How the ITC Works
Establish Eligibility
Confirm the technology qualifies (solar, wind, storage, etc.) and that construction begins within the applicable credit window. Wind and solar must have begun construction by July 4, 2026, or be placed in service by December 31, 2027. Projects ≥1 MW must meet prevailing wage and apprenticeship requirements.
Calculate the Credit
Credit = 30% × total eligible project cost (equipment + installation + permitting + interconnection). Apply any bonus adders: +10% energy community, +10% domestic content, +10–20% low-income.
Claim or Transfer
File Form 3468 with your federal return in the year the property is placed in service. Alternatively, sell the credit to an unrelated third party at a discount to face value, or elect direct pay if tax-exempt.
Bonus Adders — Up to 70% Total
The IRA created four bonus adder categories that stack on top of the 30% base rate. Projects in energy communities using domestic content with low-income benefits can potentially reach a 70% effective credit rate.
Under 1 MW AC, or prevailing wage + apprenticeship
Default rate for qualifying projects
Located in energy community area
Brownfields, coal closure, fossil fuel employment zones
US-made steel, iron, and components
Specific domestic content % thresholds apply
Facility under 5 MW (AC) located in a low-income community or on Indian land
Allocated by IRS under an annual capacity limit, application required
Facility under 5 MW (AC) that is part of a qualified low-income residential building project or economic benefit project
Allocated by IRS under an annual capacity limit, application required
Example Calculation
Assumes the project began construction by July 4, 2026 or is placed in service by December 31, 2027, meets the foreign-entity-of-concern restrictions, prevailing wage + apprenticeship compliance (or a system under 1 MW AC), energy community designation, and domestic content threshold met. Consult a tax advisor before filing.
Qualifying Technologies
Wind and solar must have begun construction by July 4, 2026, or be placed in service by December 31, 2027. Energy storage and other technologies keep the longer phase-down schedule. Source: 26 U.S.C. §48E, as amended by the One Big Beautiful Bill Act (P.L. 119-21).
Transferability & Direct Pay
Transferability (Credit Sale)
For-profit taxpayers can sell ITC credits to unrelated third parties in exchange for cash. Credits sell at a discount to face value, set by the market. Credits must be sold in the year they are generated.
- Available to all for-profit entities
- Credits sold to unrelated buyers
- No tax equity partnership required
- Sold at a negotiated discount to face value
Direct Pay (Elective Payment)
Tax-exempt entities, state and local governments, and tribal governments can elect to receive the ITC as a direct cash payment from the IRS rather than as a credit against tax liability.
- Available to nonprofits and governments
- IRS pays cash equivalent of credit
- No tax liability needed to benefit
- Election made on annual tax filing
ITC vs PTC — Which Is Better?
Most utility-scale clean energy projects can elect either the ITC or the PTC — but not both. The optimal choice depends on project cost, expected production, and timeline.
| Factor | ITC (§48/48E) | PTC (§45/45Y) |
|---|---|---|
| Timing | Claimed year 1 (upfront) | Earned over 10 years |
| Basis | % of capital cost | Per kWh produced |
| Best for | High-cost, lower capacity factor | High capacity factor (wind) |
| Revenue certainty | Higher (one-time) | Lower (depends on production) |
| Transferable | Yes | Yes |
| Direct Pay | Yes (tax-exempt entities) | Yes (tax-exempt entities) |
Stack ITC with Other Incentives
CFO Checklist
- 01Confirm project begins construction date for applicable ITC vs 48E election
- 02For wind and solar, confirm construction began by July 4, 2026, or that the project will be placed in service by December 31, 2027
- 03Check the foreign-entity-of-concern restrictions added by the One Big Beautiful Bill Act
- 04Document all eligible costs: equipment, installation, permitting, interconnection
- 05For a project of 1 MW AC or more, verify prevailing wage compliance records are in place (Davis-Bacon certified payrolls)
- 06Determine if energy community, domestic content, or low-income bonuses apply
- 07File Form 3468 (Investment Credit) with the federal return for the placed-in-service year
Frequently Asked Questions
What is the current ITC rate?
The ITC is 30% of eligible project costs for projects under 1 MW AC or that meet prevailing wage and apprenticeship requirements, and 6% for larger projects that do not. Bonus adders, such as the 10-point energy community adder, can raise the rate further. Under the One Big Beautiful Bill Act, wind and solar projects must have begun construction by July 4, 2026, or be placed in service by December 31, 2027.
What is the difference between Section 48 and Section 48E?
Section 48 is the legacy ITC and covers only projects that began construction before 2025. Section 48E is the technology-neutral Clean Electricity Investment Credit for newer projects with zero greenhouse gas emissions. The credit rates and structure are similar. Under the One Big Beautiful Bill Act, 48E wind and solar projects must have begun construction by July 4, 2026, or be placed in service by December 31, 2027, while energy storage and other technologies keep the longer phase-down schedule.
Can the ITC be transferred or sold?
Yes. The IRA introduced transferability for the ITC, allowing taxpayers to sell their credits to unrelated third parties for cash. This is a major change that allows developers without sufficient tax liability to monetize credits directly without a tax equity partnership. The One Big Beautiful Bill Act kept transferability but added foreign-entity-of-concern restrictions.
What is the energy community bonus adder for the ITC?
Projects located in an energy community — defined as a brownfield site, a coal closure community, or a statistical area with significant fossil fuel employment — receive a 10 percentage point bonus adder, increasing the ITC from 30% to 40%.
Should I choose ITC or PTC for my solar project?
The optimal choice depends on project economics. The ITC provides a one-time credit upfront based on cost. The PTC pays per kilowatt-hour over 10 years, so high-capacity factor projects (like wind) often benefit more from PTC. Model both with your tax advisor before electing.
What are the prevailing wage requirements for the ITC?
Projects over 1 MW (AC) must pay prevailing wages (Davis-Bacon Act rates) to all construction workers to receive the full 30% base ITC rate. Projects under 1 MW are automatically exempt. Apprenticeship requirements (a minimum percentage of labor hours from registered apprenticeship programs) also apply to projects over 1 MW.