Energy Community Bonus Credit: Qualifying Locations and 10% Adder

A renewable energy project can claim the energy community bonus credit if it is built in one of three types of locations: a census tract touched by a coal mine or coal plant closure, a metropolitan or non-metropolitan statistical area with heavy fossil fuel employment and above-average unemployment, or a brownfield site with actual or potential contamination. The bonus adds up to 10 percentage points to the investment tax credit or increases the production tax credit by 10%, and it stacks on top of the base credit rate under Sections 45, 45Y, 48, and 48E of the Internal Revenue Code.¹

The Three Ways a Location Qualifies

A project only needs to fit one of the three categories. They are independent pathways with different tests and different data sources, and the practical work for a developer is figuring out which one, if any, applies to a given site.¹

Coal Closure Census Tracts

A census tract qualifies if a coal mine closed there after December 31, 1999, or if a coal-fired electric generating unit retired there after December 31, 2009.² The IRS verifies closure dates using the Mine Safety and Health Administration’s dataset for mines and the Energy Information Administration’s Forms EIA-860 and EIA-860M for power plants.³

Eligibility extends beyond the tract where the closure sat. Any census tract that directly adjoins a closure tract also qualifies. “Directly adjoining” means the tract boundaries touch at any point, even a single corner, and waterways running along tract boundaries do not break adjacency.⁴ This roughly doubles the geographic footprint of each closure event.

Statistical Areas With Fossil Fuel Employment

Metropolitan Statistical Areas and Non-Metropolitan Statistical Areas qualify only if they meet two conditions at once. First, the area must show significant fossil fuel activity: direct employment in fossil fuel sectors of 0.17% or more of total employment at any time after December 31, 2009, or 25% or more of local tax revenues from the extraction, processing, transport, or storage of coal, oil, or natural gas. Second, the area’s unemployment rate for the prior calendar year must be at or above the national average for that same year.²

Both prongs must be satisfied simultaneously. An area with heavy fossil fuel employment but a strong labor market does not qualify. The IRS defines fossil fuel employment using specific North American Industry Classification System codes covering oil and gas extraction, coal mining, drilling and support activities, petroleum refineries, and pipeline transportation of crude oil and natural gas, with employment data drawn from the Census Bureau’s County Business Patterns.³

Because the unemployment prong resets every year, a statistical area can gain or lose eligibility from one year to the next.

Brownfield Sites

The brownfield pathway applies to a specific parcel rather than a region. It covers land where expansion, redevelopment, or reuse is complicated by the actual or potential presence of hazardous substances, pollutants, or contaminants, borrowing the definition directly from the Comprehensive Environmental Response, Compensation, and Liability Act.⁵ A site does not need to be on a federal cleanup list; potential contamination is enough.

Notice 2023-29 provides safe harbor methods for confirming brownfield status, with documentation scaled to project size.³ For projects over 5 MW, the developer needs either evidence that the site was previously assessed through a federal, state, or tribal brownfield program, or an ASTM E1903 Phase II Environmental Site Assessment confirming a hazardous substance. For projects of 5 MW or less, an ASTM E1527 Phase I Environmental Site Assessment is enough. A Phase I identifies recognized environmental conditions through records review and site inspection, without the soil or groundwater sampling a Phase II requires. In both cases, the assessment must follow the most current version of the applicable ASTM standard.

How Much the Bonus Actually Adds

The bonus behaves differently under the investment tax credit and the production tax credit.

For ITC projects under Section 48 or 48E, the bonus adds up to 10 percentage points to the base rate. A project meeting prevailing wage and apprenticeship requirements starts with a 30% base credit; the energy community bonus raises it to 40%.⁶ A project that fails those labor standards has a 6% base credit, and the energy community bonus shrinks to 2 percentage points, for a total of 8%.⁷ The gap between 40% and 8% makes the labor requirements decisive for any project of scale.

For PTC projects under Section 45 or 45Y, the bonus increases the per-kilowatt-hour credit amount by 10%.⁸ This applies to the credit rate for each taxable year over the project’s 10-year credit period.⁹ The PTC bonus is a percentage increase to the dollar value of the credit itself, not a percentage-point adder.

Projects with a maximum net output of less than 1 megawatt automatically qualify for the higher credit rates without meeting the prevailing wage and apprenticeship requirements.¹⁰ For small developers, this exception delivers the full bonus without the compliance overhead.

Which credit sections carry the bonus depends on the placed-in-service date. Sections 45 and 48 cover facilities that began construction before 2025. For facilities placed in service after December 31, 2024, Sections 45Y and 48E apply instead.⁶ A project cannot claim under both the old and new sections. All four sections carry the energy community bonus with the same qualifying criteria.

