Section 48(e) Low-Income Communities Bonus Credit

Section 48(e)increases the Section 48(a) energy investment tax credit for qualifying solar and wind facilities located in low-income communities or placed in service as part of qualifying projects. Included in the Inflation Reduction Act legislation package, Section 48(e) allows qualifying taxpayers to apply for this additional credit. The application period began on October 19, 2023.

Here’s what you need to know about the credit and next steps.

What is Section 48(e)?

Section 48(e) expands Section 48(a) by increasing the energy percentage for qualified solar and wind facilities that obtain a capacity limitation allocation. The annual capacity limitation for properties placed in service in calendar years 2023 and 2024 is 1.8 gigawatts per year.

Qualified Solar and Wind Facility Definition

Section 48(e)(2) defines a qualified solar and wind facility as any facility that:

1. Generates electricity solely from a wind facility, solar energy property, or small wind energy property,
2. Has a maximum net output of less than 5 megawatts (as measured in alternating current)
3. Is described in at least one of four categories of qualified solar and wind facilities.

Low-Income Community Determination

Section 48(e) is a low-income community bonus credit. Section 48(e)(2)(A)(iii) defines qualified solar and wind facilities as those that are in a low-income community or on Indian land or are part of a qualified low-income residential building project or a qualified low-income economic benefit project.

Depending on the category of the facility, the low-income community credit can increase the section 48(a) credit by 10 or 20%.

Section 48(e) requires any property which is part of the facility eligible for an allocation to be placed in service within four years of, but not before, the allocation date.

How is Section 48(e) determined?

The credit for a qualified solar and wind facility is determined according to four categories:

How do you apply for Section 48(e)?

The regulations define the facilities eligible for the section 48(e) low-income community bonus credit by defining the terms “facility,” “in connection with,” and “located in.”

A revenue procedure (Rev. Proc. 2023-27) provides the process by which taxpayers can apply for the additional credit and allocates the capacity limitation across the four categories. At the start of each program year, there is an initial 30-day window for application submissions. During this window, all applications will be treated as submitted on the same date and at the same time. Applications received outside of this window will be evaluated on a first-come, first-serve basis.

What are the next steps for Section 48(e)?

The regulations and the revenue procedure are complex pieces of guidance. Taxpayers contemplating placing an eligible facility in service within the next four years should consider applying for an allocation as soon as they have the required application documentation materials in order. We can help you understand the rules and follow the procedures for a smooth application process.