Nonprofits and any tax-exempt organization are now eligible for major financial incentives newly offered by the federal government.
Previously, businesses and individuals were eligible for tax credits (substantial in some cases) if they invested in renewable energy sources like solar power or sustainable technologies like electric vehicles. The tax credits offset the capital costs of these projects. And by all indicators, they created a compelling incentive for people to “go green,” pushing society in a more sustainable direction through effective public policy.
There was only one problem: organizations that didn’t pay taxes couldn’t, by definition, receive tax credits. The incentive was off the table.
The Inflation Reduction Act (IRA), which took effect at the beginning of 2023, changes all that. Nonprofits can now take advantage of the same financial incentives as everyone else—plus additional ones exclusive to 501(c)(3) organizations.
Whether or not your nonprofit has been looking to go green, this opportunity deserves your close consideration.
New Incentives Now Available
A key goal of the Inflation Reduction Act is reducing America’s greenhouse gas emissions and accelerating the transition to cleaner energy sources. To advance that objective, the new law offers 12 disparate credits that lower the barrier for things like purchasing electric vehicles or installing solar panels. The intent is to make these initiatives more attractive to more entities—including nonprofits in particular. These credits are designed to be accessible to tax-exempt entities as refund elections on their Form 990 tax returns.
The IRS will now refund nonprofits at least 30% of the cost of solar projects, for example. Other entities receive this incentive as a tax credit; nonprofits get it as a direct payment. That means if a church spent $100,000 installing solar panels, it could get $30,000 back if expenses are incurred in alignment with the program and the appropriate election is made on their Form 990 for the year inclusive of the work.. And that’s just the start.
Nonprofits may be eligible for a number of additional (and substantial) incentives. For example, if the solar project uses materials primarily produced domestically, that adds another 10% to the payback. Building in certain areas deemed disadvantaged qualifies for another 10%, with identical increases for building in low-income communities and federally subsidized affordable housing..
It’s not unrealistic for the average nonprofit to receive one or even two extra incentives, in which case the IRS would cover half the total cost of the project (exemptions apply). When you also factor in the long-term cost savings of using solar panels rather than purchasing energy from the grid, these projects may pay for themselves on a surprisingly short timeline.
Making Green by Going Green
Nonprofits stand to gain a lot by embracing clean energy—not just in the form of direct payments but also in reduced utility costs, new program opportunities, and a more positive impression among stakeholders. That said, nonprofits shouldn’t proceed with energy investments without considering the situation carefully. There are financial, logistical, and strategic issues unique to each nonprofit that require a deep dive before doing anything.
With ample experience in the nonprofit world, Dean Dorton can help guide that process.
What’s possible for your nonprofit? Contact us to find out.
