How the ITC Works
Establish Eligibility
Confirm the technology qualifies (solar, wind, storage, etc.) and that construction begins within the applicable credit window. Projects ≥1 MW must meet prevailing wage and apprenticeship requirements.
Calculate the Credit
Credit = 30% × total eligible project cost (equipment + installation + permitting + interconnection). Apply any bonus adders: +10% energy community, +10% domestic content, +10–20% low-income.
Claim or Transfer
File Form 3468 with your federal return in the year the property is placed in service. Alternatively, sell the credit to an unrelated third party at ~90–95 cents per dollar, or elect direct pay if tax-exempt.
Bonus Adders — Up to 70% Total
The IRA created four bonus adder categories that stack on top of the 30% base rate. Projects in energy communities using domestic content with low-income benefits can potentially reach a 70% effective credit rate.
Prevailing wage + apprenticeship
Default rate for qualifying projects
Located in energy community area
Brownfields, coal closure, fossil fuel employment zones
US-made steel, iron, and components
Specific domestic content % thresholds apply
Qualified low-income housing / community facility
Allocated by IRS — application required
Low-income economic benefit project
Benefits residents in low-income community
Example Calculation
Assumes prevailing wage + apprenticeship compliance, energy community designation, and domestic content threshold met. Consult a tax advisor before filing.
Qualifying Technologies
Transferability & Direct Pay
Transferability (Credit Sale)
For-profit taxpayers can sell ITC credits to unrelated third parties in exchange for cash. The sale price is determined by market rates (typically 90–95 cents per dollar of credit). Credits must be sold in the year they are generated.
- Available to all for-profit entities
- Credits sold to unrelated buyers
- No tax equity partnership required
- Sold at market price (90–95 cents/$)
Direct Pay (Elective Payment)
Tax-exempt entities, state and local governments, and tribal governments can elect to receive the ITC as a direct cash payment from the IRS rather than as a credit against tax liability.
- Available to nonprofits and governments
- IRS pays cash equivalent of credit
- No tax liability needed to benefit
- Election made on annual tax filing
ITC vs PTC — Which Is Better?
Most utility-scale clean energy projects can elect either the ITC or the PTC — but not both. The optimal choice depends on project cost, expected production, and timeline.
| Factor | ITC (§48/48E) | PTC (§45/45Y) |
|---|---|---|
| Timing | Claimed year 1 (upfront) | Earned over 10 years |
| Basis | % of capital cost | Per kWh produced |
| Best for | High-cost, lower capacity factor | High capacity factor (wind) |
| Revenue certainty | Higher (one-time) | Lower (depends on production) |
| Transferable | Yes | Yes |
| Direct Pay | Yes (tax-exempt entities) | Yes (tax-exempt entities) |
CFO Checklist
- 01Confirm project begins construction date for applicable ITC vs 48E election
- 02Document all eligible costs: equipment, installation, permitting, interconnection
- 03Verify prevailing wage compliance records are in place (Davis-Bacon certified payrolls)
- 04Determine if energy community, domestic content, or low-income bonuses apply
- 05File Form 3468 (Investment Credit) with the federal return for the placed-in-service year
Frequently Asked Questions
What is the current ITC rate for solar in 2024?
The base ITC rate is 30% of eligible project costs for systems that begin construction before 2025. With prevailing wage and apprenticeship compliance, the full 30% applies. Bonus adders can increase the effective rate to as much as 70% for projects meeting energy community, domestic content, and low-income criteria.
What is the difference between Section 48 and Section 48E?
Section 48 is the legacy ITC that applies to projects beginning construction through 2024. Section 48E is the new technology-neutral Clean Electricity Investment Credit that applies from 2025 onward for facilities with zero greenhouse gas emissions. The credit rates and structure are similar, but 48E is technology-neutral rather than listing specific qualifying technologies.
Can the ITC be transferred or sold?
Yes. The IRA introduced transferability for the ITC, allowing taxpayers to sell their credits to unrelated third parties for cash. This is a major change that allows developers without sufficient tax liability to monetize credits directly without a tax equity partnership.
What is the energy community bonus adder for the ITC?
Projects located in an energy community — defined as a brownfield site, a coal closure community, or a statistical area with significant fossil fuel employment — receive a 10 percentage point bonus adder, increasing the ITC from 30% to 40%.
Should I choose ITC or PTC for my solar project?
The optimal choice depends on project economics. The ITC provides a one-time credit upfront based on cost. The PTC pays per kilowatt-hour over 10 years, so high-capacity factor projects (like wind) often benefit more from PTC. IncentEdge models both scenarios and identifies the higher-value option for your specific project.
What are the prevailing wage requirements for the ITC?
Projects over 1 MW (AC) must pay prevailing wages (Davis-Bacon Act rates) to all construction workers to receive the full 30% base ITC rate. Projects under 1 MW are automatically exempt. Apprenticeship requirements (a minimum percentage of labor hours from registered apprenticeship programs) also apply to projects over 1 MW.