Income Qualification — Tax Credit Transferability
Find the right renewable energy
tax mitigation path for you
There are three ways to use renewable energy investments to reduce your federal tax bill -- buying transferred credits under Section 6418, selling a project's credit and keeping the depreciation, or 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 § 6418
Best fit for large companies — AMT/TMT limits can bite individuals at far lower thresholds
Medium Complexity
Sell Credit, Keep Depreciation
Own a project, sell the ITC for cash under § 6418, keep 100% bonus depreciation to offset passive income
High Complexity
Active Ownership
Offset W-2/active income with material participation
Deal Star connects qualified buyers with vetted clean energy projects. Credits are transferred under IRC § 6418, enacted as part of the Inflation Reduction Act.
The benefits, in plain English
A solar project earns two separate benefits from the tax code: a tax credit — a coupon that takes real dollars off a tax bill — and depreciation, a deduction for the cost of the equipment because machines wear out. They do not have to stay together, and each path uses them differently.
Buy Credits · Low Complexity
Immediate savings on tax you already owe
You pay roughly 85–90 cents for each $1.00 of credit and keep the difference — a contracted 10–15% saving on tax you were going to pay anyway, with no project to run. Best fit for large companies: the credits carry restrictions like AMT/TMT that can impact individuals at far lower thresholds.
Sell Credit, Keep Depreciation · Medium
A smaller check, a bigger write-off
The project’s credit is sold to a corporate buyer for cash at closing, which shrinks the check you write. You keep 100% year-one bonus depreciation to offset passive income — roughly 1.3x year-one after-tax value versus the check in our illustrative 1 MW example.
Active Ownership · High
The deduction reaches your paycheck
Run the project as a true operator — materially participating, roughly 500 documented hours a year — and the same depreciation can offset W-2 and business income, the income most strategies never touch.
All figures illustrative. Outcomes depend on your facts, including passive-activity and AMT status — confirm with your tax advisor.
I'm ready to buy — how does this work?
A transferable credit purchase is a structured transaction that typically closes in 3–7 weeks. Here’s what to expect from introduction through closing. For the full walk-through, see how buying works on DealStar.
Confirm Interest & Terms
You indicate interest at a general credit size and pricing range. We match you with available projects and execute an NDA.
Term Sheet
Key economic terms — credit amount, pricing per dollar, payment date, and representations — are documented in a non-binding term sheet.
Tax Credit Transfer Agreement
A legally binding Tax Credit Transfer Agreement (TCTA) is executed. Your tax counsel reviews representations, warranties, and recapture provisions.
Diligence & Insurance
The project is validated against IRS placed-in-service requirements. Optional insurance through Lloyd's of London syndicate firms can be arranged to cover recapture risk.
Close & Fund
Funds are wired to the seller at closing. You receive the IRS transfer registration number, which your CPA reports on Form 3800.
File & Claim
Your CPA claims the credit on your return via Form 3800. The purchase price is not deductible, and the discount you captured is not treated as taxable income. Unused credit carries forward 22 years.
Ready to get started?
Connect with a DealStar specialist. We'll match you with available credits sized to your tax profile.
Common questions
What types of income can a purchased credit offset?
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.
What types of buyers are actually well-positioned to use § 6418 credits?
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.
What is a Tax Credit Transfer Agreement (TCTA)?
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.
What happens if I can't use the full credit this year?
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.
What is my risk if the IRS challenges the credit?
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 optional insurance through Lloyd's of London syndicate firms 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.
What's the difference between buying a transferred credit and owning a project?
Direct Transfer (§ 6418)
- • Purchase a credit for cash at a discount
- • No ownership stake in the project
- • Simpler structure, faster to close
- • The discount is the benefit: pay 85–90 cents per $1.00 of credit, and the spread is not taxed
- • Credit claimed on your return via Form 3800
- • Best for buyers who want a clean, one-time transaction
Own a Project: Sell the Credit, Keep the Depreciation
- • Buy a whole solar project, not a share of a fund
- • Sell the ITC to a corporate buyer for cash under § 6418
- • Keep 100% bonus depreciation (permanent under OBBBA)
- • Material participation required to offset W-2/active income; a passive owner can offset only passive income (§ 469)
- • Sidesteps the AMT trap: § 48E is not a specified credit, so the TMT floor can block an individual from using it — depreciation has no equivalent limit
- • Five-year ITC recapture window applies
See the worked 1 MW example on our Solar Tax Benefits for Individual Investors page. Traditional tax equity partnerships remain an institutional structure; for a passive individual partner, § 469 and the § 48E TMT floor generally make the credits unusable.
How do I actually claim the credit on my tax return?
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 is not deductible (Section 6418(b)), but the economics still favor you: you pay 85–90 cents for a full dollar of credit, and that spread is not treated as taxable income.
For pass-through entities, the credit flows to partners or shareholders via Schedule K-1 for use on their individual returns.
Is there a minimum purchase size?
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.
Does the AMT affect my ability to use a purchased credit?
It depends on the type of credit. The legacy IRC § 48 ITC is a "specified credit" under § 38(c)(4), allowed against both regular tax and AMT. The current § 48E credit is not a specified credit: for an individual it cannot reduce tax below the tentative minimum tax (TMT), so an AMT position can trap the credit as a carryforward.
This TMT floor — together with the § 469 passive-activity rules — is why individuals generally lead with buying transferred credits sized to passive tax liability, or with project ownership structures where the credit is sold to a corporate buyer and the individual keeps the depreciation (which has no equivalent AMT limit).
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.