Final Regulations Released for the Clean Electricity Low-Income Communities Bonus Credit Program

The U.S. Department of the Treasury and the Internal Revenue Service have published final regulations concerning the low-income communities bonus credit program under Section 48E(h) of the Internal Revenue Code of 1986, as amended (the Code), and related procedural guidance.

Introduced by the Inflation Reduction Act of 2022, this program allows the Secretary of the Treasury to establish the program for 2025 and future years. The program authorizes the Secretary to allocate capacity limits that increase the Section 48E credit amount.

The Final Regulations – What Has Changed

The final regulations largely adopt the proposed regulations, with some additional clarifications and modifications. Below are some of the most notable changes.

• Disregarded entities. The final regulations clarify that a disregarded entity is not eligible to apply for the program. Instead, the taxpayer who owns the disregarded entity must be the applicant.
• Five-Megawatt Rule. If an applicable facility has “integrated operations” with one or more other qualified facilities of the same technology type, the aggregate nameplate capacity of the applicable facility and each other qualified facility is used to determine whether the Five‑Megawatt Rule is met. Facilities are considered to have integrated operations if they are (1) owned by the same or related taxpayers, (2) placed in service in the same taxable year and (3) transmit electricity generated by the facilities through the same point of interconnection or, if the facilities are not grid‑connected or are delivering electricity directly to an end user behind a utility meter, are able to support the same end user.
• Category 4 facilities.
  • At least 50% of the total financial benefits of the electricity produced by the applicable facility must be assigned to Qualifying Households. A Category 4 facility owner must also prepare a “Demonstration of Financial Benefits Statement,” which must include information related to calculations of financial benefits, calculation of the bill credit discount rate, the means of distributing the required benefits and the facility’s enrollment in the applicable arrangement used to distribute financial benefits.
  • The qualifying income level for a Qualifying Household is based on the household’s location. Taxpayers must maintain records verifying that it has provided the requisite percentage of financial benefits to Qualifying Households. The final regulations require that a qualified household must be provided a bill credit discount rate of at least 20%, which is a decrease from the 30% provided in the proposed regulations.
• Qualified renewable energy company. Entities listed under the ownership criteria now include “qualified renewable energy company,” which is an entity that serves low-income communities and provides pathways for the adoption of clean energy by low-income households, and must meet certain requirements related to its business purpose and structure.
• Partner qualifying partnership involving low-income housing credit under ownership criteria. If a partnership owns an applicable facility connected to a residential building to which credits under section 42 of the Code are reasonably anticipated or have been determined, and has a partner that is (1) a Tribal enterprise, (2) an Alaska Native Corporation, (3) a Native Hawaiian Organization, (4) a renewable energy cooperative or (5) a qualified tax-exempt entity, then the applicable facility will be deemed to meet the ownership criteria.
• Record retention. Applicants must retain records and materials related to the program application for the following periods: (1) for at least 6 years after the due date (including extensions) for filing the federal income tax return after the tax year that the return is filed to claim the increase in the Section 48E credit; and (2) for at least 6 years after the due date (including extensions) for filing the federal income tax return for the last year that the applicant could be subject to recapture as outlined in the final regulations.

Annual Capacity Limitation

The final regulations set annual capacity limits for each of the four categories of facilities, totaling 1.8 gigawatts as measured in direct current. The initial distribution among the four categories is as follows:

Under Category 1, a capacity limitation of 200 MW is sub-reserved for Eligible Front-of-the-meter Facilities and Non‑Residential Behind-the-meter (BTM) Facilities, and 400 MW is sub-reserved for Eligible Residential BTM Facilities.

To manage unallocated capacity, the final regulations include a redistribution plan within the same program year if certain categories are undersubscribed while others are oversubscribed. If any capacity limitation is unallocated in a preceding year, it will be carried over and equally distributed across the four categories in the following year.

Application Period

• For the 2025 calendar year, the application period will be announced in the Internal Revenue Bulletin.
• For the 2026 calendar year and beyond, the application period will open the first Monday of February at 9 a.m. EST and close the first Friday of August at 11:59 p.m. EST.

During the first 30 days of each application period, all applications submitted will be treated as if they were submitted simultaneously. Applications submitted after this period will be reviewed in the order received, provided there is sufficient capacity limitation remaining.

What’s Next

Although effective as of January 13, 2025, these final regulations may be subject to review and overturn through the Congressional Review Act. We will closely monitor any developments.

Want to know more? Reach out to a member of our Renewables Tax team.