Articles 3 min read

Don’t Miss Out: How Not-for-Profits Can Capture Valuable Solar Tax Benefits

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Israel Tannenbaum
Nilmary Flores, CPA
Nilmary Flores, CPA
Clean Energy Tax Credits
Tax Credits
Not-For-Profit and Education

Key Takeaways

Eligible not-for-profit organizations may receive certain solar tax credits as direct payments from the IRS, even if they have no federal income tax liability.

The credit may equal 30% of eligible project costs, with additional incentives potentially increasing the benefit depending on the project’s eligibility.

Projects beginning construction after July 4, 2026, generally must be placed in service by Dec. 31, 2027, to qualify under the timing rules described in the article.

Many nonprofits are looking for ways to streamline operating costs and reinvest savings into their mission. Solar energy is becoming an increasingly attractive option thanks to new federal incentives. For years, nonprofits and governments couldn’t benefit from solar tax credits because they don’t pay federal income tax. Under the Inflation Reduction Act, tax-exempt organizations, including churches, schools and charities, can now receive up to 70% of a solar project back as cash from the IRS. However, the most common percentages are between 30 and 40%. Through elective pay, also known as direct pay, under IRC §6417, a tax-exempt organization receives the §48E credit as a direct cash payment from the IRS, even though it owes no tax.

How Does the Elective Pay Process Work?

What Solar Tax Credit Deadlines Should Organizations Consider?

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, sharply accelerated the solar credit’s phaseout, making the project timing more critical than ever. Organizations that begin construction sooner may be able to maximize the available credits.

Construction BeginsMust Be in Service ByCredit
Before Jan. 1, 2026Dec. 31, 2029✓ Full credit preserved
Jan. 1 to July 4, 2026Dec. 31, 2030✓ Full credit preserved
After July 4, 2026Dec. 31, 2027⚠ Lost unless in service by Dec. 31, 2027

The bottom line: Projects that began construction on or before July 4, 2026, may have later placed-in-service deadlines than projects beginning after that date. Projects beginning after July 4, 2026, generally must be placed in service by Dec. 31, 2027, to receive the credit. Organizations should document when construction begins and confirm which timing requirements apply to their projects.

What Additional Requirements Should Not-for-Profits Evaluate?

As organizations evaluate solar opportunities, it’s important to understand the evolving rules that may impact project eligibility and benefits. Key considerations include stricter “start of construction” standards (IRS Notice 2025-42), new Foreign-Entity of Concern (FEOC) restrictions for projects beginning after Dec. 31, 2025, and the classification of §48E as 20-year property, while still eligible for 100% bonus depreciation. Navigating these requirements can be complex, but the potential savings for nonprofit organizations can be significant.

Withum’s Not-for-Profit and Education Services Team can help guide your organization through every step of the process, including handling the registration, election and filing the necessary forms. Connect with us to learn more about how your organization can maximize available solar incentives and turn clean energy investments into long-term savings.

This material is for general informational purposes only and is not tax, legal or accounting advice. Rules under the OBBBA and IRS Notice 2025-42 are complex and evolving; consult Withum before acting.

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