The Inflation Reduction Act: Frequently Asked Questions

Updated February 2024

On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law by President Biden after passing both chambers of Congress. SEIA’s public and members-only summaries of the legislation are available on the SEIA website, and will be updated periodically.

This resource provides answers to frequently asked questions from clean energy companies and stakeholders. These FAQs will be updated periodically with both new questions and updated information. If you don’t see your question here, contact us at IRA@seia.org.

Projects that are Directly Owned by the Homeowner

These questions pertain only to projects directly and originally owned by a homeowner where the homeowner is the taxpayer that places a project in service. Homeowners that lease systems or use a power purchase agreement (PPA) do not claim federal tax credits on their personal income taxes. Instead, the system owner (the lessor) claims the federal tax credits under a different part of the tax code, enabling them to offer customers attractive lease/PPA terms. Separate from this FAQ document, SEIA has published a guide to The 25D Solar Tax Credit: What Homeowners Need to Know.

If I started a solar project in 2021 and place it in service in 2022 before guidance from Treasury, does it receive a 26% credit or 30%? 

The tax credit for solar energy and energy storage projects placed in service by individuals and claimed on personal income taxes is the section 25D credit. For section 25D solar, projects placed in service in 2022 qualify for the 30% rate.
 

When does standalone energy storage start qualifying for the ITC? 

For section 25D, expenditures for standalone energy storage projects made after December 31, 2022. 

Can a standalone energy storage project take the PTC? 

There is no production tax credit (PTC) for homeowners, and the PTC can never be claimed on personal income taxes. For information on the PTC for use in third-party owned systems, see the next section that describes the commercial credits.

For the standalone energy storage ITC, must the energy storage property be charged by some percentage of renewable energy? 

For standalone energy storage projects placed in service after December 31, 2022, there is no requirement that a certain percentage of charging energy must come from renewable energy.

Now that the IRA has been enacted, must storage property in a solar+storage installation be charged by some percentage of renewable energy? 

No. Under both section 48 and section 25D, there is no requirement that an energy storage property must be charged by some percentage of renewable energy.

Can I get domestic content or energy communities bonus credits for residential projects that use the Section 25D credit?

No. The bonus credits for domestic content and energy communities are only available for projects utilizing the Section 45 or 48 credits. Similarly, the allocated bonus credit for low-income communities are only available for projects utilizing the Section 48 credits.

For the energy efficient home improvement credit, what are the applicable dollar limits? How do the various limits relate to each other, including the $1,200 limit for certain improvements and the $2,000 limit for certain heaters, boilers, and stoves?

The energy-efficient home improvement credit provides a credit for a portion of expenses for certain energy efficiency improvements and residential energy property expenditures. There is generally an aggregate annual credit limit of $1,200 for certain improvements, with sub-limits for certain categories of improvements (e.g., windows, doors, insulation). Separately, there is generally an aggregate annual credit limit of $2,000 for certain heaters, boilers, and stoves (e.g., heat pumps, heat pump water heaters, biomass stoves, biomass boilers). These two limits are separate, so a taxpayer could receive up to a $1,200 aggregate credit for certain improvement expenses and up to $2,000 aggregate credit for certain heaters, boilers, and stoves in the same tax year.

Utility, Commercial, Industrial, Non-Profit and Third-Party-Owned Residential

The following questions pertain to all systems that are owned by a taxpayer other than an individual homeowner. Homeowners are not eligible to claim these credits or associated bonus credits on their personal income taxes.

ITC and PTC 

If I started a solar project in 2021 and place it in service in 2022 before guidance from Treasury, does it receive a 26% credit or 30%? 

For section 48, the project would generally be eligible to receive the full 6% + 24% rate. 

When does standalone energy storage start qualifying for the ITC? 

For section 48, standalone energy storage projects that are placed in service after December 31, 2022 qualify for the ITC. 

Can a standalone energy storage project take the PTC? 

No. Standalone energy storage projects qualify only for the ITC. 

For the standalone energy storage ITC, must the energy storage property be charged by some percentage of renewable energy? 

For standalone energy storage projects placed in service after December 31, 2022, there is no requirement that a certain percentage of charging energy must come from renewable energy.

Now that the IRA has been enacted, must storage property in a solar+storage installation be charged by some percentage of renewable energy? 
 

