The energy community tax credit is a bonus added on top of the federal Investment Tax Credit or Production Tax Credit when a clean energy project is built in a qualifying location. It can raise an ITC by up to 10 percentage points or increase a PTC by 10%, and it targets three kinds of places: brownfield sites, regions with a history of fossil fuel employment, and census tracts touched by coal mine or coal plant closures.1U.S. Department of the Treasury. Energy Communities Created by the Inflation Reduction Act of 2022, the bonus is meant to steer renewable investment toward communities that built the country’s older energy economy.
What the Bonus Is Worth
The math depends on which underlying credit the project claims.
For Production Tax Credits under Sections 45 and 45Y, siting in an energy community increases the credit by 10%.1U.S. Department of the Treasury. Energy Communities The percentage is the same whether or not the project meets prevailing wage and apprenticeship rules, but the base PTC rate is five times higher for projects that do meet those rules, so the dollar value of the 10% bump moves with it.
For Investment Tax Credits under Sections 48 and 48E, the bonus splits sharply on labor standards. Projects satisfying prevailing wage and apprenticeship requirements get a 10 percentage point increase, turning a 30% base credit into 40%. Projects that don’t meet those standards get only a 2 percentage point bump.2Office of the Law Revision Counsel. 26 U.S. Code 48 – Energy Credit
Which Locations Qualify
Federal law defines three main categories of energy community.3Office of the Law Revision Counsel. 26 U.S. Code 45 – Electricity Produced From Certain Renewable Resources, Etc. A project needs to fit only one.
Brownfield Sites
A brownfield is real property where the presence or potential presence of hazardous substances or pollutants complicates reuse.4Cornell Law Institute. 42 USC 9601 – Definitions Former gas stations, industrial parcels, and land near old chemical operations are typical examples. If the project sits on such a site, it qualifies without any test of local unemployment or fossil fuel employment.
The IRS recognizes three ways to establish brownfield status:5Internal Revenue Service. Frequently Asked Questions for Energy Communities
- A federal, state, tribal, or territorial brownfield program has already determined the site qualifies.
- A Phase II environmental assessment confirms a hazardous substance or contaminant on the site.
- For projects with a nameplate capacity of 5 MW (AC) or less, a Phase I assessment identifying the presence or potential presence of contamination is enough.
Statistical Areas With Fossil Fuel History
Whole metropolitan and non-metropolitan statistical areas can qualify, so this category can sweep in large regions. Two tests must both be met.
The area must have meaningful fossil fuel presence: at least 0.17% direct employment in extracting, processing, transporting, or storing coal, oil, or natural gas, or at least 25% of local tax revenue from those activities. The statute counts areas that hit the threshold now or at any point since December 31, 2009, so a region that lost those jobs years ago can still pass this prong.
The area must also have an unemployment rate at or above the national average for the prior calendar year. This prong updates every year, so a county on the list one year can drop off the next. The IRS uses Bureau of Labor Statistics data and lists eligible counties in periodic notices, currently Notice 2025-31.6Internal Revenue Service. Notice 2025-31 – Energy Community Bonus Credit Amounts or Rates The qualifying industries are identified through specific NAICS codes set out in Notice 2023-29.5Internal Revenue Service. Frequently Asked Questions for Energy Communities
Coal Closure Census Tracts
A census tract qualifies if a coal mine closed there after December 31, 1999, or a coal-fired power plant retired there after December 31, 2009.3Office of the Law Revision Counsel. 26 U.S. Code 45 – Electricity Produced From Certain Renewable Resources, Etc. There is no unemployment test here; the historical closure is enough. Every census tract directly bordering a qualifying tract also qualifies, on the theory that a major closure damages the surrounding economy. Two tracts away doesn’t count.
Closure dates can be checked against Mine Safety and Health Administration records for mines and Energy Information Administration records for power plants, and the IRS publishes the eligible tracts in Notice 2025-31.6Internal Revenue Service. Notice 2025-31 – Energy Community Bonus Credit Amounts or Rates
Checking a Specific Location
The Department of Energy runs an interactive mapping tool that shows eligible tracts and statistical areas. A project address or coordinates will return the applicable categories, if any.7National Energy Technology Laboratory. Energy Community Tax Credit Bonus The controlling authority, though, is the appendix to the current IRS notice. Notice 2025-31 is the latest, and Treasury has indicated 2026 updates will follow.6Internal Revenue Service. Notice 2025-31 – Energy Community Bonus Credit Amounts or Rates The lists have been revised several times since the original 2023 guidance, so check the latest notice before making a siting decision.
When Eligibility Is Tested
ITC projects have eligibility measured once, on the placed-in-service date. PTC projects are tested year by year across the 10-year credit period; the project qualifies for the bonus in any taxable year during which its location is an energy community for any part of that year.5Internal Revenue Service. Frequently Asked Questions for Energy Communities
Because the statistical area category depends on annual unemployment data, a PTC project can lose bonus eligibility in a strong economic year. Notice 2023-29 addresses this with a construction safe harbor: if construction begins on or after January 1, 2023, in a location that qualifies as an energy community at that time, the location is treated as an energy community for the full credit period.8Internal Revenue Service. Notice 2023-29 – Energy Community Bonus Credit Amounts Under the Inflation Reduction Act of 2022 Projects that started construction before 2023 cannot use this safe harbor.5Internal Revenue Service. Frequently Asked Questions for Energy Communities
Direct Pay and Credit Transfers
Tax-exempt entities such as municipalities, tribal governments, and nonprofits can receive the full value of the energy community bonus through the IRA’s direct pay election. They get a cash payment equal to the full credit amount, bonus included, despite owing no federal income tax.9U.S. Department of the Treasury. Direct Pay and IRS Energy Credits Online – Domestic Content
Taxable entities that can’t use their full credit can sell it to unrelated buyers under the IRA transfer rules. The energy community bonus isn’t handled separately; Treasury guidance requires transferable credits to move as “vertical slices,” with the bonus and base credit staying bundled proportionally.
Claiming the Bonus on the Return
ITC projects report the bonus on Form 3468, where Line 10 asks whether the project qualifies as an energy community and whether prevailing wage requirements are satisfied.10Internal Revenue Service. Form 3468 – Investment Credit PTC projects use Form 8835, and Part II, Line 11 calculates the 10% bump.11Internal Revenue Service. 2025 Instructions for Form 8835 Keep the supporting documentation on file: the IRS notice appendix page showing the qualifying county or tract, any environmental assessments for a brownfield claim, and records of the construction start date if the project is relying on the safe harbor.