LIHTC Bonus Credit Available for Solar and Wind Projects
The Department of Treasury and Internal Revenue Service recently released IRS Notice 2023-17, which details a new bonus tax credit for certain low-income multifamily projects, including Low-Income House Tax Credit (LIHTC) projects, that include eligible solar or wind energy technologies.
The context: 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.
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). The notice announces allocations for 2023: 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 go to households with incomes below 200 percent of the poverty line or below 80 percent of area median gross income.
The bottom line: This notice provides initial guidance regarding the application process and criteria that will be considered for applications. The application process for the Low-Income Communities Bonus Credit program will open in 2023 in two phases. Applications for facilities that are part of low-income residential buildings and those that benefit low-income households will be accepted first, with applications for other projects to follow. The guidance maintains Treasury and IRS discretion to reallocate excess capacity to oversubscribed categories, and any unallocated 2023 capacity will roll over to the following calendar year. Additional guidance will be released later this year with the specific application procedures.