Section 48C Tax Credit: Qualifying Projects, Rates, and Transfers

The Section 48C tax credit is a federal investment tax credit worth up to 30 percent of qualified costs for companies that build, expand, or retool facilities in three areas: clean energy manufacturing, industrial decarbonization, and critical materials processing.¹ The credit is competitively allocated by the Department of Energy and certified by the IRS. The Inflation Reduction Act of 2022 authorized $10 billion in new allocations on top of the original American Recovery and Reinvestment Act program, and that entire $10 billion has now been awarded across two rounds, with the final $6 billion announced in January 2025.² No further allocation rounds are currently authorized. If you already hold an allocation, the practical questions now are how to keep the full 30 percent rate, meet the placed-in-service deadline, and claim the credit correctly.

What Projects Qualify

The statute covers three categories, and a project must fit within one of them.

The first is manufacturing or recycling of advanced energy property: solar panels, wind turbine components, electric vehicle batteries, fuel cells, energy storage systems, grid modernization equipment, and components for carbon capture systems, along with the specialized machinery used to make them.³ A facility cannot claim both Section 48C and the Section 45X Advanced Manufacturing Production Credit for the same property.⁴

The second is industrial decarbonization: retrofits at existing facilities in energy-intensive sectors like cement, steel, aluminum, and chemicals. The retrofit must be designed to cut the facility’s greenhouse gas emissions by at least 20 percent, and qualifying upgrades include low- or zero-carbon process heat systems, carbon capture and storage equipment, and energy efficiency technologies.¹

The third is processing, refining, or recycling of critical materials as defined under the Energy Act of 2020, including lithium, cobalt, nickel, and rare earth elements. The DOE and USGS each maintain lists of qualifying critical materials.

Forty percent of the $10 billion in total allocations, roughly $4 billion, was reserved for projects in designated energy communities, which are census tracts tied to communities with closed coal mines or retired coal-fired power plants.²

Why the Rate Is 30 Percent for Some Projects and 6 Percent for Others

The headline 30 percent rate applies only if the project meets prevailing wage and apprenticeship standards. Miss either one, and the credit drops to 6 percent.⁵ On a $50 million project that is a $12 million swing, so for any serious developer the labor standards are effectively mandatory.

Qualified investment means the cost basis of eligible property placed in service during the tax year, including tangible personal property and other tangible property used as an integral part of the facility. It does not include the building itself or its structural components.⁶

Prevailing Wageh3>

Every laborer and mechanic working on the project must be paid at least the prevailing wage for the trade in the geographic area, as determined by the Secretary of Labor. If you discover you underpaid, you can preserve the 30 percent rate through a cure: pay each affected worker the shortfall plus interest at the federal short-term rate plus six percentage points, and pay a $5,000 penalty to the IRS for each underpaid worker.⁷ If the IRS finds the underpayment was intentional, both the back-pay obligation and the penalty increase.

Apprenticeship

A minimum share of total labor hours on construction or alteration must come from qualified apprentices in registered programs. For projects that began construction in 2024 or later, the threshold is 15 percent of total labor hours.⁷ Separately, any contractor or subcontractor with four or more employees on the job must employ at least one apprentice.

The Two-Year Placed-in-Service Deadline

Successful applicants receive an IRS certification letter stating the total credit amount the project is authorized to claim based on its projected investment. From the date of that letter, you have two years to place the facility in service and notify the DOE through the 48C Portal. Miss that deadline and the allocated credits are forfeited entirely.¹ Permitting delays and supply chain problems are the usual reasons projects slip, so build margin into the schedule from the start.

How to Claim the Credit

Once the facility is in service, you claim the credit on IRS Form 3468 (Investment Credit), Part III. You will need the allocation control number from the certification letter, the qualified investment amount, and confirmation of whether the project sits in an energy community census tract.⁴ If you are claiming the 30 percent rate, attach an Increased Credit Amount Statement confirming compliance with the prevailing wage and apprenticeship requirements.⁸ Form 3468 then flows into Form 3800 (General Business Credit) with your other business credits.

Selling the Credit or Receiving It as Cash

Many companies that earn a Section 48C credit lack the federal tax liability to use it directly. The Inflation Reduction Act created two ways to solve that.

Transferring the Credit

Under Section 6418, you can sell all or part of your Section 48C credit to an unrelated buyer for cash.⁹ The buyer uses it to offset their own tax. The cash is not taxable income to the seller and is not deductible by the buyer, so the credit simply moves from one balance sheet to another. The transfer election is irrevocable, and the buyer cannot resell.

Elective Pay

Tax-exempt organizations, state and local governments, tribal governments, rural electric cooperatives, and U.S. territory governments can elect to receive the credit as a direct cash payment from the IRS instead of a tax offset.¹⁰ The credit generally cannot be claimed for property used predominantly outside the United States.

Five-Year Recapture Risk

Claiming the credit does not end your compliance obligations. Under Section 50, if the qualifying property is sold, scrapped, or stops being used for its qualifying purpose within five years of being placed in service, the IRS claws back a portion of the credit on this schedule:¹¹

Within year 1: 100 percent recaptured
Within year 2: 80 percent
Within year 3: 60 percent
Within year 4: 40 percent
Within year 5: 20 percent

After five full years the recapture risk drops to zero. A sale-leaseback in which the property is disposed of and immediately leased back to the original owner in the same transaction does not count as a disposition. Neither does a change in the legal form of the business, such as converting from an LLC to a corporation, as long as the qualifying property stays in use. If you anticipate ownership changes, refinancing, or operational shifts inside the five-year window, map those plans against the recapture schedule before closing on any deal.

1
Department of Energy. Qualifying Advanced Energy Project Credit (48C) Program
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U.S. Department of the Treasury. U.S. Department of the Treasury and IRS Announce $6 Billion in Tax Credits
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Office of the Law Revision Counsel. 26 USC 48C – Qualifying Advanced Energy Project Credit
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Internal Revenue Service. Form 3468 – Investment Credit
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Internal Revenue Service. Advanced Energy Project Credit
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Office of the Law Revision Counsel. 26 U.S. Code 48C – Qualifying Advanced Energy Project Credit
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Internal Revenue Service. Frequently Asked Questions About the Prevailing Wage and Apprenticeship Under the Inflation Reduction Act
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Internal Revenue Service. Instructions for Form 3468
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Office of the Law Revision Counsel. 26 U.S. Code 6418 – Transfer of Certain Credits
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Internal Revenue Service. Elective Pay and Transferability Frequently Asked Questions – Elective Pay
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Office of the Law Revision Counsel. 26 USC 50 – Other Special Rules