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Allocated Adder Credit for Low Income Communities

  • There is a third type of adder credit, a low-income ITC that is “allocated”. This means that a company will have to apply to the Treasury to get these particular credits. Treasury can allocate 1.8 GW direct current capacity total of wind and solar credits per year starting for 2023, and if they fall short of this amount, the remaining amount can be allocated the following years. The credits may also cover energy storage installed in connection with the solar or wind property. The project must have a maximum net output of less than 5 MWAC. Construction of some types of facilities would qualify for a 10% ITC. Other types would qualify for a 20% ITC. Treasury will need to create an application process.
  • 10%: the project is located in a low-income community1 or on Indian land.2
  • 20%: the project is part of a qualified low-income residential building project3 or a qualified low-income economic benefit project.4
  • The Secretary will establish a program within 180 days to begin allocating these credits. This will include consideration of multiple projects in a single application if projects will be placed in service by a single taxpayer (for example, a single company).
  • If the project ceases to meet the criteria above (i.e., not serve low income communities to the specifications above), the value of the tax credit bonus may be recaptured, though after 12 months a taxpayer will have the chance to fix the problem.
  • This program will not take effect until January 1, 2023 (and for technology-neutral credits, January 1, 2025). 

1“Low-income community” is defined as a census tract with a poverty rate of at least 20%, as well as a census tract where the median family income (“MFI”) is 80% or less of statewide MFI (for tracts in metropolitan areas, the MFI can’t exceed 80% of the greater of statewide MFI or metropolitan area MFI). See IRA § 13103(a), to be codified at 26 U.S.C. § 48(e)(2)(A)(iii)(I); 26 U.S.C. § 45D(e)(1).

2“Indian land” means any land located within the boundaries of an Indian reservation, pueblo, or rancheria; lands held by a tribe (including lands conveyed by the U.S. to an Alaskan Native Corporation), individual Indian, dependent Indian community, or in trust by the U.S. for the benefit of a tribe or Indian; and land in a census tract in which a majority of residents are Alaskan Natives or enrolled members of a federally recognized tribe or village. See IRA § 13103(a), to be codified at 26 U.S.C. § 48(e)(2)(A)(iii)(I); 25 U.S.C. § 3501(2).

3The project must be installed on a residential rental building that is part of a housing program under the Violence Against Women Act, Title V of the Housing Act of 1949, a tribally designated housing entity, or other programs determined by HUD; and the “financial benefits” of the electricity produced by the project are “allocated equitably” among the occupants of the building. See IRA § 13103(a), to be codified at 26 U.S.C. § 48(e)(2)(B).

4Projects where at least 50 percent of the “financial benefits” of the electricity produced (including electricity acquired at a below-market rate) are provided to households with income of less than: 200 percent of the poverty line; or 80% of area median gross income. See IRA § 13103(a), to be codified at 26 U.S.C. § 48(e)(2)(C)-(D).