No. Under both section 48 and section 25D, there is no requirement that an energy storage property must be charged by some percentage of renewable energy.
If I have a solar+storage project or wind+storage project, can I get the PTC for the solar/wind component and the ITC for the storage component?
In a proposed rule published November 22, 2023, Treasury confirmed the PTC may be elected for certain qualified energy facilities co-located with energy storage facilities that elect the ITC. Treasury also provided, among other things, proposed rules for the treatment of power conditioning and transfer equipment shared by such facilities.

For the production-based manufacturing tax credits, is there a total funding limit?   

Not under the Advanced Manufacturing Credit (Section 45X) for qualifying components. 

Does the ITC apply to projects in Puerto Rico?

Puerto Rican individuals and firms that do not pay federal income tax are generally ineligible for the section 48 ITC. However, pursuant to Internal Revenue Code section 50(b)(1)(B), mainland-based individuals and firms may be able to claim the section 48 ITC for projects they own in Puerto Rico.

Prevailing Wage and Apprenticeship Requirements
 

Prevailing wage and apprenticeship requirements for the ITC and PTC are generally only relevant for projects 1 MWac and larger. Projects smaller than 1 MWac receive the full value of the credits and bonus credits without regard to prevailing wage and apprenticeship requirements.

What is the prevailing wage requirement? How is the applicable prevailing wage identified for a particular project?

The IRA provides that the value of certain tax credits increases by a factor of five if applicable prevailing wage and apprenticeship requirements are satisfied. For prevailing wages, this includes paying the prevailing wage of the locality in which the facility is located.

The U.S. Department of Labor (DOL) issues wage determinations which include the wages and fringe benefits that DOL has determined prevail for a given labor classification in a specific locality. Wage determinations are available at https://sam.gov/content/wage-determinations. To satisfy the prevailing wage requirement, each laborer and mechanic must be paid a wage rate equal to or greater than the rate for the applicable labor classification listed in the prevailing wage determination.

What if there is not a wage determination for the applicable locality or applicable labor classification?

In a proposed rule published August 30, 2023, the U.S. Department of the Treasury (Treasury) directed that, if there is not a wage determination for the applicable locality or applicable labor classification, DOL Wage and Hour Division may be contacted via email at IRAprevailingwage@dol.gov. The request should be made no more than 90 days before the beginning of construction, alteration, or repair of the facility, or as soon as practicable after the start of construction, alteration, or repair. After review, the DOL Wage and Hour Division will provide the supplemental wage determination or the labor classifications and wage rates to be used for the type of work and the locality in which the facility is located.

The prevailing wage and apprenticeship requirements apply to the “construction, alteration, and repair” of a facility. What activities fall within or outside of “construction, alteration, and repair?”

In a proposed rule published August 30, 2023, Treasury stated that “construction, alteration, or repair” generally means “construction, prosecution, completion, or repair” as defined at 29 CFR 5.2. In short, it encompasses most work on a project, including the initial construction and installation, and, for a period that varies by tax credit, subsequent alteration and repair. After a facility is placed in service, “construction, alteration, or repair” does not include work that is ordinary and regular in nature designed to maintain and preserve existing functionalities of a facility, such as such as regular inspections of the facility, regular cleaning and janitorial work, replacing materials with limited lifespans such as filters and light bulbs, and the calibration of any equipment.

If a project does not satisfy the prevailing wage and apprenticeship requirements, but is under 1 MW, is the project still eligible for the increased value of certain tax credits?

As provided above, facilities “with a maximum net output of less than 1 megawatt (as measured in alternating current)” are generally eligible for the increased value of certain tax credits, including bonus credits, even if they do not satisfy the prevailing wage and apprenticeship requirements.

Bonus Credits

Can bonus credits in the legislation be “stacked?” 

Yes. For example, a project that obtained the 30% business ITC could add on the bonus credits of 10% for being located in an energy community and 10% for satisfying domestic content requirements. The same project could potentially also utilize either the allocated 10% or 20% credit for <5 MW projects located in certain low-income communities, if awarded such credits. 

When do the bonus credits start? 

If the project meets applicable requirements, the energy communities and domestic content bonus credits are effective for projects placed in service after December 31, 2022. The low-income communities bonus credit is available for projects placed in service within four years of the credit being awarded to the project.

Are there waivers for bonus credits? For example, if you only partially meet domestic content standards, can you receive all or partial domestic content credit? 

