Form 3468 Investment Credit: Rehabilitation and Energy Credits

Form 3468 is the IRS form you file to claim the Investment Tax Credit, a group of federal credits that can offset anywhere from 6 percent to 30 percent (and more, with bonus adders) of what you spend on qualifying renewable energy property or the rehabilitation of a certified historic building. The credit amount you calculate on Form 3468 flows into Form 3800, the General Business Credit, which decides how much you can actually use against this year’s tax. Getting it right means knowing which type of property qualifies, which percentage applies, and how long you have to hold the property before you are safe from recapture.

What Form 3468 Covers

“Investment Tax Credit” is an umbrella. Form 3468 is the single filing point for six distinct credits, each authorized by its own section of the Internal Revenue Code:

Rehabilitation Credit (Section 47), for renovating certified historic structures.
Energy Credit (Section 48), for solar, geothermal, fuel cell, wind, storage, and related renewable energy property.
Clean Electricity Investment Credit (Section 48E), a technology-neutral credit for zero-emission generation and storage facilities placed in service after 2024.
Qualifying Advanced Coal Project Credit.
Qualifying Gasification Project Credit.
Qualifying Advanced Energy Project Credit, for manufacturing facilities producing clean energy components.

In practice, the rehabilitation and energy credits account for the vast majority of filings. The coal, gasification, and advanced energy project credits run through competitive allocation programs with statutory caps and show up rarely.¹

The Rehabilitation Credit

The Section 47 rehabilitation credit rewards spending on the preservation of historic buildings. Since the Tax Cuts and Jobs Act of 2017, it applies only to certified historic structures. The old 10 percent credit for non-historic buildings placed in service before 1936 was repealed.²

What Counts as a Certified Historic Structure

A certified historic structure is a building either listed in the National Register of Historic Places or located in a registered historic district and certified by the Secretary of the Interior as historically significant to that district. In the second case, you need an application on file with the National Park Service and the resulting certification in hand before you claim the credit.³

The Substantial Rehabilitation Test

Minor touch-ups do not qualify. Your qualified rehabilitation expenditures over a 24-month measuring period must exceed the greater of $5,000 or your adjusted basis in the building and its structural components. Larger phased projects can use a 60-month measuring period, but only if written architectural plans describing all phases are in place before work begins.⁴

Only costs tied directly to the rehabilitation count. The purchase price of the building is excluded. So is any spending on enlarging it. Structural improvements, mechanical system upgrades, and interior finishing work that would be capitalized to the building do count.

How Much and When You Claim It

The credit equals 20 percent of qualified rehabilitation expenditures, but you do not take it all in one year. Since the TCJA, the rehabilitation credit is spread ratably over five years starting with the year the building is placed in service. That works out to one-fifth of the total credit (effectively 4 percent of expenditures) each year for five consecutive years.²

NPS Part 3 certification confirming compliance with the Secretary of the Interior’s Standards for Rehabilitation is a prerequisite. Keep a copy with your tax records; the IRS can ask for it.

The Energy Credit and Section 48E

The Section 48 energy credit is a percentage credit on the cost of eligible renewable energy property you place in service. The percentage depends on whether your project meets the labor requirements introduced by the Inflation Reduction Act.

What Property Qualifies

The following qualify under Section 48:⁵

Solar energy property that generates electricity, heats or cools a building, or provides hot water (swimming pool heaters are excluded).
Geothermal energy property and heat pumps.
Qualified fuel cell property.
Qualified small wind energy property.
Energy storage technology with a capacity of at least 5 kilowatt-hours.
Qualified biogas property producing gas that is at least 52 percent methane, captured for sale or productive use.
Combined heat and power systems.
Waste energy recovery property.
Microgrid controllers.
Qualified microturbine property.

