The Inflation Reduction Act: Corporate Tax Provisions

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Energy-related tax credits

A significant portion of the Inflation Reduction Act is devoted to green energy incentives, including tax credits.

In some cases, tax credits are extensions or expansions of existing credits. However, the IRA also creates new tax credits for businesses and individuals.

Small Business Payday Research Credit

The IRA is increasing from $250,000 to $500,000, the limit on the amount of research credit qualified small businesses can choose to treat as a credit on their payroll tax.

Reinstatement and extension of the tax credit for the production of renewable electricity (CIP) and the tax credit for investments (CII)

The law extends the PTC for renewable energy projects beginning construction until the end of 2024.

Facilities that pay prevailing wages during construction and the first decade of operation and meet apprenticeship requirements may qualify for up to five times the base amount of the credit. Increased credit amounts apply to domestic content, energy communities and hydro facilities commissioned after 2022.

It also extends until the end of 2024 the choice to treat certain facilities that otherwise qualify for the IRC §45 PTC (“qualified investment credit facilities”) as a qualified energy property for the IRC §48 ICT instead.

The IRA is extending by one year, until the end of 2024, the deadline for the start of construction for certain types of energy assets (e.g. qualified fuel cell assets) to qualify for the ITC. It also extends the deadline for the start of construction of geothermal equipment until the end of 2034.

The base energy credit rate is reduced unless salary and apprenticeship requirements are met. The law also allows credit for new types of energy ownership, including energy storage technology, qualified biogas, and microgrid controller ownership.

From 2023, the IRA extends the ITC to include certain qualified solar and wind installations. To qualify, a facility must have a maximum net generation of less than 5 megawatts and must be located in low-income communities, on Native American lands, or as part of a low-income residential construction project or low income economic benefits project.

Company credit for clean commercial vehicles

The Inflation Reduction Act provides a new business credit for qualified clean commercial vehicles in an amount equal to the lesser of:

  • 15% (or 30% for a vehicle not powered by a gasoline or diesel internal combustion engine) base, or
  • the incremental cost of the vehicle (excess of the purchase price of this vehicle over the purchase price of a comparable vehicle).

The credit is worth a maximum of $7,500, or $40,000 for a vehicle with a gross vehicle weight rating of at least 14,000 pounds.

The credit is expected to expire after 2032.

[Download the Inflation Reduction Act Roadmap for a full explanation of corporate tax credits.]

Clean electricity generation credit

The IRA creates a new business credit for clean electricity generation for installations commissioned after 2024 that have a greenhouse gas emission rate of not more than zero.

The credit is equal to the kilowatt-hours of electricity produced and sold, multiplied by a base amount of 0.3 cents or 1.5 cents (adjusted for inflation).

Increased credit amounts are available if certain salary and apprenticeship requirements are met. The credit begins to fade one year after the last of 2032, or the year in which annual greenhouse gas emissions from electricity generation in the United States are at or below 25% of the emission rate for 2022.

Clean Fuel Production Credit

The ERI creates a new business credit for clean fuel that a company produces at a qualifying facility and sells for qualifying purposes.

The fuel must meet certain emission standards. The basic credit amounts per gallon are:

  • $0.20 (non-aviation fuel)
  • $0.35 (aviation fuel)

Increases are available if the company meets current salary and apprenticeship requirements. All amounts are adjusted for inflation.

The credit applies to clean fuel produced after 2024 and sold before 2028.

Clean electricity investment loan

The IRA creates a new investment credit for clean electricity real estate investments in energy storage technologies and qualified facilities commissioned after 2024, when the rate of greenhouse gas emissions is not not greater than zero.

The base credit rate is 6% of the qualifying investment, with increases available if specific requirements related to date of construction, production and wages, among other factors, are met.

The credit begins to fade one year after the last of 2032, or the year in which annual greenhouse gas emissions from electricity generation in the United States are at or below 25% of the emission rate for 2022.

Extension and modification of the real estate loan for the refueling of alternative fuel vehicles

The IRA extends the property credit for refueling alternative fuel vehicles to 2032 and lowers the credit rate from 30% to 6% if the refueling property is depreciable.

It also increases the credit limit to $100,000 per depreciable supply item and $1,000 per non-depreciable supply item. Two-way charging equipment and electric charging stations are now included as goods eligible for the credit if the requirements are met.

It also allows five times the amount of the credit for any qualifying depreciable alternative fuel vehicle refueling property that is part of a refueling project that begins within a specified period and meets the salary and of learning. To qualify, the alternative fueling property must be in service in a low-income community or non-urban area.

[Download the Inflation Reduction Act Roadmap for a full explanation of corporate tax credits.]

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