No. A project either meets the criteria for bonus credits or it does not. 

Domestic Content: What is required to obtain the domestic content bonus credit under the ITC or PTC? Is it necessary to satisfy both the steel/iron AND manufactured products requirements, or only one of the requirements? 

To qualify for the domestic content bonus credit, a project must satisfy both of two separate requirements: 1) manufacturing processes for construction materials made primarily of steel or iron that are structural in function (e.g., steel beams) must take place in the United States (except metallurgical processes involving refinement of steel additives); and, 2) manufactured products must be produced in the U.S. or be deemed to be produced in the U.S. A project’s manufactured products are deemed to be produced in the U.S. if the project satisfies the domestic cost percentage. For most types of projects, the domestic cost percentage is 40% for projects that begin construction through 2024, stepping up 5% each year thereafter, and reaching 55% for projects that begin construction during or after 2027. 

Domestic Content: For manufactured products, how is the domestic cost percentage calculated? 

In guidance published May 12, 2023, Treasury set forth the following formula: the percentage produced by dividing 1) the total costs of a project’s domestic manufactured products and components by 2) the total costs of a project’s manufactured products equals 3) the domestic cost percentage for a project. SEIA is seeking clarification around several issues related to this formula, including how to value and document the costs of certain components, the treatment of U.S. labor costs in the manufacturing process, and the treatment of other direct and indirect costs.

Domestic Content: What is the certification requirement? How and when must a domestic content certification statement be submitted to the IRS?

In guidance published May 12, 2023, Treasury announced that, for each project for which a taxpayer is claiming the domestic content bonus credit, the taxpayer must submit to the IRS a certification statement. The certification statement must be filed with the taxpayer’s annual return for the first taxable year in which the taxpayer reports a domestic content bonus credit, and, if the taxpayer is claiming the PTC, the taxpayer must attach a copy of the certification statement each subsequent year during which the PTC is claimed. The guidance includes a list of items that must be included in the certification statement, including general project information and a certification that, as of the date a project was placed in service, the project satisfied the domestic content requirement.

Domestic Content: Are iron or steel and manufactured products considered to be produced in the U.S. if they are produced in countries with which the U.S. has a free trade agreement?

No. To be eligible for the domestic content bonus credit, a project’s iron or steel and manufactured products must be produced in the United States. In guidance published May 12, 2023, Treasury defined “United States” to mean the several States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands.

Energy Community: What are the Energy Community Categories?

There are three location-based energy community categories: 1) Brownfield Category (real property the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant, as well as mine-scarred land), 2) Statistical Area Category (metropolitan or non-metropolitan statistical areas that have had after December 31, 2009 at least .17% fossil fuel employment or at least 25% fossil fuel tax revenue as well as unemployment at or above the national average), and 3) Coal Closure Category (census tracts and adjoining tracts in which a coal mine has closed after December 31, 1999 or in which a coal-fired electric generating unit has been retired after December 31, 2009).

Energy Community: To qualify for the energy community bonus credit, when must the project’s location be considered an energy community?

In guidance published April 4, 2023, Treasury stated that if a location is an energy community as of the beginning of construction, and the beginning of construction is on or after January 1, 2023, then, for the purposes of that project, the location will continue to be considered an energy community for the PTC credit period or the ITC placed-in-service date. (See below for more information about determining when construction begins and certain continuity requirements.) 
If a location is not an energy community as of the beginning of construction, it still might be possible to qualify for the energy community bonus credit if the location later becomes an energy community. For the PTC, a project is generally treated as located in an energy community during a taxable year if it is located in an energy community during any part of the taxable year. For the ITC, a project is generally treated as located in an energy community if the location is an energy community as of the placed-in-service date.

Low-Income Communities: What are the four categories of low-income communities? What is the low-income communities “capacity limitation”?

Projects meeting the requirements of one of four categories of low-income communities are potentially eligible for a bonus credit of either 10% or 20%, as shown in the table below. (Note that only projects claiming the ITC are eligible; projects claiming the PTC are ineligible for the low-income communities bonus credit.) Treasury allocates to each category a maximum amount of generating capacity each year, meaning that if demand for the bonus credit in a single category exceeds the allocated generating capacity, not all eligible projects will be awarded the low-income communities bonus credit.

