Guide to Clean Energy Tax Incentives for Nonprofit Organizations

Tax credits and nonprofits don’t usually go together—until recently. 

The Inflation Reduction Act of 2022 (IRA) introduced new clean energy incentives, updated existing ones, and made many of them available to exempt organizations for the first time. For tax years beginning after December 31, 2022, most nonprofit organizations can get a rebate when they invest in eligible green technology, from plug-in hybrid vehicles to solar panels to energy-efficient windows. 

Charitable organizations planning to upgrade their vehicle fleet or renovate their facilities can benefit from working with a seasoned nonprofit tax advisor familiar with the eligibility and filing requirements of these rarely available incentives.  

Which Clean Energy Tax Credits Are Available to Nonprofits? 

The following energy-related tax credits and deductions are available to nonprofits: 

• Energy Efficiency Commercial Buildings Deduction (Section 179D) 

• Alternative Fuel Vehicle Refueling Property Credit (Section 30C) 

• Production Tax Credit (Section 45) 

• Credit for Carbon Oxide Sequestration (Section 45Q) 

• Zero-Emission Nuclear Power Production Credit (Section 45U) 

• Hydrogen Production Tax Credit (Section 45V) 

• Clean Commerical Vehicles Credit (Section 45W) 

• Advanced Manufacturing Production Credit (Section 45X) 

• Clean Energy Production Credit, also known as the Technology-Neutral Production Tax Credit (Section 45Y) 

• Clean Fuel Production Credit (Section 45Z) 

• Investment Tax Credit (Section 48) 

• Advanced Energy Project Credit (Section 48C) 

• Clean Electricity Investment Credit, also known as the Technology-Neutral Investment Tax Credit (Section 48E, for property placed in service after December 31, 2024) 

• Biodiesel, Renewable Diesel, and Alternative Fuels & Section 6426 Fuel Credits 

Example: Clean Energy Rebates for Nonprofits 

Note: This example is purely illustrative and may not reflect the actual incentives you may receive. Consult a Smith + Howard tax advisor to understand the clean energy incentives available to your nonprofit. 

You run a nonprofit museum in rural Illinois that sits on expansive 20-acre grounds. Thanks to a generous $150,000 donation restricted to reducing the organization’s carbon footprint, you see an opportunity to invest in solar panels, an all-electric landscaping truck, and electric vehicle charging stations. 

Your team scopes out the project, and … it’s over budget by $10,000. It’ll cost $75,000 to purchase and install the solar panels. It’ll be $55,000 for a Ford F-150 Lightning that will replace the landscapers’ aging diesel truck. And it’ll cost another $30,000 to install three charging stations: one for the landscapers’ truck and two for museum visitors. 

You raise the project with your tax advisor, who determines that you meet all the requirements to maximize the credits. After analyzing the purchases, your tax advisor determines that you’re eligible for $39,000 in federal incentives: 

• The Investment Tax Credit qualifies your organization for a 30% credit on the solar panels, or $22,500. 

• The Commercial Clean Vehicle Credit provides a $7,500 credit for the Ford F-150. 

• The Alternative Fuel Vehicle Refueling Property Credit allows a 30% credit on the charging station investment, or $9,000. 

These three clean energy incentives bring your organization’s investment from $160,000 to $121,000. Without these powerful rebates, your organization wouldn’t have been able to accomplish this project within its $150,000 budget. 

As discussed next, your organization will receive a $39,000 check from the IRS after you file annual Form 990-T, Exempt Organization Business Income Tax Return.  

Which Nonprofit Organizations Are Eligible For the Clean Energy Tax Incentives? 

Most nonprofit organizations are eligible to claim the clean energy tax credits that were either introduced or updated in the IRA: 

• Any organization exempt from tax under Section 501(a), including 501(c)(3) organizations 

• Governments of U.S. territories and political subdivisions 

• States, the District of Columbia, and political subdivisions 

• Agencies and instrumentalities of a state, the District of Columbia, Indian tribal governments, a U.S. territory, or political subdivisions 

• The Tennessee Valley Authority 

• Indian tribal governments and political subdivisions  

• Alaska Native Corporation 

• Rural electric cooperatives 

How Do You Receive a Clean Energy Tax Benefits as a Nonprofit? 

You might hear your tax advisor use the term “elective payment” when discussing the mechanics of claiming a clean energy tax incentive for your nonprofit. That’s the name of the special process for receiving the benefit of tax credits as a nonprofit organization. 

Step 1: Place Qualifying Property in Service 

The incentive is available in the tax year when your property is placed in service. Put another way, you can’t claim an Energy Efficiency Commercial Buildings Deduction simply because you bought energy-efficient windows; you need to install the windows first.  

Step 2: Inform The Seller That You’re Claiming a Clean Energy Incentive 

If your organization doesn’t claim a clean energy tax deduction or credit on your purchase, the seller might be able to. Your organization may provide the seller with a letter stating your organization’s intention to claim the incentive. 

Step 3: Pre-Register With the IRS 

Exempt organizations must pre-register their interest in claiming these clean energy incentives. The IRS has a specific online portal where organizations—or their tax advisors—provide details of their clean energy purchase, including the date it was placed in service and cost. 

When the IRS approves your registration, it’ll provide a code that your tax advisor will include in your firm’s annual IRS filing. 

Step 4: File Form 990-T 

The incentive comes as a check in the mail after the organization files Form 990-T. Exempt entities generally file Form 990-T only when they have taxable income, called unrelated business income (UBI). However, even organizations without UBI can claim these incentives. 

Form 990-T is due at the same time as the original Form 990, Return of Organization Exempt from Income Tax due date: The 15^th day of the fifth month after your entity’s tax year-end. The same deadline applies for exempt entities that don’t need to file Form 990, such as religious organizations. 

Accurately calculating and claiming clean energy incentives can be complex. An expert tax advisor will ensure that your Forms 990 and 990-T meet the criteria to receive these clean energy incentives while ensuring reporting requirements. 

Smith + Howard: The Go-To For Clean Energy Investment Planning 

At Smith + Howard, we help our nonprofit clients invest as much as possible into their charitable purpose. Our advisors are skilled at finding ways to reduce costs on capital investments through available incentives, including clean energy tax incentives introduced or updated by the Inflation Reduction Act. 

Contact an advisor to start a discussion about the incentives that may offset the cost of your organization’s projects.