Projects That Span Multiple Tracts

A project does not have to sit entirely within an energy community. The IRS applies a nameplate capacity test: a project counts as located in an energy community if 50% or more of its nameplate capacity sits in a qualifying area. The calculation divides the nameplate capacity of generating units in an energy community by the total nameplate capacity of all generating units in the project.²

A wind farm with turbines scattered across several census tracts, for instance, qualifies as long as more than half the generating capacity falls within eligible tracts. Mapping turbine or panel locations against energy community boundaries early in site planning avoids discovering a shortfall after construction.

Offshore wind projects raise a different problem. Turbines sitting in the ocean are not in any census tract or statistical area. When no generating units are located in a census tract or statistical area, all nameplate capacity is attributed to the land-based power conditioning equipment closest to the point of interconnection.³ If the onshore substation is in an energy community, the whole offshore project qualifies.

When Eligibility Is Tested

Timing depends on the credit. For ITC projects under Sections 48 and 48E, eligibility is determined on the placed-in-service date. For PTC projects under Sections 45 and 45Y, eligibility is tested separately for each taxable year of the 10-year credit period, and the facility qualifies if it is located in an energy community during any part of that year.³

Statistical area designations change annually, so a location that qualifies at groundbreaking could lose its status before the project comes online. The IRS addresses this with a construction lock-in rule. If construction begins on or after January 1, 2023, in a location that qualifies at that time, the location continues to be treated as an energy community for the full credit period (PTC) or on the placed-in-service date (ITC), even if the area’s status later changes.² The lock-in matters heavily for financing, because lenders and tax equity investors need certainty that the bonus survives a multi-year build.

Claiming the Bonus and Keeping Records

ITC projects claim the bonus on Form 3468 (Investment Credit). Line 10 includes a checkbox where filers indicate that the project is located in an energy community, and separate sections document whether prevailing wage and apprenticeship requirements have been met.¹¹ The instructions reference Notices 2023-29, 2023-45, 2023-47, 2024-30, and 2025-31 as the governing guidance.

Taxpayers must maintain records sufficient to establish the amount of credits claimed, including documentation that the project location qualifies under one of the three categories.³ For a brownfield project, that means the Phase I or Phase II environmental assessment. For a coal closure project, records should show the census tract identification and the closure data supporting eligibility. For a statistical area project, keep the fossil fuel employment data and unemployment rate for the relevant year.

Tax-exempt entities — municipalities, tribal governments, and nonprofits that cannot use traditional tax credits — can claim the ITC and the energy community bonus through elective pay under Section 6417.¹⁰ Taxable project owners can also transfer credits to unrelated buyers under Section 6418, including the energy community bonus portion.

Checking Current Eligibility for a Site

The IRS periodically publishes updated lists of qualifying locations. The most recent is Notice 2025-31, which refreshes both the statistical area and coal closure categories using revised metropolitan area definitions from the 2020 Census, updated fossil fuel employment figures from the Census Bureau’s 2022 County Business Patterns, and newly identified coal closure census tracts from MSHA and EIA data as of April 2025.¹²

The statistical area eligibility in Notice 2025-31 took effect on June 23, 2025, and remains valid until the IRS issues an updated list reflecting 2025 unemployment rates. The Treasury Department maintains an online mapping tool where developers can check whether a specific address falls within an energy community.¹ Given the annual movement in unemployment data, checking both the map and the latest IRS notice before committing to a site is worth the small effort.

Stacking With Domestic Content and Low-Income Bonuses

The energy community bonus is not the only adder under the Inflation Reduction Act. Projects can also qualify for a domestic content bonus for using American-made components, and certain facilities can qualify for a low-income community bonus. These bonuses are additive. A project meeting all requirements can claim both the energy community bonus and the domestic content bonus on top of the base credit rate, and the domestic content bonus adds another 10 percentage points for the ITC. An ITC project qualifying for both bonuses with prevailing wage compliance could reach a 50% investment tax credit. Each bonus has its own eligibility criteria and documentation, and claiming one does not affect eligibility for the others.

1
U.S. Department of the Treasury. Energy Communities
2
Internal Revenue Service. Frequently Asked Questions for Energy Communities
3
Internal Revenue Service. Notice 2023-29 – Energy Community Bonus Credit Amounts Under the Inflation Reduction Act of 2022
4
U.S. Department of the Treasury. Data Methodology for Determining Energy Community Statistical Area and Coal Closure Eligibility
5
Office of the Law Revision Counsel. 42 USC 9601 – Definitions
6
Office of the Law Revision Counsel. 26 USC 48E – Clean Electricity Investment Credit
7
Office of the Law Revision Counsel. 26 USC 48 – Energy Credit
8
Office of the Law Revision Counsel. 26 USC 45Y – Clean Electricity Production Credit
9
Office of the Law Revision Counsel. 26 USC 45 – Electricity Produced From Certain Renewable Resources, Etc.
10
U.S. Department of the Treasury. ITC Elective Pay Explainer
11
Internal Revenue Service. Instructions for Form 3468 (2025)
12
Internal Revenue Service. Notice 2025-31 – Energy Community Bonus Credit Amounts or Rates