Direct Pay Solar Incentive for Tax-Exempt Organizations

March 26, 2024 | Reading Time: 6 minutes

The Inflation Reduction Act of 2022 gives tax-exempt entities the ability to apply for solar incentives through a direct pay option. Since a tax credit is of no value to a tax-exempt organization, the direct pay option allows qualifying entities to receive a direct payment from the IRS instead of a credit.

Examples of Entities Who May Be Qualified for Direct Pay

  • Houses of Worship
  • Schools
  • Theatres
  • Libraries
  • Animal Shelters
  • Community Health Centers
  • Museums
  • Government Buildings
  • Charities and other non-profits

FAQ: Direct Pay Solar Incentive

How much can tax-exempt entities be paid from the direct pay solar incentive?

The direct pay solar incentive offers tax-exempt entities a payment of a percentage of the total cost of their solar system. Typically, this percentage is 30% but may increase to a maximum of 70% depending on the project’s location and use of domestically sourced materials.

This direct pay option is expected to catapult renewable energy adoption by tax-exempt organizations given that the systems may cost them less than half of their original price.

How long is the direct pay solar incentive available?

The direct pay solar incentive is available until 2032 when the Investment Tax Credit and the Renewable Energy Production Tax Credit are set to be reviewed.

This timeline may expand as it has in the past, but tax-exempt entities are encouraged to make the switch to renewable energy before then to ensure they receive the highest value. Upon review in 2032, the payment value could decrease, or the program may be eliminated.

Who qualifies for the direct pay solar incentive?

The direct pay solar incentive is available to tax-exempt entities who install a solar system after January 1st, 2023. The entity must have no tax liability and must be purchasing the system or financing it through a loan. There are no limitations on the size of the system.

How does the tax-exempt entity apply for the direct pay solar incentive?

Typically, the solar installer will apply for the direct pay solar incentive on behalf of the organization. This occurs before installation begins.

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