What Is the 48C Inflation Reduction Act Tax Credit?

The Qualifying Advanced Energy Project Credit, or 48C credit, is a federal investment tax credit expanded by the Inflation Reduction Act of 2022. The legislation provided $10 billion in new funding for the program, which has since been fully allocated. The program’s purpose is to support investments in projects that build the domestic clean energy supply chain, reduce industrial greenhouse gas emissions, and process critical materials.

The 48C credit is allocation-based, meaning businesses had to apply to the Department of Energy (DOE) and the Internal Revenue Service (IRS) to be considered. Only selected projects received an allocation letter from the IRS specifying the amount of credit they could claim.

Qualifying Advanced Energy Projects

To have been considered for a 48C tax credit allocation, a project had to fall into one of three categories. The first involves clean energy manufacturing and recycling. This includes projects that establish a new facility, or re-equip or expand an existing one, for the production or recycling of specified advanced energy property. Examples of such property include equipment for solar and wind energy generation, components for electric or fuel-cell vehicles, energy storage systems like batteries, and technology for modernizing the electric grid.

A second category of eligible projects is focused on industrial decarbonization. These projects involve re-equipping an industrial or manufacturing facility with equipment designed to reduce its greenhouse gas emissions by at least 20%. This can be achieved through various means, such as installing carbon capture systems, implementing low or zero-carbon process heat systems, or integrating other technologies that improve energy efficiency.

The third qualifying category is for projects that process, refine, or recycle critical materials. This involves establishing, expanding, or re-equipping an industrial facility for these specific purposes. The list of materials deemed “critical” is determined by the Department of Energy and is essential for the production of clean energy technologies. Projects that produce property for refining or blending non-renewable transportation fuels are explicitly excluded.

A portion of the program’s funding was directed to projects located in designated 48C census tracts. The Inflation Reduction Act required that at least $4 billion of the total credits be allocated to projects in “energy communities.” These are defined as census tracts where a coal mine has closed after 1999 or a coal-fired electric generating unit has been retired after 2009, or an immediately adjacent tract. This $4 billion minimum for energy communities was met.

Determining the Credit Rate

The value of the 48C credit is calculated as a percentage of the qualified investment in an eligible project. The base credit rate is 6% of this investment. The qualified investment includes the cost of tangible property, such as equipment and machinery, that is integral to the advanced energy project.

A much higher credit rate of 30% is available for projects that satisfy specific prevailing wage and apprenticeship requirements. To qualify for this bonus rate, the taxpayer must meet two distinct labor standards during the project’s construction, alteration, or repair.

First, all laborers and mechanics must be paid wages at rates not less than the prevailing local rates for similar work, as determined by the Secretary of Labor. This requirement applies throughout the construction period of the project.

Second, the project must meet apprenticeship requirements by ensuring a certain percentage of total labor hours are performed by qualified apprentices. These apprentices must be participating in a registered apprenticeship program recognized by the Department of Labor or a state apprenticeship agency.

Required Application Information

The application for the 48C credit was a multi-stage process that began with a concept paper submitted to the Department of Energy. This document provided an initial summary of the project. The concept paper had to include:

• A detailed project description and its physical location
• Estimated total costs and the amount of qualified investment
• Anticipated timelines for construction and placing the project into service
• A summary of the project’s commercial viability
• An overview of the project’s expected impact on the workforce and community

Following the concept paper, a full application with more extensive information was required. This package had to contain detailed technical information, such as engineering designs and feasibility studies. The commercial viability section also had to be expanded with market analysis and comprehensive financial models.

A component of the full application was the Workforce and Community Engagement Plan. This formal document described the applicant’s strategies for creating high-quality jobs with good pay and benefits. It also had to detail how the project would engage with and provide benefits to the local community.

The Application and Allocation Process

Applicants began the formal process by submitting the concept paper through the official DOE 48C Portal. After its review, the DOE issued a letter of encouragement or discouragement. A letter of discouragement did not disqualify an applicant from moving forward but provided the DOE’s initial assessment.

The next step was the submission of the complete application package to the IRS, which then forwarded it to the DOE for a detailed technical and merit review. The DOE evaluated the application against program goals, including commercial viability, greenhouse gas emissions reduction, and the workforce and community engagement plan.

Based on its review, the DOE provided a recommendation and ranking of applications to the IRS. The IRS held the final authority and made the ultimate decision on which projects would receive a credit allocation. Successful applicants received a formal allocation letter specifying the amount of the 48C credit awarded.

Once a project has received an allocation, the taxpayer has two years to notify the DOE that certification requirements have been met. After the IRS issues a formal certification letter, the taxpayer has another two years to place the project in service. The credit is claimed by filing Form 3468, Investment Credit, with their federal tax return for the year the project became operational.