The property must be depreciable, used in a trade or business or held for the production of income, and either constructed by you or acquired new (so that its original use begins with you). Property used predominantly outside the United States, or by a tax-exempt organization, generally does not qualify, though tax-exempt entities may be able to use direct pay instead.³

Base Rate Versus Bonus Rate

The energy credit has two tiers. The base rate is 6 percent of eligible basis. If your project satisfies prevailing wage and apprenticeship requirements, it jumps to 30 percent.⁶

Two categories reach the higher rate automatically: facilities with a maximum net output under 1 megawatt, and facilities where construction began before January 29, 2023. Everyone else needs to pay all laborers and mechanics at least the prevailing wage determined by the Department of Labor for the trade and location, and to have a required percentage of total labor hours performed by apprentices from registered programs. Falling short on wages is curable, but the fix carries back pay plus interest and per-worker penalties.

Section 48E for Facilities Placed in Service After 2024

For facilities placed in service after December 31, 2024, a technology-neutral version of the energy credit under Section 48E applies to any electricity-generating facility or energy storage technology with a greenhouse gas emissions rate of zero or less. It uses the same 6 percent / 30 percent structure and appears in Part V of Form 3468. For most solar and wind projects starting construction now, 48E is the relevant credit rather than the older Section 48.

A recent deadline matters here. Solar and wind facilities that begin construction after July 4, 2026, will not qualify for Section 48E if placed in service after December 31, 2027.⁷ If you are planning a solar or wind installation, the construction-start timeline is now a central design choice.

Bonus Adders That Stack On Top

Three additional adders can push the credit higher than 30 percent, and they can stack.

Domestic content. Meeting thresholds for U.S.-manufactured steel, iron, and components adds 10 percentage points when the project also meets prevailing wage and apprenticeship requirements (or qualifies for an exception). Projects that meet domestic content but not the labor requirements get a smaller 2-point increase.⁸

Energy community. Projects located in energy communities get another 10 points. The category includes brownfield sites, areas with significant fossil fuel employment, and census tracts where a coal mine has closed since 1999 or a coal-fired power plant has closed since 2009. At least 50 percent of the project’s nameplate capacity must sit within the energy community, and eligibility is tested on the placed-in-service date.

Low-income community. Facilities with maximum net output under 5 megawatts can qualify for an additional 10 points when located in a low-income community or on Indian land, or 20 points when they are part of a qualified low-income residential building project or provide direct economic benefit to low-income households. This bonus is allocated through a competitive program with limited annual capacity.⁹

Calculating the Credit

Eligible Basis

Your credit is a percentage of eligible basis. For energy property, that is the full cost of equipment placed in service, including amounts properly capitalized, reduced by any portion funded through subsidized energy financing such as tax-exempt bond proceeds or government grants. For the rehabilitation credit, eligible basis is your qualified rehabilitation expenditures during the measuring period, excluding acquisition cost and enlargement cost.³

Energy property with a maximum net output of 5 megawatts or less can also include qualified interconnection costs in the credit basis.

The Basis Reduction

After calculating the credit, you reduce the depreciable basis of the property. This stops you from benefiting twice through both the credit and full depreciation. The reduction differs by credit type:

Rehabilitation credit: reduce the building’s depreciable basis by the full amount of the credit determined for the tax year.
Energy credit and clean electricity investment credit: reduce the property’s depreciable basis by 50 percent of the credit determined.

The split matters. Spend $1 million on solar equipment and claim a $300,000 energy credit at the 30 percent rate, and depreciable basis drops by $150,000, to $850,000. On a $500,000 historic rehabilitation producing a $100,000 credit, depreciable basis drops by the full $100,000, to $400,000.¹⁰

Direct Pay and Credit Transfers

Not every taxpayer who installs qualifying property has enough tax liability to absorb the credit. Two mechanisms address that.

Under IRC Section 6417, tax-exempt organizations, state and local governments, tribal governments, rural electric cooperatives, and similar entities that normally cannot use tax credits can elect to receive the investment credit as a direct payment from the IRS, functioning as a refund.¹¹

Under IRC Section 6418, for-profit businesses that cannot fully use their credits can sell all or part of an eligible credit to an unrelated third party. The buyer pays cash, that cash is not taxable income to the seller, and the buyer claims the credit on their own return. Buyer and seller cannot be related. The transfer election is irrevocable once made, and the buyer cannot re-transfer the credit. For partnerships and S corporations, the transfer election is made at the entity level, not by individual partners or shareholders.¹²

Both elections require online pre-filing registration through the IRS Energy Credits Online portal. You register each credit property, receive a registration number, and include that number on your return. Registration must occur at least 120 days before the due date (including extensions) of the return on which you report the credit.¹¹

The Five-Year Recapture Window

Claiming the credit commits you to keeping the property in qualified use for five years. Sell it, give it away, convert it to personal use, or let a historic building lose its certification before that window closes, and you owe some or all of the credit back.

