Does it matter how I funded my project?
Yes. Please note that there are some cases in which energy property’s funding source can reduce the credit amount for which the energy property is eligible:
Municipal Bond “haircut”
Applies to: ITC and PTC
What is it? Clean energy projects funded by tax-exempt bonds are subject to a “haircut” or penalty of up to 15%.
No Excess Benefit Rule
Applies to: ITC, Alternative Fuel Vehicle Refueling Property Credit (30C), and Commercial Clean Vehicle Credit (45W)
What is it? Clean energy projects partially or fully funded by restricted funds are subject to the “no excess benefit” rule. Restricted funds include grants, forgivable loans, and other tax-exempt amounts that are specifically dedicated to the construction or acquisition of the eligible energy property. The rule reduces the credit amount that an entity may claim if the sum of the clean energy project’s restricted funds and its expected clean energy tax credit amount exceeds the total eligible project costs. This is why it’s important to review both the total eligible project costs and the source of project funds for the eligible energy property as early as possible in the planning process to understand how much of the credit may actually be allowable to claim. A clean energy property that is fully funded through restricted funds is NOT eligible for clean energy tax credits via Elective Pay.
Learn more about Restricted vs Unrestricted Funds here and the No Excess Benefit Rule here.
Watch a video explanation here from 30:38-31:23.
