In November 2023 the US Internal Revenue Service (IRS) published draft guidance relating to implementation of investment tax credits (ITCs) established in the Inflation Reduction Act of 2022 (IRA).1 The guidance included a Summary of Comments and Explanation of Provisions as well as Proposed Amendments to the Regulations.
IDEA submitted comments on the draft guidance in January 2024.
This latest guidance is one of many issued by the IRS. For information on other guidance related to the IRA, see https://www.irs.gov/newsroom/notices-for-the-inflation-reduction-act-of-2022 .
Starting with a high-level recap of the IRA, this article summarizes key issues and principles addressed in the guidance and then focuses on implications of the guidance on credits most relevant to the district energy industry – geothermal heat pumps and thermal energy storage. Guidance relating to meeting the IRA Prevailing Wage requirements (essential to achieving a 30% tax credit rather than the base 6%) are summarized. Two appendices are provided: an overview of technologies qualifying for short-term IRA credits (expiring at the end of 2024); and IDEA’s comments to the IRS on the November 2023 draft guidance.
Although not addressed in the guidance, it is important to note that the IRA also provides credits for “Clean Electricity” (GHG emissions less than zero), nuclear, hydrogen production and use, and carbon capture and storage. The IRA requires that guidance on these credits must be issued before January 1, 2025.
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