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Every year, businesses leave money on the table by not being able to use all the tax credits they earn. The timing may be off, or the tax liability is too low. That is where the transferable tax credit comes in. They allow businesses a way to convert those unused credits into cash by selling them to others. At the same time, buyers get to reduce their tax bills. It’s a practical and flexible system that supports clean energy and manufacturing across the country. In this blog, we cover the basics of how these credits work, who they are for, and how to take full advantage of them.
What are Transferable Tax Credits?
Transferable tax credits are a financing mechanism that allows eligible taxpayers to sell all or part of a tax credit earned to an unrelated party in exchange for cash. This feature is really helpful for companies that earn credit through qualifying investments, such as clean energy projects, but do not have the tax liability to use them. Once the credit is transferred, the buyer claims it and assumes the risk of any IRS challenges or credit recapture events. Transfers must involve only cash–no barter loans or in-kind deals are allowed.
How Do They Work?
The option to transfer credit is available for taxpayers beginning after December 31, 2022, under section 6418 of the Internal Revenue Code. The rules apply to credit under sections such as 45, 45Y, 45Q, 45Z, 48E, and more. The seller does not recognise the payment as taxable income, and the buyer cannot deduct the cost once transferred. The buyer is treated as the taxpayer for that credit and is responsible for any IRS issues or recapture events.
Benefits of Transferable Tax Credits
The table below outlines the key benefits of using transferable tax credits to drive better returns:
| Benefit | Why It Matters |
| Simpler structure | No need for complex partnerships or lease deals. |
| Lower transaction costs | Saves legal, accounting, and due diligence costs that can exceed $1 million. |
| Faster deal execution | Agreements are easier to finalize with fewer moving parts. |
| Easier accounting treatment | Avoids complicated GAAP requirements like HLBV or consolidation analysis. |
| No asset performance risk | The buyer isn’t affected by how well the project performs. |
| Wider investor pool | More companies can participate, not just large banks or financial institutions. |
| Less ongoing management | No need for project monitoring or financial reporting after the purchase. |
| More predictable returns | Buyers receive direct tax offsets without depending on project cash flows. |
Who Can Sell Transferable Tax Credits?
Eligible sellers include individual corporations, states, and partnerships. Tax-exempt organizations, tribal governments, and other exempt entities generally cannot transfer credits, but may be eligible for elective (direct) payment under Section 6417 instead of selling the credits. Partnerships can either transfer credits at the entity level or allow partners to sell their shares separately, depending on how they choose to structure it.
Who Can Buy it?
Transferable tax credits must be sold to unrelated taxpayers. Partnerships are eligible buyers too, with credit allocated to partners. These credits reduce each partner’s tax base and capital account and cannot be deducted. Related party rules under the tax court must be followed when transferring credits.
Tax Treatment
For Sellers
Sellers don’t pay tax on the cash received from selling credits. In partnership, the amount received is treated as tax-exempt income and split among partners in line with their credit shares.
For Buyers
Buyers cannot deduct the cost of purchasing transferable tax credits. Instead, they apply the full value of the credit directly against their tax liability. Even if the credit is purchased at a discount, the difference is not treated as taxable income.
11 Transferable Tax Credits
Here are the 11 tax credits you can transfer to boost ROI and support clean energy:
| Section | Credit Name | Simple Description |
| §30C | Refueling Property Credit | For building EV charging or alt-fuel stations in rural or low-income areas. |
| §45 | Renewable Electricity Credit | For producing electricity from renewable sources like wind or solar. |
| §45Q | Carbon Sequestration Credit | For capturing and storing carbon emissions safely. |
| §45U | Nuclear Power Credit | For producing zero-emission electricity from nuclear plants. |
| §45V | Clean Hydrogen Credit | To produce clean hydrogen fuel in the U.S. |
| §45X | Advanced Manufacturing Credit | For making clean energy components like solar panels and batteries. |
| §45Y | Clean Electricity Production Credit | To produce any type of clean electricity, it will be tech-neutral from 2025 onward. |
| §45Z | Clean Fuel Production Credit | The goal is to make clean fuels like sustainable aviation fuel, starting in 2025. |
| §48 | Energy Investment Credit | For investing in renewable energy infrastructure, like solar farms. |
| §48C | Advanced Energy Project Credit | For building factories that produce clean energy tech. |
| §48E | Clean Electricity Investment Credit | For investing in clean electricity projects, tech-neutral from 2025 onward. |
Key Takeaways
Transferable tax credits offer a smart way to maximise ROI by turning unused credits into immediate cash. Buyers gain a dependable tax offset without project risk or long-term commitments. It’s faster, cheaper and simpler than old-school tax equity deals, plus no need to worry about performance, risk or complicated partnerships. In today’s clean energy and advanced manufacturing sectors. Transferable credits are a high-impact tool to boost after-tax returns and drive growth.
