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There are many ways to boost the tax credit your company receives under the Inflation Reduction Act.
This article, in which we will focus on the low-income development bonus, is the final article in a series explaining all of the major tax credit bonuses available under the IRA. While we hope this post is informative, we encourage you to consult a tax advisor when determining how the low-income development bonus can apply to you.
To meet the low-income development bonus, a project must be sited in a low-income community or on Native American land. A census tract is “low-income” if it meets one of the following criteria:
1. Poverty Rate: The poverty rate is at least 20%
2. Median Family Incomes: The median family income is 80% of the statewide median family income or lower
If the census tract is in a metropolitan area, the median family income must be 80% or below of the statewide median family income or the metropolitan area median family income, whichever is lower
3. Rural Area Experiencing Out-Migration: During the past 20 years, there has been net out-migration from the census tract that equals at least 10% of the the county’s population, and the median family income does not exceed 85% of the statewide income
4. Population: The tract has fewer than 2,000 people, and is located in an Empowerment Zone (as designated by the Dept. of Housing and Urban Development)
5. Targeted Populations: The tract is home to a “targeted population” of residents who are determined to
a) Be low-income earners
b) Lack adequate access to loans
Any project cited in a census tract that meets any of the above criteria or is on Native American land gains a 10% bonus to its tax credit as a result of this boost. A 20% boost can be applied to projects classified as a “qualified low-income residential building project” or a “qualified low-income economic benefit project.”
A “qualified low-income residential building project” is a residential building that participates in a covered housing program, a HUD-defined classification for housing for at-risk communities. Examples of these projects include housing for the elderly, for people with HIV/AIDS, and for homeless people.
A “qualified low-income economic benefit project” is a solar energy development that shares at least 50% of the financial benefits of the program are given to certain households. For a household to qualify, its income must either be
If either of these requirements are met, the project can receive a 20% tax credit boost to its IRA tax credit. This is the highest bonus out of any of the tax incentives we’ve explored so far, so your company should definitely explore the low-income tax credit bonus to see which strategy is best for your company.
Thank you for reading our series on IRA tax credit boosts! We hope you enjoyed learning about all of the ways that your company can increase its tax savings under the IRA. In case you missed our first two articles, we also covered other ways for your company to save money using the domestic content and energy income bonus.
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.
