Low-Income Communities Bonus Credit Program

AAFCPAs would like to make clients aware that, on August 10, 2023, the IRS and Treasury issued final guidance under the Inflation Reduction Act (IRA) on the low-income communities’ bonus credit program. The program aims to increase adoption of and access to renewable energy facilities within underserved and environmental justice communities. It seeks to benefit individuals who have been historically marginalized from economic opportunities and who have been overburdened by environmental impacts. The Department of Energy (DOE) will begin to accept applications in early fall 2023.

The Details

The DOE’s low-income communities bonus credit program provides owners of certain solar or wind-powered electricity generation facilities within low-income communities the ability to apply for an allocation of environmental justice solar and wind capacity limitation, which will increase their energy investment credit for the taxable year the facility is in service.

Revenue Procedure 2023-27 provides guidance, definitions, and requirements to apply for adder credits to increase either the existing available energy credit under Section 48(e) by 10 percent or 20 percent. Specifically, through the program, owners of eligible solar and wind facilities installed in low-income communities or on Indian land may receive a 10 percent credit increase. Likewise, owners of eligible solar and wind facilities that are part of a qualified low-income residential building or that provide at least half of a facility’s total output to qualifying low-income households may receive a 20 percent credit increase.

Final regulations also provide a definition of energy storage technology installed in connection with the solar or wind facility. Regulations explain disqualification and credit recapture rules specific to the program and describe additional selection criteria for eligible potential applicants. Note that facilities placed in service prior to an allocation are not eligible.

When the IRA was originally introduced, affordable housing developers using Low-Income Housing Tax Credits (LIHTC) for multi-family housing projects anticipated future access to adder credits as they used tax credits to introduce solar under Section 48(e) into their LIHTC projects. Final regulations provide necessary guidance and eligibility requirements.

How to Apply

DOE guidance explains how potential applicants shall apply for an allocation of capacity limitation on the DOE’s portal, how the DOE will review applications, and how the IRS will award those allocations. DOE’s Low-Income Communities Bonus Credit Program page provides additional information for applicants.

If you have questions, please contact Matthew McGinnis, CPA at 774.512.4080 or mmcginnis@nullaafcpa.com—or your AAFCPAs Partner.

About the Author

Matt has been serving AAF clients since 2006. Matt has extensive experience auditing and consulting with nonprofit organizations in accordance with Uniform Guidance/Single Audit and Government Auditing Standards, as well as those with Massachusetts Uniform Financial Statement filing requirements. Matt’s experience within the not for profit industry includes: affordable housing, community development, charter schools and human services organizations. Matt’s for-profit clients include both commercial and residential real estate projects. Matt specializes in various tax credit deals such as Low Income Housing Tax Credit (LIHTC) and New Markets Tax Credit (NMTC) programs.