There are three ways to use renewable energy investments to reduce your federal tax bill -- Direct Transfer, Passive Tax Equity, and Active Ownership. This tool matches you with the right strategy based on your income type, entity structure, and goals.
Low Complexity
Direct Transfer
Buy credits at a discount under Section 6418
Medium Complexity
Passive Tax Equity
Credits + depreciation + cash flow as a silent investor
High Complexity
Active Ownership
Offset W-2/active income with material participation
Dealstar connects qualified buyers with vetted clean energy projects. Credits are transferred under IRC § 6418, enacted as part of the Inflation Reduction Act.
A transferable credit purchase is a structured transaction that typically closes in 3–7 weeks. Here's what to expect from introduction through closing.
You indicate interest at a general credit size and pricing range. We match you with available projects and execute an NDA.
Key economic terms — credit amount, pricing per dollar, payment date, and representations — are documented in a non-binding term sheet.
A legally binding Tax Credit Transfer Agreement (TCTA) is executed. Your tax counsel reviews representations, warranties, and recapture provisions.
The project is validated against IRS placed-in-service requirements. Lloyd's syndicate-backed insurance can be arranged to cover recapture risk.
Funds are wired to the seller at closing. You receive the IRS transfer registration number, which your CPA reports on Form 3800.
Your CPA claims the credit on your return via Form 3800. The purchase price is deductible in the year of purchase. Unused credit carries forward 22 years.
Connect with a DealStar specialist. We'll match you with available credits sized to your tax profile.
This is the most important question to answer with your CPA before purchasing. Under current IRS guidance, purchased credits are generally treated as passive activity credits — they offset federal tax on passive income, not all income types equally.
Typically eligible: Limited partnership income (no material participation), rental real estate income, passive K-1 income from businesses you don't actively manage, § 1231 gains from passive property, passive royalties and mineral rights.
Typically not eligible: W-2 wages, self-employment / Schedule C income, portfolio income (dividends, interest, capital gains), REIT distributions, retirement account distributions (1099-R), income from publicly traded partnerships.
Exception — closely held C corporations: Credits can offset both passive income and the tax on net active business income (excluding portfolio income).
Always confirm your specific income profile with a qualified CPA before purchasing.
Total tax liability is only part of the story. Because purchased § 6418 credits are subject to passive activity rules (§ 469), the buyer needs passive income tax liability — or must qualify for a specific carve-out — to fully utilize them. Here are the five structures where that exists:
Strong Fit — Real Estate Professionals (§ 469(c)(7))
Taxpayers who meet the 750+ hours/year real estate professional test have substantial rental income generating passive tax liability. One of the most reliable individual buyer profiles.
Strong Fit — Passive Investment Income (Limited Partnerships, Passive Rental)
Individuals or entities with income from LP interests or passive rental properties where they don't materially participate generate passive income tax liability that credits directly offset.
Strong Fit — Closely-Held C-Corps (§ 469(e)(2) Net Active Income Carve-Out)
Closely-held C-corps (not personal service corporations) can apply passive activity credits against tax on net active income — not just passive income. This is a significant structural advantage over individual buyers and expands the usable tax base meaningfully.
Strong Fit — Tax Equity Co-Investment (Own an Interest in the Project)
The final § 6418 regulations explicitly carve out the scenario where the transferee also owns an interest in the underlying project partnership. In that case, grouping rules can apply and the credit may be treated as non-passive.
Moderate Fit — PTP Investors / Large Pass-Through Investors
Investors in publicly traded partnerships or large pass-throughs with documented passive income streams can accumulate passive income tax liability. Requires documentation and confirmation credits aren't suspended by passive losses.
Deal Star's intake process reviews your § 469 profile as part of buyer qualification — not just total liability. Speak with a CPA partner or book a 30-min call to assess your specific profile.
A TCTA is the legally binding contract between the credit seller (the project developer) and the buyer. It documents the credit amount being transferred, the purchase price, payment terms, representations and warranties about the project, and recapture provisions that govern what happens if the IRS disallows or reduces the credit.
You should have your own tax counsel review the TCTA before signing. DealStar facilitates the transaction and provides diligence materials to support that review.
Unused general business credits under IRC § 38 carry back 1 year and forward 22 years. Carrybacks are optional — many buyers elect to skip the carryback and simply carry forward to avoid amending prior returns.
Because of the long carry-forward window, buyers with growing income or passive income in future years can still realize full value on credits purchased today. Your CPA can model the expected utilization schedule.
The primary risk is recapture — if the underlying project is found to not meet IRS requirements (e.g., placed-in-service rules, prevailing wage requirements), the credit could be reduced or disallowed, triggering additional tax owed.
DealStar mitigates this through project diligence and by making available Lloyd's syndicate-backed insurance that covers recapture risk. If insured, any IRS clawback is covered by the policy, not the buyer.
Under § 6418, the TCTA also typically includes seller representations and indemnification provisions that provide contractual recourse against the developer.
Direct Transfer (§ 6418)
Tax Equity Partnership
Your CPA will report the transferred credit on Form 3800 (General Business Credit). The IRS transfer registration number from the TCTA is required on that form to validate the transfer election.
The purchase price you paid for the credit is deductible as an ordinary business expense in the year of purchase, effectively creating a second tax benefit on top of the credit itself.
For pass-through entities, the credit flows to partners or shareholders via Schedule K-1 for use on their individual returns.
DealStar works primarily with buyers purchasing $500,000 or more in face value of credits. Smaller purchases are possible but transaction costs (legal, diligence, insurance) make them less economical below that threshold.
For reference, a $500K face-value credit purchased at $0.88 on the dollar costs $440,000 and offsets $500,000 of qualifying tax liability — a $60,000 net benefit before accounting for the deductibility of the purchase price.
It depends on the type of credit. The IRC § 48 Investment Tax Credit (ITC) is generally allowed against both regular tax and AMT under § 38(c). However, other credit types (§ 48E, § 45, § 45X, § 45V) have varying AMT treatment that is still being clarified through IRS guidance.
If you are subject to AMT, your CPA should confirm the specific credit type you are purchasing and its interaction with your AMT exposure before closing.