	Category Name	Eligible ITC Increase	2023 Capacity Allocation
Category 1	Located in a Low-Income Community	10%	700 MW
Category 2	Located on Indian Land	10%	200 MW
Category 3	Qualified Low-Income Residential Building Project	20%	200 MW
Category 4	Qualified Low-Income Economic Benefit Project	20%	700 MW

Low-Income Communities: What selection criteria will be used to award the low-income communities bonus credit?

In a final regulation published August 15, 2023, Treasury established a 50% reservation of capacity in each of the four categories for facilities meeting additional selection criteria. There are two broad additional selection criteria: project ownership and project location. For the first, Treasury preferences projects owned by certain Tribal enterprises, Alaska native corporations, renewable energy cooperatives, qualified renewable energy companies, and qualified tax-exempt entities. For the second, Treasury preferences projects located in persistent poverty counties (where 20% or more of residents have experienced high rates of poverty over the past 30 years) and certain census tracts designated in the Climate and Economic Justice Screening Tool (CEJST) as disadvantaged.

Low-Income Communities: What documentation must be submitted after a project is placed in service? What if a project changes after the initial award of the low-income communities bonus credit?

In a final regulation published August 15, 2023, Treasury established that, following a facility being placed in service, the facility owner must report to the Department of Energy the date the facility was placed in service as well as provide documentation proving the facility is still eligible for the bonus credit. IRS Revenue Proclamation 2023-27, section 10, lists the specific documentation required, which varies among the four categories. Note that if a project changes after initial award of the bonus credit, the project might become ineligible for the bonus credit, especially in the case of certain changes affecting the project’s location, capacity, financial benefits to low-income communities, or ownership.

Other provisions

Who can receive direct pay? 

A business that manufactures certain items (see Section 45X) is eligible for direct pay for the qualifying components that they produce and sell. Direct pay is also generally available for hydrogen projects and carbon capture projects.

Direct pay for certain other energy projects is available for the listed entities:

1. Any entity exempt from the tax imposed by subtitle A;
2. Any State government (or political subdivision thereof); 
3. The Tennessee Valley Authority;
4. An Indian tribal government;
5. An Alaska Native Corporation; and
6. Any corporation operating on a cooperative basis which is engaged in furnishing electric energy to persons in rural areas.
    

These entities may take direct pay for solar and storage in the ITC and PTC as well as the ITC/PTC when tech neutral starts after 2025. These entities may also take direct pay more broadly for 30C (alternative refueling property), 45(a) (renewables attributable to facilities placed in service after December 31, 2022), 45Q (CCUS), 45U(a) (nuclear), 45V (Hydrogen), 45W (vehicles), 45X(a) (advanced manufacturing), 45Y(a) (clean electricity production credit), 45Z (clean fuel production credit), 48 (energy credit), and 48E (electricity ITC).

Note the direct pay amount will be reduced for certain projects that do not satisfy domestic content requirements. IRS Notice 2024-9, which was published December 28, 2023, provides procedures to claim the statutory exception to certain direct pay phaseouts for projects that do not satisfy the domestic content requirement.

Are the entities which are eligible for direct pay for the ITC and PTC also eligible for direct pay for bonus credits?

Yes. Entities eligible for direct pay under the ITC and PTC may also qualify for bonus credits. 

What determines the beginning of construction of a project?

Treasury has issued notices that provide guidance for determining when construction begins on a project. Several such notices applicable to certain IRA tax credits, including the ITC and PTC, are summarized and listed in Treasury guidance published November 30, 2022 (section 2.02 and section 5). In general, there are two methods used to establish when construction begins: 1) the start of physical work of a significant nature (Physical Work Test), or 2) by paying or incurring five percent or more of the total cost of the facility (Five Percent Safe Harbor). For both methods, there is generally a continuity requirement and, if a project is placed in service within a set number of years, a continuity safe harbor.

Under the Greenhouse Gas Reduction Fund, what is a “zero-emissions technology” under the $7 billion Solar for All competition?

In the notice of funding opportunity published June 28, 2023, EPA defined “zero-emissions technology” under the $7 billion Solar for All competition to include residential rooftop solar, residential-serving community solar, associated storage, and enabling upgrades. Note that eligible applicants under the $7 billion Solar for All competition include states, territories, municipalities, Tribal governments, and certain eligible nonprofit organizations; however, a wide range of other entities, including for-profit organizations, will be eligible to serve as subrecipients or contractors under the $7 billion Solar for All competition.