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How Individuals With Passive Income Buy §48E Credits (and Who Should Not)
Quick answer
An individual or trust can buy a §48E credit, but it generally offsets only federal tax attributable to net passive income, such as rental, limited partnership or K-1 business income. If your income is mostly wages, interest and dividends, a purchased credit will not help. Check eligibility with your CPA before negotiating a purchase.
An individual or trust can buy a §48E credit, but the credit can generally only offset tax on passive income. If your income is mostly wages, interest and dividends, a purchased credit will not help. If you have net rental, limited partnership or private equity K-1 income, or a large passive gain, it may. This page explains the rule first, then how §48E fits.
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Who may qualify
- Owners of rental real estate with net passive income (real estate professionals are different).
- Limited partners and private equity investors with passive K-1 income (K-1 guide).
- Someone who sold a rental or a business interest and has passive gain (guide).
- Certain trusts and estates.
Who should not buy
- W-2 earners without passive income: why wages cannot be offset.
- Anyone whose goal is to reduce the net investment income tax: purchased credits do not.
Why a §48E credit can suit a passive buyer
A §48E credit is determined in one year. An individual with a one-time passive gain can size a purchase to the tax on that gain rather than commit to credits that arrive over many years. Size the purchase to the allowed amount, not to your whole bill, and document the income first (how to document it). Reporting uses Form 8582-CR and Form 3800 (§469 guide). The at-risk rules are generally not tested for purchased credits (at-risk guide).
Risks specific to §48E
- Recapture for five years and disallowance risk fall on you as the claimant (diligence and recapture).
- Unused passive credits carry forward, but a discount is only realized when the credit is actually used.
- Minimum deals. Sellers may have minimum credit sizes that exceed an individual's capacity. We tell you before you spend time.
Compare with other credits in §48E vs other transferable credits. Start with the §48E buyer guide, and see the passive income investor hub.
Frequently asked questions
Can I use a purchased §48E credit against my wages?
No. For individuals, purchased credits are passive activity credits, and the IRS says they can generally only offset tax attributable to passive income. Wages and portfolio income are not passive.
What counts as passive income?
Generally net income from rental activities and from trades or businesses in which you do not materially participate, such as limited partnership and many private equity K-1 interests, plus certain gains from disposing of passive activities. Your CPA determines the tax attributable to it.
Will a §48E credit reduce the net investment income tax?
No. Purchased credits offset regular income tax, not the 3.8% net investment income tax.
How do I know how big a credit I can use?
Have your CPA compute the regular tax attributable to your net passive income. Our eligibility quiz is a rough first screen, not a calculation.
- 26 U.S.C. §469, Passive activity losses and credits limited (Cornell LII)
- 26 CFR §1.6418-2, Rules for making transfer elections (Cornell LII)
- IRS: Elective pay and transferability FAQs, Transferability (Q4-Q15)
- IRS: About Form 8582-CR, Passive Activity Credit Limitations
- IRS Publication 925, Passive Activity and At-Risk Rules
- 26 U.S.C. §48E, Clean electricity investment credit (Cornell LII)
- IRS: Clean Electricity Investment Credit (§48E)
- Crux: What is recapture risk in tax credit transactions? (Aug. 26, 2026), third-party market data
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Related guides
- What is the low-income housing tax credit (LIHTC), and can you buy it?
- CAMT and purchased §48E tax credits: what corporate tax teams check
- §48E credit indemnity and insurance: what the buyer bears and what to ask
- Portfolio §48E credit deals: buying credits from more than one project
- Buying transferable tax credits