Buying Tax Credits

Tax credits can be a powerful tool for reducing tax liability, but not everyone can fully utilize them. Fortunately, many federal and state tax credits are transferable, meaning they can be sold to other taxpayers who can use them to lower their own tax bills. This creates a secondary market for tax credits, allowing businesses and individuals to monetize credits they can’t use and providing buyers with a way to reduce tax liabilities at a discount. This article will provide detailed information on buying tax credits.

What Are Transferable Tax Credits?

Transferable tax credits are credits that can be legally sold or assigned to another taxpayer. This differs from non-transferable credits, which can only be used by the original recipient. Typically, businesses or individuals who generate these credits but do not have enough tax liability to use them choose to sell them at a discount to buyers who can benefit from them.

Common Types of Transferable Tax Credits

Many federal and state programs offer transferable or sellable tax credits, including:

• Renewable Energy Tax Credits (ITC & PTC) – Investment Tax Credits (ITC) and Production Tax Credits (PTC) encourage investment in solar, wind, and other renewable energy projects.
• Historic Rehabilitation Tax Credits – Credits for restoring historic buildings.
• Low-Income Housing Tax Credits (LIHTC) – Incentives for developing affordable housing.
• Film Production Tax Credits – Offered by many states to attract film and TV productions.
• Brownfield Redevelopment Tax Credits – Given for cleaning up and redeveloping contaminated sites.

Each of these credits reduces tax liability dollar for dollar, making them highly valuable for businesses and high-income individuals looking to lower their tax burden.

How Does Buying and Selling Tax Credits Work?

The sale of tax credits typically involves the following steps:

1. Credit Generation – A business or individual generates eligible tax credits through a qualifying activity (e.g., investing in solar energy, restoring a historic building).
2. Eligibility Verification – The issuing authority certifies the credits, ensuring they meet program requirements.
3. Finding a Buyer – The credit holder finds a buyer, often through a broker, marketplace, or direct transaction.
4. Pricing the Credits – Credits are usually sold at a discount (e.g., 90 cents per $1 of credit) to make them attractive to buyers.
5. Transfer and Claiming – The buyer purchases the credits and applies them to their tax return to reduce their tax liability.

This process allows credit sellers to monetize unused tax benefits while enabling buyers to save on taxes by purchasing credits at a lower cost than their face value.

Renewable Energy Tax Credits: A Key Opportunity

One of the most significant and widely used transferable tax credits is the Investment Tax Credit (ITC) for renewable energy. This credit encourages investment in solar, wind, and other renewable energy sources by allowing investors to recoup a percentage of their investment through tax savings.

Investment Tax Credit (ITC)

The federal ITC allows investors in eligible renewable energy projects to claim a 30% tax credit on the cost of the project. Some key features of the ITC include:

• 30% credit for solar energy projects (as of the latest updates)
• Ability to transfer or sell unused credits
• Gradual step-down in percentage over time for certain projects

For example, a business that installs a $1 million solar energy system can receive a $300,000 tax credit. If they can’t use the full amount, they can sell it to another taxpayer.

Production Tax Credit (PTC)

The PTC provides a per-kilowatt-hour tax credit for electricity generated by renewable sources like wind farms. This credit is often sold to large corporations with significant tax liabilities.

Options for Monetizing Renewable Energy Tax Credits

There are several ways to capitalize on renewable energy tax credits:

• Direct Sale – Selling the credits to businesses or individuals looking to offset their taxes.
• Tax Equity Financing – Investors provide funding for renewable projects in exchange for tax credits and other incentives.
• Partnerships & Syndications – Pooling credits with other investors to maximize benefits.

State-Level Transferable Tax Credits

Many states offer their own transferable tax credits to encourage specific industries and activities. Some of the most popular state tax credits include:

• California Film Tax Credits – Attracts film and TV productions to the state.
• Georgia Film Tax Credits – One of the most generous film tax credit programs in the U.S.
• New York Brownfield Cleanup Credits – Incentivizes environmental cleanups.
• Louisiana Historic Tax Credits – Encourages the rehabilitation of historic properties.

State programs vary widely in terms of eligibility, transferability rules, and pricing, making it essential to work with experts to navigate the process effectively.

Why Buy Tax Credits?

Buying tax credits can be a strategic financial move for businesses and high-income individuals. The primary benefits include:

• Reducing Tax Liability – Directly lower federal or state taxes owed.
• Discounted Savings – Buy credits at a discount, achieving tax savings.
• Supporting Sustainable & Economic Growth – Invest indirectly in renewable energy, affordable housing, or historic preservation.

How to Get Started

Navigating the tax credit market requires expertise. Whether you’re looking to sell unused credits or purchase them for tax savings, working with a knowledgeable partner can make the process seamless.

For more information on tax credit opportunities, visit Veritas Tax Credits.

Final Thoughts

The market for buying and selling tax credits presents a unique opportunity for both investors and businesses looking to reduce tax liabilities. With the growing emphasis on renewable energy, historic preservation, and economic development, transferable tax credits remain a powerful financial tool.

Interested in exploring your tax credit options? Contact us today to learn how tax credits can work for you!