Nonprofits Can Claim Green Energy Tax Credits, But Timing Matters

If your organization is planning solar, geothermal, HVAC, lighting, or other facility improvements, green energy credits could help offset a meaningful share of the cost.

Thanks to elective pay, nonprofits may be able to receive cash payments for eligible energy projects even though they don’t pay federal income tax.

For organizations already evaluating capital projects, these credits can provide a valuable funding source. Understanding the rules, filing requirements, and project timelines can help you determine whether your organization may qualify.

Energy credits can make nonprofit projects more affordable

Many nonprofits operate large or aging facilities with substantial heating, cooling, lighting, and energy demands. Projects like HVAC upgrades, solar installations, or broader energy efficiency improvements are often necessary, but also expensive.

The Inflation Reduction Act changed the equation. With the introduction of elective pay, nonprofits can receive cash payments in lieu of tax credits. This opens the door to projects previously not financially viable or even considered as part of the annual budget process.

These projects have now become much more feasible as organizations commonly, though not guaranteed, reach a 30% base credit on eligible project costs.

Where nonprofits may see the most value

While several credits may apply depending on the facts, two of the most common are:

Clean electricity (solar and wind)

This includes projects like rooftop solar, ground-mount solar, and wind projects. The credit begins to phase out for projects starting construction after July 4, 2026. Projects generally need to be placed in service by December 31, 2027, depending on when construction begins.

Geothermal systems

This includes geothermal heat pump systems and other ground-source heating and cooling solutions. Compared to solar, the timeline is less compressed. Construction must begin before January 1, 2035.

Claiming the energy credit: Key steps

Step 1: Understand your Form 990-T filing timeline

Credits must be claimed on a timely filed Form 990-T (including extensions). The credits can’t be claimed on an amended return.

Form 990-T is due on the 15th day of the fifth month after the end of an organization’s tax year. For a calendar year organization, this means the return is generally due May 15. An extension is available, which shifts the Form 990-T due date six months later (November 15 for a calendar year organization)

Step 2: Complete the project and place it in service

The credit is tied to when the asset is placed in service. Documentation of this timing is key.

Step 3: Complete IRS pre-filing registration

Each project must go through a pre-filing registration process. The IRS issues a registration number, which is required when claiming the credit.

Step 4: File and claim the credit

Organizations need to file the Form 990-T, Form 3800 (General Business Credit), and applicable credit forms and registration details.

The fiscal year end encompassing the placed-in-service date dictates the tax year the credit is claimed.

Common issues about claiming the credit

“We’re hesitant to pursue the credit because we don’t want to have to file tax returns moving forward and don’t want government mandates over our operations.”

By claiming one of the green energy credits, you’re not subjected to government mandates any more than previously.

There are no additional restrictions, modifications, or oversight from the government on your operations as a result of claiming the credit. There’s no requirement to file annual tax returns solely due to claiming the credit.

The IRS simply needs a mechanism to collect the information from you to issue your tax credit, which is a one-time filing of the Form 990-T and related forms.

“Our project is relatively small; it’s likely not worth pursuing the credit.”

Even smaller projects can generate meaningful value. With a potential 30% base credit, and an additional 10% bonus credit for projects located in an energy community or low-income community, the opportunity to significantly reduce overall project costs can add up quickly.

“We’ll just handle this claim internally.”

That’s certainly an option. There is no requirement to use an outside advisor.

That said, there are several technical steps involved, including:

• Eligibility determination
• Credit computation
• Completion of the pre-filing registration process
• Application for any eligible bonus credits
• Filing the year-end tax forms accurately and on time

For organizations that don’t routinely file tax returns, it’s worth stepping back and evaluating whether additional support is needed.

How CLA can help with energy tax credits

Green energy credits are still available, and for many organizations they represent a practical way to offset the cost of necessary facility improvements.

The key is timing. With certain deadlines approaching and rules having a history of evolving, it’s worth evaluating potential projects sooner rather than later to make sure you don’t miss the opportunity.

CLA’s energy tax services team can help your organization navigate the process and capture available benefits, including:

• Investment and production tax credit eligibility and analysis
• Credit modeling and IRR/ROI analysis
• Investment tax credit cost segregation and computations
• Assistance with IRS registrations and credit allocations
• Structuring and advisory services in connection with credit transfer transactions
• IRS credit reporting and compliance
• Loan and grant application writing and consulting

Contact us

See if your next project could qualify for valuable tax credits. Complete the form below to connect with CLA.