Selling and transferring federal energy tax credits for AI data centers

In short

Since 2022, the Internal Revenue Code has allowed the owner of a clean energy project to sell its federal tax credits to an unrelated buyer for cash. The rules are in Section 6418. 26 U.S.C. § 6418. The buyer, not the seller, uses the credit on its own tax return. The sale price is typically $0.90 to $0.95 per dollar of credit face value. Crux. For AI data center operators, the benefit flows mainly through the power purchase agreement. A developer that builds a solar farm, battery storage site, or nuclear plant to supply an AI data center sells the credits and passes the cash savings through in lower electricity rates. The largest buyers are C corporations with steady tax liability. Individuals and most trusts face a passive activity limit that makes purchased credits hard to use.

What is the transferability rule under Section 6418?

Section 6418 was added by the Inflation Reduction Act in August 2022 and took effect for tax years beginning after December 31, 2022. 26 U.S.C. § 6418. It created a direct way to sell clean energy tax credits. Before this, a project developer that could not use the credits itself had to bring in a tax equity partner. That partner took a partnership interest and received an allocation of the credits. The deal was slow and expensive. Transferability replaces that with a simple sale. The developer sells the credit for cash. The buyer gets the credit and uses it against its own tax bill.

The rules are in Section 6418 and its final regulations, which took effect July 1, 2024. T.D. 9993, Final Regulations. A seller makes an election on its tax return to transfer a credit. The election is irrevocable. The buyer is then treated as the taxpayer for that credit. The consideration must be paid in cash, and that cash is not income to the seller. The buyer cannot deduct the payment. 26 U.S.C. § 6418. This tax treatment makes the credit sale economically parallel to simply using the credit oneself.

Which clean energy credits can be transferred?

Section 6418(f)(1)(A) names the eligible credits. As of 2025 there are twelve, with the addition of the small agri-biodiesel credit under Section 40A by the One Big Beautiful Bill Act in July 2025. 26 U.S.C. § 6418(f)(1)(A). The ones most relevant to AI data centers are these.

26 U.S.C. § 6418(f)(1)(A)

The credit is always tied to a specific facility. For the production tax credits (Section 45, 45Q, 45V, and 45Y) the transfer election is made separately for each facility and for each tax year of the ten year credit period (twelve year for Section 45Q). 26 U.S.C. § 6418(f)(1)(B). A buyer cannot acquire a long-term stream of credits in one election. Each year’s credit must be transferred separately.

How does the transfer process work step by step?

The process has three main steps before filing.

Step 1, pre-filing registration. The seller must register the project with the IRS through the Energy Credits Online portal and receive a registration number for each credit property. The IRS recommends submitting the registration at least 120 days before the tax return is due. IRS Energy Credits Online portal. The registration number is valid for only one taxable year and must be renewed annually. 26 CFR § 1.6418-4.

Step 2, the transfer agreement. The seller and buyer negotiate a purchase agreement and the cash payment. The cash payment is excluded from the seller’s gross income and is not deductible by the buyer. 26 U.S.C. § 6418(b). The parties must attest that they are not related under Section 267(b) or Section 707(b)(1). 26 U.S.C. § 6418(a), 26 C.F.R. § 1.6418-2.

Step 3, the transfer election statement. Both the seller and the buyer attach a transfer election statement to their tax returns for the year. The statement must include the registration number, the amount transferred, the cash consideration paid, and several attestations. 26 CFR § 1.6418-2(b)(5). The election is made on an original return only, not on an amended return. A superseding return may be used to add or revise an election. 26 CFR § 1.6418-2(b).

The buyer then takes the credit into account in its first taxable year that ends with or after the seller’s tax year in which the credit was determined. 26 U.S.C. § 6418(d). For a purchased credit that is an applicable credit under section 6417(b), the transferee may carry it back three years and forward twenty-two years under section 39(a)(4), as provided by Treas. Reg. § 1.6418-5(h). Form 3800 Instructions, Treas. Reg. § 1.6418-5(h).

Can a partnership or S corporation sell the credit?

