The Complete IRA Tax Credit Guide

Overview

The Inflation Reduction Act of 2022 (IRA) expanded and created federal tax credits for clean electricity, energy efficiency, clean vehicles, carbon capture, clean hydrogen, and clean energy manufacturing.

For project developers, real estate owners, and corporate finance teams, the IRA also added two ways to monetize those credits, transferability (§6418) and direct pay (§6417), which changed who can use them and how quickly.

The fundamental principle driving IRA value is stackability. A single project can qualify for multiple federal credits simultaneously, layer in state and local incentives, utilize PACE financing, and combine grant programs — subject to basis adjustment rules. The table below summarizes the federal credits in this guide that remain open to new projects, subject to the deadlines above.

Note: PWA means prevailing wage and apprenticeship requirements, which apply to projects over 1 MW for the full credit rate. For wind and solar, §48E and §45Y now require construction to begin by July 4, 2026, or the project to be placed in service by December 31, 2027. Direct pay for §45Q, §45V, and §45X is available to any entity for the first five years; other credits require tax-exempt status.

§45 and §45Y Production Tax Credit (PTC)

The Production Tax Credit provides a per-kilowatt-hour credit for electricity produced and sold from qualified clean energy facilities, payable over the first 10 years of operation. The rate is adjusted for inflation each year. The legacy §45 PTC covers only projects that began construction before 2025; newer projects claim the technology-neutral §45Y credit.

OBBBA deadline for wind and solar. A wind or solar project claiming §45Y must have begun construction by July 4, 2026, or be placed in service by December 31, 2027. Treasury Notice 2025-42 tightened the beginning-of-construction rules for wind and solar. Other technologies keep the longer phase-down schedule, and foreign-entity-of-concern restrictions now apply.

The PTC is technology-neutral under §45Y — any clean electricity facility with zero direct greenhouse gas emissions qualifies. The choice between PTC and ITC for a given project is a financial modeling decision: projects with high capital cost and lower capacity factors generally favor the ITC; high-capacity-factor projects (offshore wind, geothermal, nuclear) favor the PTC for long-term revenue predictability.

§48 and §48E Investment Tax Credit (ITC)

The ITC applies to solar, wind, storage, geothermal, fuel cell, and other clean energy technologies. The base credit rate is 30% of eligible project costs (equipment, installation labor, and certain soft costs) for a project under 1 MW AC, or a larger one that meets prevailing wage and apprenticeship requirements, and 6% for a larger one that does not. The legacy §48 ITC covers only projects that began construction before 2025; newer projects claim the technology-neutral §48E credit.

OBBBA deadline for wind and solar. A wind or solar project claiming §48E must have begun construction by July 4, 2026, or be placed in service by December 31, 2027. Treasury Notice 2025-42 tightened the beginning-of-construction rules for wind and solar. Energy storage and other technologies keep the longer phase-down schedule, and foreign-entity-of-concern restrictions now apply.

Eligible basis includes equipment cost, installation labor, and interconnection costs. Land, financing fees, and permitting costs are excluded. Importantly, the depreciation basis must be reduced by 50% of the ITC claimed.

The ITC is a one-time credit in the year the facility is placed in service. Bonus adders, described below, can raise the rate for a project that qualifies for the base credit.

§45L New Energy Efficient Home Credit (Terminated)

Section 45L gave eligible contractors a federal tax credit for building new energy-efficient homes. The One Big Beautiful Bill Act terminated it for homes acquired after June 30, 2026.

Contractors can still claim it for qualifying homes acquired on or before that date, but no new residential project should count on it. New York state, NYC and utility programs were not affected by OBBBA. See the New York programs in the IncentEdge catalog, or read what happened to §45L.

§45Q Carbon Capture Credit

Section 45Q provides a per-metric-ton credit for carbon dioxide captured and either geologically stored or utilized. The IRA raised the credit to $85/metric ton for permanent geological storage. For carbon capture equipment placed in service after July 4, 2025, the One Big Beautiful Bill Act set utilization and enhanced oil recovery at the same rate; earlier equipment keeps the lower IRA rate (26 U.S.C. §45Q as amended by P.L. 119-21). Confirm the current rate for your facility against IRS guidance before modeling. The credit is available for 12 years from the date a facility is placed in service.

§45Q is one of the credits eligible for broad direct pay — meaning for-profit corporations can elect cash refund for the first five years after the facility is placed in service, regardless of tax liability. This has made §45Q the primary credit driving CCUS project finance in 2025–2026.

