Buying Tax Savings at a Discount: The Economics of Credit Transfers

Published 2026-07-07 · Optimist Tax Advisors

Since 2023, developers of clean-energy projects can sell their federal tax credits for cash under Section 6418. A functioning market now exists, with brokers, insurers, and standardized documents. For a taxpayer with large federal liability, the trade is simple to state: pay roughly 90 to 95 cents for a dollar of credit and keep the spread.

The return math

Buy $2M of credits at $0.92 and you save $160K against tax you owed anyway, an 8.7% return on the cash deployed, typically realized within months when purchases are timed against quarterly estimates. Discounts vary with credit type, project size, insurance, and timing; smaller and later-year deals price wider.

The risks, ranked

• Recapture and disallowance. Investment tax credits can be recaptured if the project is disposed of or ceases to qualify within five years, and the buyer bears that risk by statute. Seller indemnities plus tax insurance are the standard mitigants; the insurance market prices this risk at a fraction of a percent for well-documented projects, which tells you how often it bites, but diligence is still the buyer's job.
• Absorption limits. For individuals, passive activity rules generally restrict credits from passive sources to offsetting passive income and the tax on it. Whether a given buyer can use a given credit is a facts-based question that has to be answered before wiring funds, not after.
• Execution. Registration numbers, transfer election statements, and payment mechanics are procedural but unforgiving.

Sizing

Credits have no value beyond your liability. The correct process runs a two-year liability projection first, applies the absorption analysis, and buys to a number below the projection. The discount is attractive; overbuying converts it to zero.