Most churches only worry about their tax-exempt status. As long as they don’t have to pay money to Uncle Sam, they’re happy. But what if Uncle Sam was willing to pay your church to help with his green energy initiatives. Enter the Inflation Reduction Act (“IRA”). The IRA contains a new provision that allows churches and other tax-exempt organizations to receive money for investing in renewable energy projects, such as solar arrays, electric vehicles and charging stations, and larger projects such as building micro-grids.
In the past, renewable energy tax credits were generally only available to individuals and entities that had taxable income to offset. Since churches are tax-exempt and don’t have taxable income to offset, the pre-IRA federal renewable energy tax incentive structure was no benefit to them.
But now, churches can significantly offset the cost of investing in renewable energy projects utilizing their excess land and facilities. That’s why the Direct Pay Provision is being called a “game changer” for tax-exempt organization investment in renewable energy.
In practical terms, and assuming the appropriate steps are taken, what this means is that if a church invests $200,000 in a new solar array project which is eligible for a 30% tax credit, that the church would receive $60,000 directly from the U.S. Treasury. And the amount of the credit can increase based on certain factors, such as whether the project resources are sourced domestically and if the project is being built in a low-income neighborhood, among other things. It’s important to keep in mind, however, that the IRS is still reviewing the impact of the IRA and has not yet issued its final guidelines, so the exact parameters of the credits is subject to change.
But what is clear is that the IRA is a game changer for tax-exempt entities like churches who want to invest in renewable energy, or who are looking to repurpose excess property. The availability of direct payments for tax credits means that the “payback” period for any renewable project can be greatly reduced, which means we’ll see more of them. And that’s great news not only for the entities making the investments, but also for our environment.
To learn more about the IRA’s new direct pay provision for churches tax-exempt entities, please contact the attorneys at Dalton & Tomich.