Inflation Reduction Act

ABOUT THE INFLATION REDUCTION ACT

Clean energy in the U.S. has largely been incentivized by tax credits like the Investment Tax Credit (ITC). These are financial incentives that reduce the cost of your project by lowering your tax obligations. Before the IRA passed, tax credits were available only to taxable entities. That left nonprofits, churches, and schools out of the equation. These entities could go solar via a third-party ownership arrangement such as a subscription model or power purchase agreement (PPA), but they couldn’t directly take advantage of the ITC.

That’s all changed with the direct pay feature of the IRA. There are still some nonprofits that prefer third-party ownership options, but for the first time ever, direct pay allows nonprofits to receive a payment that’s equal to the full value of tax credits when they build qualifying clean energy projects through a refundable tax credit.

What’s more, the IRA added various bonuses to the 30% tax credit that can potentially raise the credit as high as 70%. While those cases are rare, it is often possible to go beyond the base 30% credit.

If you purchase your solar with cash or a loan, you can take advantage of direct pay — directly! In that case, you’ll need to file for direct pay (scroll down this page for the steps to do that). If you use a third-party financing option like CollectiveSun’s Solar Power Agreement, we’ll handle the tax credit and pass savings along to your organization.

Resources

To make it easier to understand the IRA and keep you up to date, CollectiveSun has compiled a number of useful resources for nonprofits.

Federal government resources

CollectiveSun resources

We’ve created the following articles, webinars, and checklists on the Inflation Reduction Act, including pieces on direct pay and bonus adders.

Disclaimer: The information in our articles and other materials does not constitute legal or tax advice and should not be relied upon for any purpose. Please consult your legal counsel and tax advisor.

HeatSpring course series

CollectiveSun has partnered with HeatSpring to offer a free comprehensive course series on the IRA. This series covers not only Direct Pay but also the additional ITC bonus adders, providing you with all the information you need for when your filing is due.

Enroll in the free course here:

CollectiveSun HeatSpring Direct Pay & More Course Series

You’ll discover how these incentives can make solar energy even more accessible and cost-effective for your nonprofit organization. Together, let’s harness the power of the sun to fuel your mission and create a brighter, more sustainable future for all.

Disclaimer: The information in our HeatSpring course does not constitute legal or tax advice and should not be relied upon for any purpose. Please consult your legal counsel and tax advisor.

DIRECT PAY STEPS

If your nonprofit is planning to use direct pay, follow these steps:

Step 1: Place your solar project in service. 

The completion of the project and making it “ready and available for its intended purpose” is the first step

Step 2: Identify your tax year and form year.

Your nonprofit’s tax year can be either a calendar year or a fiscal year. For example, if you have a calendar tax year (January 1 – December 31) in 2024 and you place the project in service during the year on June 15, 2024, then you will claim direct pay in the 2024 tax year and file using the 2024 form year. 

On the other hand, if a fiscal tax year is utilized, the start and end dates of the tax year are different from a calendar tax year. If your congregation has a fiscal tax year ending on June 30, then your 2024 tax year actually starts on July 1, 2023 and ends June 30, 2024. 

Step 3: Complete the pre-filing registration process.

The IRS provides a portal to register in advance of filing your tax return. You can find more details here:

Step 4: File your tax return.

The due date for a 990-T return is generally 5 months and 15 days after the end of the organization’s tax year.

Step 5: Wait patiently for your tax refund. 

This is generally 45 days after the official due date of the return, but can vary widely depending upon a variety of factors. Note that if your organization files in advance of the actual return due date, it will not accelerate this timeline as the IRS will consider the refund due as of the due date of the return.

 

Disclaimer: This information does not constitute legal or tax advice and should not be relied upon for any purpose. Please consult your legal counsel and tax advisor.