§45V Clean Hydrogen Production Credit

Section 45V provides a production credit for clean hydrogen based on lifecycle greenhouse gas emissions intensity. The maximum rate of $3.00/kg applies to hydrogen with lifecycle emissions at or below 0.45 kg CO₂e per kg H₂ (roughly equivalent to electrolysis powered by clean electricity). Lower-intensity hydrogen qualifies for reduced credit rates on a sliding scale. After OBBBA, §45V is available only for facilities that begin construction before January 1, 2028.

Treasury's §45V guidance requires use of 3-pillar matching for electricity consumed: hourly matching (temporality), same grid region (deliverability), and new resource addition (additionality). Projects not meeting all three pillars face significantly reduced credit values. Like §45Q, §45V is eligible for broad direct pay for the first five years.

§179D Commercial Energy Efficiency Deduction (Terminated)

Section 179D is a tax deduction (not a credit) for energy-efficient improvements to commercial and multifamily buildings four stories or higher. The One Big Beautiful Bill Act terminated it for property whose construction begins after June 30, 2026.

A project that began construction on or before that date can still claim the deduction in the year the property is placed in service. As a deduction, it is worth its face value times the owner's marginal tax rate, not a dollar-for-dollar credit. It cannot be transferred under §6418 and is not eligible for §6417 direct pay.

For new projects, New York state, NYC and utility programs were not affected by OBBBA. See the New York programs in the IncentEdge catalog, or read what happened to §179D.

§48C Advanced Energy Manufacturing Credit

Section 48C provides a 30% investment tax credit for qualifying advanced energy manufacturing facilities — solar panels, wind turbines, battery storage, EV components, carbon capture equipment, and other clean energy manufacturing. The IRA allocated an additional $10B to the program, administered through a competitive application process run by the Department of Energy and IRS.

Unlike §45Q and §45V, §48C is not one of the credits for which any taxpayer can elect direct pay; only the tax-exempt and governmental entities listed in the direct pay section below can. Projects in energy communities receive priority in the allocation process. Applications are reviewed in cohort rounds; the next open round timeline should be verified against current DOE guidance.

Bonus Adders

The IRA introduced four bonus adder mechanisms to the ITC and PTC base rates. These are percentage-point additions — not separate credits — and they stack cumulatively with the base rate and with each other.

Adders raise the rate only for a project that still qualifies for the base credit. For wind and solar under §48E and §45Y, that now means construction began by July 4, 2026, or the project is placed in service by December 31, 2027.

Transferability — §6418

Introduced by the IRA and active since January 1, 2023, Section 6418 transferability allows project developers to sell eligible IRA credits directly to third-party buyers for cash. No complex partnership structure is required. Credits sell at a discount to face value that depends on credit type, deal size, and market conditions.

Transferable credits include: ITC (§48/48E), PTC (§45/45Y), §45Q, §45V, §45X advanced manufacturing credit, §48C, and §45U nuclear production credit. Neither §45L nor §179D can be transferred, and OBBBA has since terminated both.

The seller registers the transfer with the IRS before the applicable tax year deadline. The buyer claims the credit on their own tax return and can use it against their tax liability in the year of transfer or carried forward.

Direct Pay — §6417

Direct pay (elective payment) allows eligible tax-exempt entities to receive a direct cash refund from the IRS equal to the full credit value — 100¢ per dollar — rather than applying the credit against tax liability they do not have. Eligible entities include:

• State and local governments
• Tribal governments and Alaska Native corporations
• Rural electric cooperatives
• 501(c)(3) nonprofit organizations
• Tennessee Valley Authority
• Public schools and higher education institutions

Additionally, for the first five years after placement in service, any entity (including for-profit corporations) can elect direct pay for §45Q, §45V, and §45X. This broad direct pay provision is particularly valuable for technology companies with clean hydrogen and CCUS projects.

For more detail including the calculator and compliance checklist, see the Direct Pay feature page.

Prevailing Wage & Apprenticeship

For projects over 1 megawatt, satisfying prevailing wage and apprenticeship requirements is not optional — it is the difference between a 6% ITC and a 30% ITC. Projects under 1 MW receive 30% automatically without these requirements.

Prevailing wages are set by the Department of Labor under the Davis-Bacon Act and vary by location and trade. Wages must be paid to all laborers and mechanics employed in construction, alteration, or repair of the facility — including those employed by subcontractors. Certified payroll records from all contractors must be maintained for a minimum of three years after the credit is claimed.

Apprenticeship requirements mandate that a minimum percentage of total labor hours worked by each contractor and subcontractor be performed by registered apprentices (current requirement: 15%). A good faith effort exception applies if a contractor requests but cannot obtain qualified apprentices from a registered program.

Filing Checklist

IRA credits require systematic documentation from project inception through tax filing. The checklist below covers the minimum required for each major credit.