Section 48E
Investment Tax Credits
‘Clean Electricity’ Investment Tax Credits
Every good tax plan starts with one question:
What kind of taxes are you trying to address?
A big income year can hit fast, whether you sold a business, exercised stock options, or had tremendous passive income, as a few simple examples.
Money sent to the IRS is gone for good. Section 48E lets you redirect a large part of that same money into a clean energy asset you could own while lowering your tax at the same time. That’s what makes it worth considering.
A Simple Way to Understand
Section 48E Investment Tax Credits
- Section 48E is a federal tax credit that rewards you for owning clean energy equipment, like battery storage, solar, or wind, and running it as a business
- Think of it like buying a lemonade stand that also hands you a coupon from the government, you keep the stand, earn money from it, and get a big tax break
- You are the owner, not just an investor, so one purchase can give you four things, a dollar-for-dollar tax credit, a large first-year deduction, future income from the equipment, and a real asset you still own
- The equipment may also qualify for a large first-year deduction, so a big part of what you paid can lower your taxable income right away
- If you cannot use the whole credit in one year, you may carry it back, save it for later, or even sell it to another taxpayer for cash
Section 48E is the Clean Electricity Investment Credit. It qualifies as one of the available Investment Tax Credits (ITCs), the current one for clean energy property, so you may hear it called “ITC” for short.
What Do You Own as a Tax Equity Owner?
A ‘Tax Equity Owner’ is a profitable business or high-income individual who funds a clean energy trade or business in exchange for federal tax credits and depreciation.
Under Section 48E, that means owning clean energy assets, such as a battery energy storage system (BESS), microgrid, solar, and wind, as an example, operated as a ‘trade or business.’.
The key word is owner, not investor, because you hold title to clean energy assets and run them as a business. Once you place it in service in a trade or business, one purchase may give you four things:
Investment Tax Credits
A dollar-for-dollar credit to your federal tax, up to limits.
A First-Year Deduction
A large deduction on the equipment in the first year.
Future Business Income
Net operating earnings from running the business.
A Real Asset
Working equipment that may still hold value later.
Taken together, the credit and the deduction can cover a large share of what you paid, and you keep an asset that may still earn income. In effect, tax dollars help fund something you own.
What Is Section 48E, and What Is It Worth?
Section 48E is a federal tax credit for investing in clean energy property. The IRS calls it technology-neutral, meaning a project qualifies based on whether it produces electricity with zero emissions rather than on which technology it uses. Battery storage is named as its own category of qualifying property, so a standalone storage system can earn the credit even without a solar or wind project attached.
The credit applies to property placed in service after December 31, 2024. When the 2025 One Big Beautiful Bill Act began phasing out wind and solar (through 2027), energy storage (through 2033) kept its long-term eligibility. Storage remains one of the clearest paths to the credit today.
Understand how the impact of Tentative Mininum Tax (TMT) may affect your use of general business tax credits.
The rate is built in layers. You start at a base and climb as your project meets more standards.
Prevailing wage and apprenticeship rules not met.
Prevailing wage and apprenticeship (PWA) rules met, or an exception applies, such as storage under 1 MW.
U.S. steel, iron, and manufactured-product thresholds met.
A qualifying site, such as a brownfield or a former coal area.
A competitive adder for projects under 5 MW. You apply and win an allocation first. It adds 10 points for a low-income community or tribal (Indian) land, or 20 points for a qualified low-income residential building or economic-benefit project.
- The low-income allocation at the top is awarded by application and generally applies to generation facilities, not standalone storage.
Bonus Depreciation
The Other Half: A Large First-Year Deduction
The credit is only half the story. The equipment may qualify for 100% first‑year bonus depreciation under §168(k). The One Big Beautiful Bill Act restored 100% bonus depreciation for qualified property, but eligibility depends on the placed-in-service date and other statutory requirements. Please consult our team for applicability. (See IRS guidance on §168(k) and recent summaries of the OBBBA.)
Instead of spreading the deduction over many years, you take it up front. Excess Business Loss Limitations (EBLL) may apply but may be carried forward as a Net-Operating Loss (NOL).
1/2
(100 – ½ the credit = 80%)
Using the 48E Investment Tax Credit
A credit lowers your federal tax dollar for dollar, though your full return decides how much you can use in a single year.
If the credit is larger than what you can use, the remainder carries:
- Unused credits may be carried back up to three years (beginning with the earliest eligible year) and carried forward for up to 22 years, subject to the specific tax credit rules and eligibility limitations.
- In many cases, you can also sell it to an unrelated buyer tax-free.
Whether the first-year deduction offsets active income like wages or business profit depends on meeting material participation rules.
Is Section 48E Worth It for You?
Section 48E can deliver a dollar-for-dollar credit, a large first-year tax deduction, future income, and a real asset, all from one purchase. The money you were going to lose to tax helps stimulate alternative energy sources and allows you to own and operate clean energy property.
The benefits are real, and so are the rules.
Whether you qualify and how much you can use depends on your own facts and circumstances, and newer sourcing and timing requirements apply to projects starting construction in 2026 (foreign-sourcing rules) and beyond. State treatment can differ too. The smart move is to model the numbers for your situation before you commit.
Speak With an Advisor Who Understands Investment Tax Credits
Asset Strategy can help you model whether a clean energy property fits your full picture.
Call (781) 235-4426 or visit www.assetstrategy.com/contact.
This material is for educational purposes only and addresses federal income tax concepts. It is not tax, legal, accounting, or investment advice. Asset Strategy does not provide tax or legal advice. All figures are hypothetical, simplified, and based on federal law as of publication, which is subject to change. Qualification for any credit, deduction, or rate adder is determined solely on the taxpayer’s own facts. State tax treatment may differ significantly. Consult your own CPA, tax advisor, and legal counsel before making any decision.