The schedule is graduated. Lose qualified use within the first full year, and 100 percent of the credit is recaptured. The recapture percentage drops by 20 points for each additional full year held:¹³

Less than 1 full year: 100% recapture
1 full year: 80% recapture
2 full years: 60% recapture
3 full years: 40% recapture
4 full years: 20% recapture
5 or more full years: no recapture

When recapture hits energy property, depreciable basis is increased by 50 percent of the recapture amount, mirroring the 50 percent reduction that applied when the credit was first claimed.¹⁰

Credit Limits and Carryover

The investment credit does not cut your tax dollar-for-dollar without limit. It feeds into the General Business Credit on Form 3800, which caps total business credits for the year at your net income tax minus the greater of your tentative minimum tax or 25 percent of net regular tax liability above $25,000.¹⁴

Any portion the limit blocks does not disappear. Unused credit carries back one year, then forward up to 20 years.¹⁵

Individuals, estates, trusts, closely held C corporations, and personal service corporations face an additional hurdle. Credits from a passive activity (one in which you do not materially participate) are disallowed under IRC Section 469 and can only offset tax on income from other passive activities. A limited partner in a solar partnership who does not materially participate, for instance, cannot use the credit against wages or active business income. Disallowed credits carry forward and become available in future years when passive income appears or when you dispose of the activity entirely.¹⁶

How to File Form 3468

Form 3468 has seven parts. Part I collects information about the qualified property or facility. You then complete the part that matches your credit: Part VI for the Section 48 energy credit, Part V for the Section 48E clean electricity investment credit, and Part VII for the rehabilitation credit. File a separate Form 3468 for each property.³

Credit amounts flow from Form 3468 to Form 3800, which aggregates all your business credits and applies the limitation. The allowable credit from Form 3800 then moves to your main return: Schedule 3 (Form 1040), line 6a for individuals, and the appropriate line on Form 1120 for corporations.¹⁷

Keep records for every cost in your credit basis: contracts, invoices, proof of payment, and any certifications. For historic rehabilitation, that includes the Part 3 NPS certification. For energy property, keep manufacturer specifications, placed-in-service documentation, and prevailing wage compliance records. Because recapture runs five years, hold these records for at least three years after that window ends.

1
Internal Revenue Service. About Form 3468, Investment Credit
2
Office of the Law Revision Counsel. 26 U.S. Code 47 – Rehabilitation Credit
3
Internal Revenue Service. 2025 Instructions for Form 3468
4
Internal Revenue Service. Rehabilitation Credit (Historic Preservation) FAQs
5
Internal Revenue Service. Publication 6045 – Energy Incentive Tax Credits
6
Internal Revenue Service. Prevailing Wage and Apprenticeship Requirements
7
Internal Revenue Service. Sections 45Y and 48E Beginning of Construction Notice
8
Internal Revenue Service. Domestic Content Bonus Credit
9
Internal Revenue Service. Clean Electricity Low-Income Communities Bonus Credit Amount Program
10
Office of the Law Revision Counsel. 26 U.S. Code 50 – Other Special Rules
11
Internal Revenue Service. Register for Elective Payment or Transfer of Credits
12
Office of the Law Revision Counsel. 26 U.S. Code 6418 – Transfer of Certain Credits
13
Internal Revenue Service. Rehabilitation Credit Recapture
14
Office of the Law Revision Counsel. 26 U.S. Code 38 – General Business Credit
15
Office of the Law Revision Counsel. 26 U.S. Code 39 – Carryback and Carryforward of Unused Credits
16
Office of the Law Revision Counsel. 26 U.S. Code 469 – Passive Activity Losses and Credits Limited
17
Internal Revenue Service. Schedule 3 (Form 1040) – Additional Credits and Payments