Yes. The entity that owns the facility makes the election at the entity level, not at the partner or shareholder level. The cash received is tax exempt income to the entity and is allocated among the owners based on their distributive share of the credit. 26 U.S.C. § 6418(c). For a buyer that is a partnership, the purchased credit is treated as an extraordinary item and allocated to the partners based on each partner’s distributive share of the nondeductible expenses used to fund the purchase, as of the time the transfer is treated as occurring under § 1.6418-3(b)(4)(iv). 26 CFR § 1.6418-3(b)(4).

What portion of the credit can be sold?

A seller can transfer all or part of an eligible credit. But if it transfers part, the portion must be a proportionate vertical slice. That means the transferred piece must include a ratable share of each bonus credit (domestic content, energy community, and others). The seller cannot strip off the bonus credits and sell them separately, called horizontal slicing. 26 CFR § 1.6418-1(h). This rule keeps the credit whole.

What happens if the credit is recaptured?

Some credits are subject to recapture. For the investment tax credits (Section 48 and 48E), if the property is sold or stops being used for a qualifying purpose within five years after it is placed in service, a portion of the credit must be paid back. The recapture percentage starts at 100 percent in the first year and drops 20 percentage points each year. After year five there is no recapture. Section 50(a)(1)(A)-(B). The table below shows the recapture amount.

Under the transfer rules, the buyer bears the recapture risk. If a recapture event occurs, the buyer owes the tax increase under Section 50(a). The seller must notify the buyer of a recapture event when the investment credit property is disposed of or ceases to be investment credit property during the recapture period. 26 U.S.C. § 6418(g)(3), 26 CFR § 1.6418-5(d)(2)(i). If the seller retained any portion of the credit, the recapture is allocated proportionally between the seller and buyer based on their respective shares of the total credit. 26 CFR § 1.6418-5(d).

Practical note for buyers, Recapture risk is a reason to require tax credit insurance. Policies have become more common and more expensive in 2025. Premiums that were $150,000 to $350,000 per policy in 2024 moved toward $450,000 or more. Insurers now cap single-policy coverage at roughly $800 million. Crux press release. The insurance premium cuts into the net savings from buying the credit at a discount.

What limits who can buy?

Not every taxpayer can freely use a purchased credit. The passive activity loss rules under Section 469 apply to transferred credits. For individuals, trusts, and S corporation shareholders, a purchased credit can generally offset only passive income. Widely held C corporations are not subject to Section 469, which is why they are the dominant buyers in the transfer market. 26 U.S.C. § 469(a)(2), Market analysis.

The One Big Beautiful Bill Act added a further restriction. Effective for tax years beginning after July 4, 2025, a transfer of the credits listed in Section 6418(f)(1)(A)(iii), (iv), (vi), (vii), (viii), or (xi) to a specified foreign entity as defined in Section 7701(a)(51)(B) is prohibited. This blocks transfers of the core clean energy credits (Sections 45Q, 45U, 45X, 45Y, 45Z, and 48E) to certain foreign buyers. 26 U.S.C. § 6418(g)(5).

What is a real estate investment trust’s position?

A REIT may transfer eligible credits. Credits not yet transferred are disregarded for the REIT asset test. Cash received from a transfer is excluded from gross income. The transfer is not treated as a sale for purposes of the prohibited transaction rules. Tax alert.

How do the legacy and tech-neutral credits differ?

The Inflation Reduction Act created a transition from technology specific credits (legacy Section 45 and Section 48) to technology neutral credits (Section 45Y and Section 48E). A project that began construction before January 1, 2025 can claim the legacy credit even if it is placed in service later. A project that begins construction after December 31, 2024 must use the tech-neutral credit. IRS proposed regulations.

To lock in legacy treatment, a project must establish beginning of construction by either starting physical work of a significant nature and maintaining a continuous program of construction, or meeting the Five Percent Safe Harbor by incurring at least 5% of total project costs and making continuous efforts toward completion. Reunion. For an AI data center power project, this means that wind and solar farms that started early enough can still use the familiar Section 45 and 48 credits in 2025 and beyond.

The final regulations issued January 7, 2025 define the zero emission technologies eligible for tech-neutral credits. Solar, wind, nuclear fission, fusion energy, geothermal, hydropower, marine and hydrokinetic, and waste energy recovery from listed sources all qualify. Revenue Procedure 2025-14.

The table below shows the base credit values.

