Tax Credit Transferability FAQs

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We have also updated the developer resource list with more financiers and tax credit marketplaces. In today’s post, we’ll feature a tax credit transferability FAQ by Corbin Wood from Bellus Ventures.

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Tax Credit Transferability FAQs

Guest post by Corbin Wood from Bellus Ventures 

With the IRA tax credit transferability guidance released, it seems everyone is scrambling to understand how to take advantage of this new tax equity alternative. Bellus Ventures has been working with corporations who are interested in purchasing tax credits, and we wanted to provide a glimpse of the buy side so you can feel more confident approaching transferability.

HOW CAN I TRANSFER A CREDIT?

To transfer a credit, a seller must register their credit on the IRS electronic portal and make an election to transfer within the tax year that the project is placed in service. Transfer deals can be closed on paper before the portal is online, and developers can get paid.

WHAT ARE BUYERS’ PRICE EXPECTATIONS?

We are seeing pricing in the 87 to 93 cent range. The more a project is de-risked via developer track record, credit rating, due diligence, and/or insurance, the more buyers tend to offer.

WHAT CREDIT RATING DO I NEED?

Buyers are considering sellers of any credit rating. However, many buyers are requesting tax credit insurance if the developer does not have an investment-grade credit rating.

WHAT ARE THE SOFT COSTS?

Soft costs include marketplace platform or arrangement fees, tax and legal fees, and insurance, if necessary. Generally, soft costs start at 1 cent minimum for highly rated developers, and can reach up to around 4 cents if significant insurance is needed.

CAN I STILL GET A STEP-UP AND MONETIZE DEPRECIATION?

Most likely, yes, but the mechanics are still being worked out. An arm’s length transaction to establish FMV should allow a step-up. Monetization of depreciation appears less certain so far, which is a sticking point for larger developers who can afford tax equity.

The intent of transferability is to provide a lower friction alternative to developers with less access to the traditional tax equity market. By some estimates, the annual transferability market may become double or triple the size of the current tax equity market. However, traditional partnership flips don’t appear to be going away anytime soon, given the depreciation benefits of that structure.

Please contact [email protected] for more information.

Until next time,

Julia & The Spark Team