Summary: Companies can start planning to take advantage of the transferable tax credits introduced under the Inflation Reduction Act (IRA) and the One Big Beautiful Bill (OBBB) to offset tax liability in the year ahead.
What are Transferable Tax Credits?
Transferability allows companies that qualify for tax credits to monetize their credit by selling it to another taxpayer. This provides companies that owe minimal tax liabilities, such as startups, capital-intensive manufacturers, and high-growth companies, with an excellent way to generate cash. Whether you’re interested in buying or selling credits, now is the time to start optimizing your tax strategy for the year ahead.
For example, a company may install clean energy equipment and claim a clean energy credit that can offset their taxes owed by $300,000. However, they only owe $100,000 in federal income taxes. Traditionally, the company can apply the credit against their liability and carry forward the remaining amount to future tax years. Though beneficial, this approach limits cash recovery over many years. Under the Inflation Reduction Act (IRA) and expansion of the One Big Beautiful Bill (OBBB), the company can sell clean energy investment and production credits for instant liquidity.
Benefits of Transferring Tax Credits
Perhaps the most appealing tax advantage of buying and selling tax credits is that the exchange is mutually beneficial. The seller converts unusable credits into immediate, non-taxable cash, while the buyer reduces current-year taxes without having to invest in the activities required to claim the credit directly.
Additionally, sellers are often willing to let buyers purchase the credits at a discount because of the immediate cash benefit. Market pricing often ranges from 80-95 cents for every dollar of credit, depending on technology, documentation quality, risk protections, and market timing. For example, a client with $5 million in tax liability who purchases tax credits for 80 cents on $1 now only owes $4 million, saving themselves $1 million in taxes.
Risks of Transferring Tax Credits
A major source of uncertainty around transferable credits pertains to the risk associated with claiming a credit that the IRS may disallow or reduce. Because the buyer bears the risk and compliance responsibility once the credit is transferred, it is paramount to conduct due diligence before purchasing.
Although purchasing transferable credits is largely safe with benefits that outweigh the risks, buyers should protect themselves by 1) ensuring pre-file registration (more on that later!) and 2) validating the accuracy of the credit calculation. Buyers can also require seller indemnities in the purchase agreement, obligating the seller to reimburse them if the credit is disallowed, reduced, or recaptured.
There may be instances where sellers do not or cannot agree to seller indemnities, though. In cases where a seller is a special-purpose entity (SPE), startup, or simply lacks the balance sheet to back a strong indemnity, they can pay for tax credit insurance. This insurance would cover disallowance, partial reductions, recapture events, and associated penalties if the IRS challenged the credit. For sellers, this insurance can be an appealing risk-adjustment to maximize buyer confidence and defend their pricing.
Eligibility for Transferable Tax Credits
Transferring tax credits can be extremely favorable for the tax position of both the buyer and seller, though not everyone and every credit qualifies.
Eligible Entities
Unfortunately, only certain types of entities may transfer their credits. Corporations and partnerships can purchase and sell their credits, while not-for-profits can only purchase them and credit-generating developers may sell them.
Eligible Credits
While transferable credits provide an opportunity to benefit two taxpayers, only eleven specific tax credits were made transferable under the IRA.
- Alternative Fuel Vehicle Refueling Property Credit (Section 30C)
- Renewable Electricity Production Credit (Section 45)
- Carbon Dioxide Sequestration Credit (Section 45Q)
- Zero-Emission Nuclear Power Production Credit (Section 45U)
- Clean Hydrogen Production Credit (Section 45V)
- Advanced Manufacturing Production Credit (Section 45X)
- Clean Electricity Production Credit (Section 45Y)
- Clean Fuel Production Credit (Section 45Z)
- Energy Investment Tax Credit (Section 48)
- Qualifying Advanced Energy Project Credit (Section 48C)
- Clean Electricity Investment Credit (Section 48E)
How to Transfer Credits
Transferring credits does require some forethought and planning but should be relatively seamless with the help of a tax professional.
Pre-File Registration
The IRS requires that taxpayers must register the transfer of credits before filing their tax returns for the year the credit was earned, a process known as pre-file registration. This step is critical, as attempts to transfer credits without registration will invalidate the transaction. While the IRS recommends registering at least 120 days before your return due date, you can register after the credit-generating property is placed in service.
Registration itself is fairly simple. Taxpayers create an account for the Energy Credits Online (ECO) portal, provide basic information about your company and the project or property generating the credit. If multiple properties generate credits, each property must be registered separately. The IRS will then issue a registration number for each property that will be used when making the transfer election on both your tax return and the buyer or seller’s tax return.
Pro tip: As a buyer, do not provide funds to a seller until they provide you with the IRS registration number.
Reporting the Credits
Transferred credits are not reported to the IRS as a new credit, but, rather, are funneled into Form 3800 alongside any other business credits a taxpayer is claiming.
Sellers, however, must report their transfer election on the credit-specific form with the IRS registration number. For example, Section 45 credits are reported on Form 8835, while Section 48 credits are reported on Form 3468.
Final thoughts: An Opportunity Worth the Risk
Although the process of transferring tax credits requires preparation and awareness from both parties, the rewards can far surpass the effort for buyers and sellers with proper guidance. As you begin level-setting expectations for your company’s finances in 2026, consider how transferring tax credits could improve your tax position.
Aprio’s Credits and Incentives team helps thousands of companies claim tax credits and is equipped with the tax knowledge and business experience to walk you through the process.
