IRS Issues Final Rules on Bonus Tax Credits for Affordable Housing Sites

The DOE will begin accepting applications for the Bonus Credit Program in early fall 2023.

The Treasury Department and the IRS recently issued final rules and procedures for a new program established by the Inflation Reduction Act that provides bonus tax credits for qualified low-income multifamily projects, including Low-Income House Tax Credit (LIHTC) projects, that include eligible solar or wind energy technologies. This new Low-Income Communities Bonus Credit Program gives eligible solar and wind facilities in low-income areas increased investment tax credits of 10 percent or 20 percent.

Program Basics

The Low-Income Communities Bonus Credit Program under Section 48(e) of the Internal Revenue Code in the Inflation Reduction Act of 2022 provides a boost of up to 20 percentage points to the investment tax credit for solar and wind energy projects in low-income communities. The program prioritizes the following goals:

• Increasing adoption of and access to renewable energy facilities in underserved and environmental justice communities;
• Encouraging new market participants; and
• Providing substantial benefits to underserved communities and individuals who have been historically marginalized from economic opportunities and overburdened by environmental impacts.

Projects located in low-income communities or on Tribal land are eligible for a bonus investment tax credit of 10 percentage points. The credit amount is increased by 20 percentage points for certain projects on rental buildings that participate in affordable housing programs and that provide most of the financial benefits of the electricity to residents. Projects that provide most of the financial benefits of the electricity produced to lower-income households can also qualify for the 20 percentage point bonus.

The Low-Income Communities Bonus Credit program will allocate 1.8 gigawatts of capacity available in 2023 across four categories for solar and wind projects with maximum output of less than five megawatts (MW). According to the IRS, the four categories for 2023 are 700 MW for facilities located in low-income communities; 200 MW for facilities located on Tribal land; 200 MW for facilities serving federally subsidized residential buildings, including housing supported by the Low-Income Housing Tax Credit and Section 8 of the Housing Act; and 700 MW for facilities where at least 50 percent of the financial benefits of the electricity produced goes to households with incomes below 200 percent of the poverty line or below 80 percent of area median gross income.

What’s Next

The Department of Energy’s Office of Economic Impact and Diversity is administering the program in partnership with the Treasury and the IRS. The DOE will begin accepting applications across all four categories of the Low-Income Communities Bonus Credit Program beginning in early fall 2023. The date the application portal will open for registration and application submission and additional program resources will be announced in early September.

According to the DOE, when the applicant portal is available, the following requirements and actions will apply:

• Applicants must submit information for each facility for which they’re seeking an allocation. Applications will require information such as the applicable category, ownership, location, facility size/capacity, whether the applicant or facility meet additional selection criteria, and other information.
• Applicants will complete a series of attestations provided in the online portal and upload certain documentation (in order to demonstrate project maturity). The document requirement can be found in Table 2 of IRS Revenue Procedure 2023-27 at www.irs.gov/pub/irs-drop/rp-23-27.pdf.
• Each individual completing an application on behalf of their organization will need a Login.gov account in order to complete an application.
• Applications submitted within the first 30 days will be treated as submitted on the same date and at the same time, and on a rolling basis thereafter. Depending on capacity, the DOE plans to accept applications for the 2023 program year through early next year.