governmental entities can now use certain tax credits even though they might not be liable for income tax. However, even though organizations may be aware of the existence of these credits, they may not know what steps to take or whether they are eligible to apply for them.

Who is Eligible for IRA Elective Pay Tax Credits?

Any entity organized under the 501c tax code is considered an available entity that can take advantage of receiving IRA energy tax credits. Examples of these organizations may include:

Nonprofit organizations
Local governments
Tribal governments
Houses of worship

What Credits Can 501c Entities Claim?

501c organizations under the IRA can claim Elective Pay credits, which provide a “refund” tax credit for clean energy purchases or investments. While there is a near-exhaustive list of energy properties that these organizations could qualify for, the main items that a 501c entity would claim IRA Elective Pay for include:

Solar panels
Geothermal heating
Electric vehicles
Recharging stations
Energy storage

How Does a 501c Entity Claim IRA Elective Pay?

The process of requesting a refund can be confusing for nonprofit or governmental entities that have never claimed IRA Elective Pay. This is especially true if you aren’t familiar with the legislation behind the tax credits. Below is a list of the steps organizations need to take to claim Elective Pay credits and the estimated timeline for the refund.

1. Sign Up for an Energy Account

Go to the IRS website under “Credits and Deductions” and navigate to the “Clean energy and vehicle credits” section. Click “Create a clean energy account” and fill out the required fields to create your account.

2. Complete the Credit Application

After creating your clean energy account, you must complete the credit application request on the IRS website. When you complete the application, the IRS will process and assign a number for the credit. The IRS estimates the application review may take up to 90 days.

3. File Form 990T and Request a Refund

After your IRS credit application request is approved, you need to file Form 990T and request a refund for the approved credit amount. You will need the number assigned by the IRS during the credit application for the return. Between the processing and refund time, you can expect to see your credit return anywhere between 30-90 days.

How Much Credit Can a 501c Receive Through Elective Pay?

The Elective Pay tax credit for nonprofits and governmental entities is 30% of the cost of the energy property. However, multiple “boosters” can increase the credit amount by 30-70%, depending on the location of the property and the organization. Your organization needs to reach specific thresholds to maximize the credit return. Speaking to a qualified tax professional, like the experts at Maner Costerisan, can help you understand these thresholds and what qualifications must be met to maximize the credit.

How Long are IRA Energy Credits Available?

Clean energy tax credits for 501c entities through Elective Pay are available through 2035, with a phase-out starting in 2032. These credits are codified into law, but it is important to note that future legislation may shorten their availability.

Talk to the Experts

The application process for nonprofits and governmental entities to claim IRA energy tax credits can seem arduous. The tax credit experts at Maner Costerisan have the experience and resources to help you navigate the process and maximize your return. Contact our tax credit experts by messaging us at maner@manercpa.com or calling us at 517.323.7500.