May 31, 2024

How Non-Profits Can Benefit from Solar Tax Credits with Direct Pay

A Guide for Tax-Exempt Entities to Utilize the Investment Tax Credit

As the Inflation Reduction Act (IRA) continues to revolutionize the solar energy landscape, Direct Pay emerges as a critical component for non-profits and other tax-exempt entities to take full advantage of solar tax credits and offset project costs.

What is Direct Pay?

Unlike competitive grant and loan programs, Direct Pay allows tax-exempt entities to receive a payment equivalent to the total value of solar tax credits.

Nonprofits and other tax-exempt entities can now use the Investment Tax Credit (ITC) to save 30 percent of the solar project's total cost and any bonus credits if it meets the qualifications.

This provision eliminates the need for these entities to have taxable income to benefit from tax credits, making solar energy projects more accessible.

Who is Eligible?

Many government and non-government entities with tax-exempt status are eligible for direct pay, including:

State, Local, and Territorial Governments

  • States, U.S. Territories, cities, counties, municipalities, townships, villages, water districts, school districts, economic development agencies, and certain public universities and hospitals.
  • Benefits: Allows faster deployment of clean energy projects, improves public health, and advances environmental justice.

Tribal and Native Entities

  • Includes federally recognized Tribal governments and Alaska Native Corporations.
  • Benefits: Supports energy sovereignty and resilience, reduces pollution, and cuts energy costs.

Rural Energy Cooperatives

  • Includes corporations providing electricity to rural communities.
  • Benefits: Promotes affordable, reliable electricity and job creation in rural areas.

Other Tax-Exempt Entities

  • Includes 501(c)(3) organizations, religious or 501(d) organizations, and other 501(a) tax-exempt bodies.
  • Benefits: Reduces energy costs, allowing more resources to be dedicated to their primary missions.

How to Apply for Direct Pay

  1. Identify the Project and Credit: Determine if your clean energy project qualifies for one of the applicable tax credits and tax adders.
  2. Complete and Place Project into Service: Ensure the project is operational and qualifies for the credit within the relevant tax year.
  3. Determine Tax Return Due Date: Generally, returns are due 4.5 months after the end of the taxable year, with possible extensions.
  4. Pre-filing Registration: Register with the IRS before your tax return is due to receive a registration number.
  5. File Tax Return: On your return, include the registration number and make the elective payment selection, providing the necessary documentation.
  6. Receive Direct Payment: Payments are processed after the return is filed and validated.

Benefits for Non-Profits and Tax-Exempt Entities

Direct Pay can significantly benefit non-profits and tax-exempt entities, such as schools, hospitals, and religious organizations.

These entities can reduce operational costs by installing clean energy solutions like solar panels, directing more funds towards their core missions. Additionally, they can serve as leaders in their communities by showcasing the benefits of clean energy.

How Green Convergence Can Help

Green Convergence is committed to helping non-profits and tax-exempt entities navigate the complexities of Direct Pay and solar tax credits. Our team offers comprehensive support, from project identification to filing for Direct Pay, ensuring you maximize your clean energy investments.

See how we saved Grace Baptist Church $6.4 million over the next 30 years.

Contact us today to learn about our perfect process and how we can help you unlock the full potential of solar tax credits through Direct Pay.

Related Articles:

Tax Incentives

Our Affiliations