IRS Form 8835: Who Qualifies and How to File
Understand the process for translating qualified domestic energy production into a tax benefit using Form 8835 as part of the General Business Credit.
IRS Form 8835, the Renewable Electricity Production Credit, is a tax form used to claim a credit for producing and selling energy from specific qualified sources. The credit provides a financial incentive for domestic energy production from designated renewable resources. Taxpayers use this form to calculate the value of the credit they have earned based on their facility’s energy output.
Determining Eligibility for the Credit
Eligibility for the credit extends to individuals, C corporations, S corporations, partnerships, estates, and trusts that own and operate a qualified facility. The credit is available for producing electricity from qualified energy resources. While the form historically covered refined and Indian coal, those credits expired after 2021, leaving the focus on renewable electricity.
For renewable electricity, the taxpayer must produce and sell electricity to an unrelated person from a qualified facility. Qualified energy resources include:
- Wind
- Closed-loop biomass
- Open-loop biomass
- Geothermal energy
- Solar energy
- Landfill gas
- Trash
- Qualified hydropower
- Marine and hydrokinetic energy
Each facility type has specific “placed-in-service” date requirements that determine its eligibility and the credit period, which is generally 10 years.
A “qualified facility” is one owned by the taxpayer that uses these resources to produce electricity and is located within the United States or its territories. The placed-in-service date is a determining factor, as different rules and credit rates apply to facilities placed in service before versus after the end of 2021. For facilities that meet requirements for paying prevailing wages and using registered apprentices, the credit amount can be multiplied by five. Further 10% bonus credits are available for using required amounts of domestic steel and iron or for locating a project in an “energy community.”
For facilities placed in service in 2025 and later, this credit will be replaced by a new technology-neutral Clean Electricity Production Credit, which will apply to any facility that produces clean energy and has zero or negative greenhouse gas emissions.
Information Needed to Complete Form 8835
Before filling out Form 8835, taxpayers must gather specific operational and financial data. A separate form must be filed for each qualified facility, requiring careful record-keeping for businesses with multiple sites. For facilities electing for direct payment or transfer of the credit, a pre-filing registration number from the IRS is required on the form.
Part I of the form covers facility information. You will need the facility’s pre-filing registration number (if applicable), a description of the facility type, its physical location, and the dates construction began and when it was placed in service. Accurate dates are important as they impact the credit calculation.
Part II of the form is where the credit is calculated and requires detailed production data. Taxpayers must report the total kilowatt-hours (kWh) of electricity produced and sold to an unrelated party from each type of qualified resource. You will also need the applicable credit rate for the tax year, which the IRS publishes annually. For facilities placed in service after 2021, the base credit rate is 0.3 cents per kWh.
If the credit is generated by a pass-through entity like a partnership or S corporation, Part III of the form is used. These entities must calculate the total credit and then allocate it among their partners or shareholders. The entity will report this allocation on the Schedule K-1 provided to each owner, who then claims their portion of the credit on their own tax return.
Calculating and Claiming the Credit
The final calculation on Form 8835 combines the credits from all energy sources. Users multiply the kilowatt-hours sold by the appropriate credit rate for each resource type. These amounts are then summed to determine the total credit for the facility before any limitations.
The total credit calculated on Form 8835 is a component of the General Business Credit (GBC). The final amount is carried over to Form 3800, General Business Credit, which consolidates various business credits and applies limitations based on the taxpayer’s overall tax liability.
On Form 3800, the renewable electricity credit is combined with any other GBCs the taxpayer may have. The form calculates the total allowable GBC for the year, which may be limited. The final, allowable credit amount from Form 3800 is then transferred to the taxpayer’s primary income tax return, such as Form 1040 or Form 1120, to reduce the tax owed.
Applicable tax-exempt and governmental entities can elect to treat the credit as a direct payment of tax. This direct pay option is subject to a reduction if the project does not meet domestic content requirements. For projects beginning construction in 2025, the payment is reduced to 85% of the earned credit, and it is eliminated for projects starting in 2026 or later that fail to meet the domestic content rules.
An exception may apply if using domestic products increases the project’s cost by more than 25% or if the necessary materials are not sufficiently available in the U.S. Additionally, eligible taxpayers can elect to transfer the credit to an unrelated party for cash, a process that also requires pre-filing registration.