Transferable Energy Credits

The Inflation Reduction Act made most clean-energy tax credits transferable under Section 6418. Project developers who generate more credits than they can use sell them for cash, and buyers typically pay somewhere in the low-to-mid 90 cents per dollar of credit. The buyer applies the credit against federal tax liability dollar for dollar. The spread is the return: buy $1,000,000 of credits at $0.92 and you have saved $80,000, before diligence and transaction costs.

Direct ownership versus credit purchase

There are two distinct strategies here and they are often conflated. Purchasing transferred credits is a relatively clean transaction: no depreciation, no ownership of equipment, limited ongoing involvement. Directly owning solar or storage assets adds accelerated depreciation on top of the investment tax credit, which can produce larger first-year deductions but brings real asset ownership: operating risk, insurance, passive-activity limitations, and recapture exposure if the asset is disposed of within five years.

What we diligence

• Recapture and disallowance risk. Credit buyers bear the risk that the credit is later recaptured or disallowed. Sellers provide indemnities and most institutional transfers carry tax insurance; we verify both.
• Registration and documentation. Credits must be registered with the IRS and transferred with required statements. Sloppy paperwork is the most common failure mode.
• Passive activity limits. For individuals, credits from passive activities generally only offset passive income unless specific exceptions apply. This determines how much credit you can actually absorb in a year.
• Liability matching. Credits are worthless beyond your liability. We size purchases to your projected tax, with a margin.