Bonus Solar Low-Income Communities Credit
Overview
This credit will most likely be encountered through investment programs. The information in this guide is offered as an overview.
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Credit Increase: 10 to 20%.
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Location: Low-income community or on Indian land.
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Energy: From solar or wind only.
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Max Output: Less than 5 megawatts
Related IRC and Publications
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IRC Sec 48(e)
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IRB 2023-26
The bonus solar low-income communities’ credit is available to applicants investing in certain solar or wind-powered electricity generation facilities that meet specific criteria under the Inflation Reduction Act of 2022.
This program aims to incentivize investments in solar and wind-powered electricity generation facilities located in low-income communities by providing additional tax credits. Here are the key details:
The program is designed to increase the amount of the energy investment credit for facilities placed in service in low-income communities. This is intended to promote environmental justice and support the deployment of renewable energy in underserved areas.
Requirements
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Wind or Solar Energy - The facility must generate electricity solely from wind or solar energy.
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Categories of Locations
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Must be located in a low-income community or on Indian land
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Must be part of a qualified low-income residential building project
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Must be part of a qualified low-income economic benefit project
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Maximum Output - It must have a maximum net output of less than 5 megawatts (measured in alternating current).
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Serve Multiple Households - The facility must serve multiple households, and at least 50% of its total output must be distributed to qualifying low-income households.
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Categories - It must be described in at least one of the categories of qualified solar and wind facilities specified in section 48(e)(2)(A)(iii). These categories are used to determine eligibility for an increase in the investment tax credit (ITC) for certain solar and wind energy projects. The categories are as follows:
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Category 1 Facility: A facility located in a low-income community, as defined in section 45D(e). This category qualifies for a 10 percentage point increase in the ITC.
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Category 2 Facility: A facility located on Indian land, as defined in section 2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)). This category also qualifies for a 10 percentage point increase in the ITC.
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Category 3 Facility: A facility that is part of a qualified low-income residential building project. This category qualifies for a 20 percentage point increase in the ITC. To be considered a qualified low-income residential building project, the facility must be installed on a residential rental building that participates in certain covered housing programs, and the financial benefits of the electricity produced must be equitably allocated among the occupants of the dwelling units.
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Category 4 Facility: A facility that is part of a qualified low-income economic benefit project. This category also qualifies for a 20 percentage pointincrease in the ITC. To be considered a qualified low-income economic benefit project, at least 50 percent of the financial benefits of the electricity produced must be provided to households with income of less than 200% of the poverty line or less than 80% of the area’s median gross income.
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These categories help to differentiate the types of facilities that can receive additional tax incentives based on their location and the economic benefits they provide to low-income communities.
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Income Verification - Applicants must verify the low-income status of households. This can be done through:
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Categorical Eligibility - which involves obtaining proof of household participation in a needs-based Federal, State, Tribal, or utility program with income limits at or below the qualifying income level.
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Additional Income Verification Methods - such as paystubs, tax returns, or income verification through crediting agencies and commercial data sources.
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Self-attestation - is not permitted unless it is allowed by State programs.
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Financial Benefits
For a facility to be treated as part of a qualified low-income economic benefit project, at least 50% of the financial benefits of the electricity produced must be provided to qualifying low-income households. Additionally, the program reserves allocations for applicants that provide at least a 20% “bill credit discount rate” for all low-income households.
Bill Credit Discount Rate
The bill credit discount rate is defined as the difference between the financial benefit distributed to the low-income household and the cost of participating in the program, expressed as a percentage of the financial benefit distributed to the household.
Location Criteria
A qualified solar and wind facility is considered located in a low-income community or on Indian Land if it satisfies the Nameplate Capacity Test. This test requires that 50% or more of the facility’s nameplate capacity is in a qualifying area.
Documentation
The additional credit must be applied for. Applicants are responsible for submitting documentation upon placing the qualified solar or wind facility in service. This documentation must identify each qualifying low-income household, the output allocated to each household in kW, and the method of income verification used.
Federal Programs
Federal programs that may be used for categorical eligibility include Medicaid, Low-Income Home Energy Assistance Program (LIHEAP), Weatherization Assistance Program (WAP), Supplemental Nutrition Assistance Program (SNAP), Section 8 Project-Based Rental Assistance, and the Housing Choice Voucher Program.
Procedural Rules
The Treasury Department and the IRS has issued detailed procedural rules and guidelines for the application process and allocation of the capacity limitation. For more information on this credit, see Reg. 1.48(e)-1, available here: Federal Register :: Additional Guidance on Low-Income Communities Bonus Credit Program as well as Rev. Proc. 2024-19: rp-24-19.pdf (irs.gov), and Notices 23-29, 24-30 and 24-48.
In summary, the bonus credit is determined based on the eligibility of the facility, the financial benefits provided to low-income households, and the successful application for an allocation of the capacity limitation. Verification of low-income status and adherence to procedural rules are critical components of the process.
California Differences
There is no similar CA program.