Elective Pay and Credit Transfers: How Owners Without Tax Appetite Still Use the ITC

The problem these rules solve

The federal investment tax credit reduces federal income tax. A church, school, housing authority or city pays none. A business that does pay may not have enough liability in the right years. Before 2023, both had to bring in a tax-equity partner or a third-party owner to capture the credit.

Elective pay (Section 6417)

Elective pay, often called direct pay, lets certain entities receive the value of an eligible credit as a payment from the IRS, as if it were an overpayment of tax.

Eligible entities include tax-exempt organizations, state and local governments, Indian tribal governments, rural electric cooperatives and certain other public bodies. Eligible tax-exempt and public entities may use elective pay when they own qualifying clean-energy assets and meet the credit requirements. Third-party ownership follows a different tax structure. We compare ownership and funding options with the institution and its tax advisers before presenting project economics.

Key points:

• The entity must own the qualifying asset.
• It must complete IRS pre-filing registration and then make the election on a timely filed annual return.
• The credit requirements still apply, including any prevailing wage, apprenticeship and domestic content rules that affect the amount.

See our pages for not-for-profit and public sector owners.

Transferability (Section 6418)

Transferability lets an eligible taxpayer sell all or part of a credit to an unrelated taxpayer for cash. Under the IRS rules, the cash received is not taxable income to the seller, and the buyer cannot deduct the payment. Credits typically sell at a discount to face value; the price depends on the market and the deal, so model it as a range your adviser confirms, not a fixed number.

Key points:

• The seller must complete pre-filing registration and receive a registration number for each eligible property.
• The transfer is made by election on the seller's return, with a transfer agreement between the parties.
• Buyers carry recapture and diligence risk, so they will ask for documentation of eligibility and any bonus claimed.

Choosing between ownership paths

Third-party ownership through a lease or PPA is still an option for every owner. It trades the credit for a simpler contract and a lower energy price.

This is general guidance reviewed on October 5, 2026, not tax or legal advice. Credit rules change; confirm your project's position with your tax adviser before relying on it.

Talk to us about the right structure for your property.

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