The renewable energy tax credits have been expanded and are now transferable following last month’s passage of the Inflation Reduction Act. Major corporations looking for smaller tax bills can act to secure more accessible tax credits.

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The Inflation Reduction Act, which narrowly passed the House in August, raised $737 billion in new tax and health care savings revenue, reduced the national debt by more than $300 billion, and $437 in efforts to combat climate change. Billion is predicted to be invested. Expansion of the Drought Resistance and Affordable Care Act.

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The Inflation Reduction Act addresses climate change by allowing renewable energy tax credits to be transferred between companies. The tax credit incentive is an effort to attract more capital to renewable energy projects, providing developers with cash to build their projects and leading to profits for the corporation purchasing the credit.

With transferable tax credits, the Inflation Reduction Act could attract more corporate interest in the renewable energy sector. Developers sell tax credits at a discount, which means corporations save money on their taxes.

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George Medina, a lawyer who focuses on the tax aspects of renewable energy projects and transactions, explained newsweek That, for example, if a developer sold a $30 tax credit for $26, the corporation could use that credit on its tax bill and profit $4.

Medina, a partner at Pillsbury Winthrop Shaw Pitman LLP in New York, also said that transferable credits provide more opportunities for small developers to build renewable energy projects. In the past, investors preferred only large, high-dollar projects, leaving small-to-medium-developers struggling to qualify for tax equity. Under the new law, developers can work directly with corporations on sales.

“Big investors want to do as few deals that are as big as possible, and making small deals was not financially efficient,” Medina said. “Transferability allows these people [developers] To make small deals with individual corporations.”

Medina said the biggest question about how the tax credit transfer will work is about the price.

Medina said, “Let’s say I’m producing $100 worth of credit. You buy that credit from me, but you’re not going to pay $100.” “That would require an economic stimulus. The question we don’t know yet is, what discount rate is the market usually going to pay for these credits?”

Medina said the exemption may vary depending on what proof or document is required. Buyers will be more attracted to credits that offer a larger discount, such as transfers that offer to pay $80 for a $100 tax liability, rather than those that offer to pay $90. make offer.

wall street journal (WSJ) pointed out that, over time, a corporation without a direct investment in renewable energy can purchase the tax credit and then make a profit, as the credit acts like a coupon toward the corporation’s tax liability.

“They can basically buy tax credits, advance them [environment, social and government] Goal and get some economics from the credit without any construction or operational risk of the project,” Hagai Zaffman, a partner at Siddeley Austin LLP in New York who helps structure renewable-energy deals, told the WSJ.

According to the WSJ, transfer deals won’t start until next year, but lawyers and other experts are already digging into the transaction structures and how they might be financed.