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There are a number of ways to boost the tax credit your company receives under the Inflation Reduction Act.
In this blog post, the first in a series of articles covering all of the major tax credit bonuses available under the IRA, we will focus on the domestic content bonus. While we hope this post is informative, we encourage you to consult a tax advisor when determining how the domestic content bonus can apply to you.
The domestic content bonus awards a tax credit boost for building American-made renewable energy when new renewable construction is built using domestic materials. If the domestic content bonus applies, and the tax credit is an investment tax credit, the tax credit percentage will be increased by 2 or 10 percentage points (e.g. it may increase the credit percentage from 30% to 40%). If the domestic content bonus applies, and the tax credit is a production tax credit the tax credit is increased by 2 or 10 percent (e.g. from 30 cents a KwH to 33 cents a KwH). The higher number above is used if the 5x multiplier is satisfied.
So what falls under the umbrella of “domestic content”? For the purposes of the IRA, domestic content requires that all steel and iron which is a component of the project be produced in the United States. In addition, a specified percentage of the value of manufactured products of the projects are mined, produced or manufactured in the United States.. For construction that begins before 2025, this percentage is 40% for all projects except offshore wind, for which the requirement is 20%. The required percentages increase after 2025 as outlined in the table below.
These requirements are strict save for a few exceptions:
The Treasury Secretary has discretion to review either of these exceptions, and, if the Secretary deems they are applicable, the company receiving the exception will receive 100% of the tax credit bonus.
This tax credit has the potential to change your company’s tax credit significantly. If your company has an investment tax credit of $10,000,000 before the domestic content bonus, a 10% domestic content bonus would provide an additional credit of $1,000,000. Keep reading our next article on the energy community bonus to find out more ways to boost your tax credit.
Atheva does not provide tax or legal advice and you are encouraged to consult with your own tax or legal advisor regarding any legal or tax matter discussed herein.
