To claim the energy community tax credit bonus, you confirm your project sits in a qualifying location, register through the IRS Energy Credits Online portal if you plan to transfer the credit or elect direct payment, and then claim the bonus on Form 3468 for an investment tax credit or on the applicable production credit form, disclosing the facility’s street address and latitude and longitude so the IRS can verify the location against its energy community databases.
There is no separate application for the bonus itself. It rides along with the underlying credit on your regular federal income tax return. What trips developers up is not the checkbox on the form. It’s the documentation behind the checkbox and, for anyone monetizing the credit, a registration step that has to happen months before filing.
Confirm the Site Qualifies
The Inflation Reduction Act sets out three separate paths to energy community status. A project only needs to satisfy one.
The first is a brownfield site: a property where hazardous substances or pollutants complicate redevelopment, such as a former gas station, industrial plant, or shuttered factory. The IRS will accept a site as a brownfield if it appears on the EPA’s Cleanups in My Community list, if a Phase II Environmental Site Assessment confirms contamination, or, for projects of 5 megawatts or less, if a Phase I Environmental Site Assessment has been completed.
The second is a coal closure tract: any census tract where a coal mine closed after December 31, 1999, or a coal-fired power plant retired after December 31, 2009. Any census tract directly adjacent to one of those tracts also qualifies. The adjacency rule pulls in a lot of neighboring residential and commercial areas that lost jobs when a mine or plant shut down.
The third is a statistical area, meaning a metropolitan or non-metropolitan statistical area that meets two tests at once. The area must have had at least 0.17 percent of its direct employment, or at least 25 percent of its local tax revenue, tied to the extraction, processing, transport, or storage of coal, oil, or natural gas at any point after December 31, 2009. And its unemployment rate for the prior year must be at or above the national average. The IRS updates the qualifying list every May, and status generally runs from May through April of the following year. IRS Notice 2025-31 contains the most recent list.
Know What the Bonus Is Worth Before You File
The size of the bonus depends on two things: which credit you claim, and whether the project meets prevailing wage and apprenticeship requirements. This matters at filing time because the numbers you put on the form come out of this fork.
For the investment tax credit under Sections 48 and 48E, the base rate is 6 percent without the labor standards and 30 percent with them. The energy community bonus adds 2 percentage points on top of the 6 percent base, or 10 percentage points on top of the 30 percent base. So a qualifying project that meets prevailing wage and apprenticeship rules earns a 40 percent ITC. One that doesn’t earns 8 percent.
For the production tax credit under Sections 45 and 45Y, the bonus increases whatever base credit the project earns by 10 percent per kilowatt-hour. At the 1.5 cents per kilowatt-hour rate for projects meeting the labor standards, the bonus adds 0.15 cents. At the 0.3 cent rate for projects that don’t, the bonus adds 0.03 cents.
Projects with a maximum net output under 1 megawatt are exempt from the prevailing wage and apprenticeship rules and automatically receive the higher rates. Projects that began construction before January 29, 2023, are also exempt. Everyone else needs to satisfy both requirements to claim the full bonus.
Register Through the IRS Energy Credits Online Portal
Any entity planning to transfer the credit to a third party, or planning to elect direct payment because it doesn’t owe federal income tax, has to complete pre-filing registration before the election on the return is valid. An authorized representative creates an account through the IRS Energy Credits Online tool, registers each applicable credit property, and receives a registration number that appears on the tax return.
The IRS recommends registering after placing the property in service but at least 120 days before the return’s due date, including extensions. Miss that window and the transfer or direct pay election won’t work, no matter how well the rest of the filing is put together.
Claim the Bonus on Form 3468 or the PTC Form
For an ITC project, the energy community bonus is claimed on Form 3468, Investment Credit. Line 10 has a checkbox for energy community status. Lines 3c and 3d require the facility’s street address and its latitude and longitude coordinates. The IRS cross-references those coordinates against federal energy community databases, so accuracy is not optional. A mistyped decimal can drop the project outside a qualifying tract.
For a PTC project, the bonus is claimed on the applicable production credit form with similar location disclosures.
The completed forms are filed with the entity’s annual federal income tax return. Corporations filing Forms 1120 or 1120-S above certain size thresholds must file electronically through the IRS Modernized e-File system. Smaller entities below the threshold may still file on paper.
Keep Documentation That Matches Your Category
The backup you need depends on how the site qualifies.
- For a brownfield site, keep the Phase I or Phase II Environmental Site Assessment, or the EPA listing confirmation.
- For a coal closure tract, keep records showing the closure date of the relevant mine or power plant. Mine Safety and Health Administration records and the Energy Information Administration’s Form 860 retirement data are the usual sources.
- For a statistical area, documenting that the project’s location appeared on the IRS-published qualifying list at the relevant time is usually enough.
The IRS may review these records during post-filing verification. Organizing them from the start is easier than reconstructing them under a notice.
Lock In Eligibility if Your Site Is a Statistical Area
Statistical area status can flip year to year with local unemployment data. Brownfield and coal closure status can’t; the qualifying events are historical facts.
For projects starting construction on or after January 1, 2023, the IRS lock-in rule preserves energy community status as of the construction start date. If the location qualifies when construction begins, it continues to count for the entire credit period on a PTC project, or through the placed-in-service date on an ITC project, even if the area later loses its designation.
There are two ways to establish the construction start date. One is beginning physical work of a significant nature, such as excavating for foundations or installing racking systems. The other is the Five Percent Safe Harbor, which requires paying or incurring at least 5 percent of the total project cost. Either method locks in status as of that date.
If you’re relying on the safe harbor, keep invoices and payment records that show when costs were incurred. If you’re relying on physical work, keep dated construction logs and photographs. The lock-in rule does not apply retroactively to projects that began construction before 2023, and it only protects against changes in the statistical area category.
Monetizing the Credit if You Can’t Use It Directly
Not every project owner has enough federal tax liability to absorb the credit. The IRA created two options.
Taxable entities can transfer all or part of the credit to an unrelated third-party buyer for cash. Buyer and seller negotiate the price privately, and credits typically sell for somewhere between 90 and 95 cents per dollar of face value. Both parties must complete pre-filing registration through the IRS Energy Credits Online portal before the transfer election is made on the return.
Tax-exempt entities such as municipalities, tribal governments, rural electric cooperatives, and nonprofits can use elective pay, sometimes called direct pay. The credit amount is treated as a tax payment the entity already made, which generates a refund. Elective pay entities file Form 990-T and include a registration number obtained through the same portal. Projects using elective pay may see reduced credit amounts if they don’t meet domestic content requirements, though exceptions apply when American-made components would raise construction costs by more than 25 percent or aren’t available in sufficient quantity.
Watch for Designation Changes on Statistical Areas
The IRS publishes an updated statistical area list each spring, typically in May. An area that qualified last year might not qualify this year if local unemployment improved. Before committing to a site, check the current list on the Treasury Department’s energy communities page. If a target area qualifies and the plan is to rely on that category, begin construction promptly to trigger lock-in protection. Coal closure tracts and brownfield sites carry no comparable risk of losing status between planning and filing.