How the Inflation Reduction Act Works

Funding from the IRA comes in three main forms: tax credits, rebates, and grants.

 Investment Tax Credits (ITCs) reduce the amount of capital needed for clean energy projects. These tax credits will be claimed through the Internal Revenue Service (IRS) when filing taxes.

Rebates are received at point-of-sale through vendors and contractors and are administered by state agencies.

Grants are made by the Environmental Protection Agency and Department of Energy to large-scale programs.

Key Terms for Tax-Paying Entities

Transferability

Taxpayers and nontaxpayers may transfer all or a portion of certain eligible credits to a third party in exchange for cash (tax credits can be sold).  Nonprofits, such as faith communities, may prefer not to transfer because they are now eligible to receive tax credits (see below).

Rebates

Single-family homeowners and multi-family building owners will be eligible for rebates. Rebates will be doubled for low/moderate-income households. Rebates will be managed by the states on a timeline of their choosing.  To see your state’s timeline click here: https://www.energy.gov/save/rebates

  • $2,000 for 20% energy savings

  • $4,000 for 35% energy savings

  • Various amounts for purchases from electric vehicles to hot water heaters

Cities, counties, townships, tribal nations, non-profits, and faith communities (non-tax paying entities) can claim their funding through direct pay provisions.

This will allow for non-taxpaying groups to claim their benefits without having to work with a tax equity partner.

Direct Pay Provisions: Instead of receiving a tax credit, non-tax paying entities will be able to apply for and receive a refund equal to the amount of the credit. Eligible technologies include solar, storage, geothermal, combined heat and power, and clean commercial vehicles.

All projects (1 megawatt or smaller) have a 30% minimum tax credit. Additional tax credits are added as seen below

  • Additional 10% for US-manufactured solar products and construction material

  • Additional 10% for projects in *energy communities

  • Additional 10% for solar projects (less than 5MW) located in low-income communities

  • Additional 20% for solar projects less than 5MW, built as part of an affordable housing project or to benefit low-income households

  • Additional credits for projects that meet certain domestic content requirements for steel, iron, or other manufactured products

  • Additional credits for projects that pay the prevailing wage or use registered apprentices

  • Projects under 1 MW do not require prevailing wages

*Energy communities: Areas in which a coal mine or coal-fired power plant has closed or that have been economically reliant on the extraction, processing, transport, or storage of coal, oil, or natural gas but now face higher-than-average unemployment.

Map of qualifying communities: https://arcgis.netl.doe.gov/portal/apps/experiencebuilder/experience/?id=a44704679a4f44a5aac122324eb00914&page=home