How Tax Credit “Chaining” Expands the Reach of the IRA

Access our brief on tax credit chaining here.

The IRA expanded the availability of tax equity finance through two provisions. First, it allowed for tax credits to be transferred to third-party investors, broadening the market and reducing the cost of finance for renewable energy project development. Second, it created an elective pay option for tax-exempt government and nonprofit entities, allowing them to monetize tax credits by applying for a direct payment from the IRS. Chaining would allow an entity that is eligible for elective pay to purchase a tax credit via the transferability provisions of IRA and then monetize the tax credit by applying for elective pay. The Department of Treasury is soliciting comments on final rules regarding tax credit chaining.