IRS Publication 6045 – In today’s push toward sustainable energy, tax-exempt entities like nonprofits, governments, and religious organizations are increasingly exploring ways to reduce energy costs and contribute to clean energy goals. IRS Publication 6045 provides essential guidance on how these entities can leverage the Investment Tax Credit (ITC) under sections 48 and 48E of the Internal Revenue Code. This publication, released by the Internal Revenue Service, outlines opportunities for tax-exempt organizations to offset costs associated with qualified energy property and facilities through innovative mechanisms like elective pay. If you’re a leader in a nonprofit or governmental body considering solar panels, battery storage, or other renewable projects, this article breaks down the key details from IRS Publication 6045, using trusted sources to ensure accuracy and relevance in 2026.
What is IRS Publication 6045?
IRS Publication 6045, titled “Tax-Exempt Entities and the Investment Tax Credit,” is a comprehensive guide designed to help tax-exempt and governmental entities navigate federal tax incentives for clean energy investments. Published by the Department of the Treasury and the IRS, it focuses on sections 48 (ITC) and 48E (Clean Electricity ITC), emphasizing how organizations without tax liability can still benefit. The document was updated for February 2025, reflecting provisions from the Inflation Reduction Act of 2022 (IRA), which expanded access to these credits.
This publication is available in English and Spanish versions, with the latest revision dated February 2025 and posted on IRS.gov on February 27, 2025. It serves as a resource for entities aiming to install energy-generation or storage property to meet energy demands, achieve sustainability targets, or lower utility bills. Unlike traditional tax credits, which require a tax burden to offset, Publication 6045 highlights “elective pay” (also called direct pay), allowing eligible organizations to receive the credit as a direct payment from the IRS.
Overview of the Investment Tax Credit (ITC)
The Investment Tax Credit is a federal incentive that allows taxpayers to deduct a percentage of qualified renewable energy project costs from their taxes. Established in 2005 and significantly expanded by the IRA in 2022, the ITC covers a range of clean energy technologies. For tax-exempt entities, the IRA introduced game-changing provisions, including direct pay, standalone eligibility for energy storage projects, and bonus credits for underserved communities.
Under section 48, the ITC applies to projects where construction begins before January 1, 2025. Section 48E, the Clean Electricity ITC, kicks in for facilities placed in service on or after January 1, 2025, and is technology-neutral, focusing on zero-greenhouse-gas-emission technologies. Entities cannot claim both the ITC and the Production Tax Credit (PTC under sections 45 or 45Y) for the same property, so choosing the right incentive depends on project specifics like financing and energy output.
Eligibility for Tax-Exempt Entities
Tax-exempt entities, including state and local governments, Indian Tribes, religious organizations, and nonprofits, are prime candidates for the ITC as outlined in Publication 6045. These “applicable entities” can claim the credit even without tax liability through elective pay. This is particularly beneficial for organizations investing in energy projects via partnerships, where allocations must be carefully structured to avoid unrelated business income tax issues.
To qualify, the entity must own the qualified energy property or facility. Projects with tax-exempt grants or forgivable loans can still qualify, provided basis reduction rules are followed. For 2024 and later projects using elective pay, domestic content requirements may reduce the credit unless exceptions apply (detailed in IRS Notices 2024-09 and 2024-84). Nonprofits should note that Congress preserved direct pay access in recent updates, ensuring continued eligibility in 2025 and beyond.
How Tax-Exempt Entities Can Claim the ITC via Elective Pay?
Elective pay transforms the ITC into a refundable payment for eligible tax-exempt entities. This “direct pay” option, introduced by the IRA, allows organizations to receive the full credit value as a check from the IRS, effectively monetizing the incentive without needing tax appetite.
The process involves pre-filing registration with the IRS to verify eligibility and project details. Then, claim the credit on Form 3468, Investment Credit, attached to the entity’s tax return (e.g., Form 990-T for nonprofits). For partnerships involving tax-exempt investors, special considerations apply to allocations under section 704(b) to ensure the ITC benefits flow correctly.
Applicable Projects and Technologies for the ITC
Publication 6045 details a wide array of eligible projects under sections 48 and 48E. For section 48 (pre-2025 construction):
- Solar energy property
- Energy storage (e.g., batteries)
- Qualified fuel cell, small wind, microturbine, and biogas property
- Geothermal energy and heat pumps (construction before Jan. 1, 2035)
- Combined heat and power systems
- Waste energy recovery
- Microgrid controllers
- Offshore wind facilities
For section 48E (post-2024 in-service):
- Technology-neutral for net-zero GHG emissions, including wind, solar, nuclear, hydropower, geothermal, marine/hydrokinetic, and certain waste energy
- Energy storage technologies like batteries
Projects with a maximum net output of 5 MW or less may include interconnection costs in the basis. Storage-only projects became eligible under the IRA, a major win for resilient energy systems.
Calculating Credit Amounts and Bonus Incentives
The ITC is generally 6% to 30% of the project’s tax basis, depending on size, start date, and compliance. Base rates:
- 30% for projects under 1 MW or construction before Jan. 29, 2023
- 6% base for larger or later projects, boosting to 30% with Prevailing Wage and Apprenticeship (PWA) compliance
Bonus adders can increase the credit:
- Energy Communities Bonus: 2% or 10% for projects in brownfields, fossil fuel-dependent areas, or coal closure tracts
- Domestic Content Bonus: 2% or 10% for U.S.-sourced materials
- Low-Income Communities Bonus: 10% or 20% for projects in low-income areas, Indian land, or benefiting affordable housing (requires allocation)
PWA and domestic content rules don’t apply to small projects. The IRA’s expansions make the ITC more accessible, potentially stacking bonuses for up to 70% credits in optimal scenarios.
| Bonus Type | Base Increase | Full Increase (with PWA) | Eligibility Criteria |
|---|---|---|---|
| Energy Communities | 2% | 10% | Brownfields, fossil fuel areas, coal closures |
| Domestic Content | 2% | 10% | U.S.-produced steel/iron and manufactured products |
| Low-Income Communities | N/A | 10-20% | Low-income areas, Indian land, affordable housing |
Forms, Procedures, and Best Practices
To claim the ITC, use Form 3468. Publication 6045 references related resources like the IRS Elective Pay webpage and Clean Electricity Investment Credit details. For partnerships, consult tax advisors to handle allocations and avoid pitfalls with tax-exempt investments.
Nonprofits should track deadlines: Pre-registration is key for elective pay, and credits phase out based on emission reductions post-2032.
Key Updates from the Inflation Reduction Act
The IRA revolutionized the ITC by enabling direct pay for tax-exempts, adding storage eligibility, and introducing bonuses. Publication 6045 incorporates these, with references to IRS notices for exceptions. In 2025, no major changes affected direct pay, preserving opportunities for nonprofits.
Conclusion: Empowering Tax-Exempt Entities with Clean Energy Incentives
IRS Publication 6045 opens doors for tax-exempt entities to invest in sustainable energy without traditional tax barriers. By understanding elective pay, eligible technologies, and bonus credits, organizations can significantly cut costs and advance environmental goals. Always consult a tax professional for personalized advice, and download the publication from IRS.gov for the full details. With the IRA’s framework in place, 2026 is an ideal time for tax-exempt groups to pursue ITC-eligible projects.