IRS Publication 6045, 26 USC §45U, Power Magazine, IRS Publication 5855

PWA requirements mean the project must pay prevailing wages and use registered apprentices. A project under one megawatt is exempt from PWA and gets the higher rate automatically.

Bonus adders can increase the ITC beyond 30 percent. An extra 10 percentage points for domestic content, 10 percentage points for location in an energy community, and up to 20 percentage points for a low income community project. The maximum achievable ITC is 70 percent of qualified investment. Clean energy analysis. The PTC bonus adders work similarly.

How did the One Big Beautiful Bill Act (OBBBA) change things?

The OBBBA was enacted July 4, 2025. Pub. L. 119-21. It brought several changes that directly affect credits used by AI data center energy projects.

Wind and solar deadline. For wind and solar projects claiming the tech-neutral Section 45Y or 48E credits, the facility must be placed in service by December 31, 2027. There is an exception if construction began on or before July 4, 2026. Projects that start construction after that date must still meet the 2027 placed in service deadline, which effectively requires building within about twelve months because the standard continuity safe harbor would push the deadline past 2027. Tax alert. Other technologies (storage, nuclear, geothermal, hydropower, fuel cells) keep the original Inflation Reduction Act phaseout schedule. Credits are available for projects that begin construction through 2033, phasing down in 2034 and 2035. Tax alert, Tax alert, Tax alert.

Fuel cell property. For Section 48E fuel cell projects that begin construction after 2025, a flat 30 percent credit applies without regard to greenhouse gas emissions and without PWA requirements. However, bonus adders are not available. Tax alert.

FEOC restrictions. Foreign entity of concern (FEOC) rules now apply to Sections 45Y, 48E, 45X, 45Q, 45U, and 45Z. Taxpayers that are specified foreign entities or foreign-influenced entities cannot claim credits for tax years beginning after July 4, 2025. Facilities that receive material assistance from a prohibited foreign entity (China, Russia, North Korea, Iran) and that begin construction after December 31, 2025 become ineligible. The material assistance cost thresholds phase in for energy storage technology. For a storage project that begins construction in 2026, non-PFE costs must be at least 55 percent, rising to 75 percent for 2030 and later. Basis Climate, Tax alert, Tax alert. A ten-year recapture period applies for payments to specified foreign entities that provide effective control. Treasury and the IRS issued interim guidance on these FEOC rules in Notice 2026-15 on February 12, 2026, a 95-page notice defining material assistance from a prohibited foreign entity, with proposed regulations expected to follow. Baker Botts

Nuclear PTC timing unchanged. The Section 45U nuclear PTC runs through 2032. By its own terms it does not apply to taxable years beginning after December 31, 2032. The OBBBA left that termination date in place. Its main effect on Section 45U is the FEOC restriction noted above. 26 USC 45U, Tax Law Center analysis.

Market effect. The OBBBA reduced corporate tax liabilities by an estimated 20 to 30 percent. That cut buyer demand in the second half of 2025. Transfer platform Crux reported a slowdown in buyer activity during July and August 2025 as buyers recalculated their tax needs. Latitude Media. The new wind and solar deadlines also introduced uncertainty for project pipelines.

What does the market look like today?

The transferable tax credit market has grown quickly. In 2024 the total market size was about $52 billion. For full year 2025, projections put it at $55 to $60 billion. In the first half of 2025 alone, transfers exceeded $20 billion, nearly double the first half of 2024. Crux

Pricing varies by credit type, deal size, and seller credit quality.

Crux, Tax alert

Energy storage ITCs are a fast growing segment. They made up about 26 percent of credits sold in the first half of 2025, up from 9 percent a year earlier. The proportion of wind PTCs sold in the transfer market fell from 33.0 percent in 1H2024 to 9.5 percent in 1H2025, amid headwinds to new wind investments. Crux

New credit types (advanced manufacturing, nuclear, hydropower, geothermal, energy storage) made up roughly 36 percent of transfers in the first half of 2025, up about 50 percent year over year. Latitude Media

A growing share of deals are hybrid. In 2025, more than 60 percent of tax equity commitments involved a partial transfer. The developer brings in a traditional tax equity partner for part of the credit and sells the rest. Transfers out of tax equity partnerships are expected to reach $11 to $13 billion in 2025, up from $7 billion in 2024. Crux

Real examples of AI data center energy projects and the credits they use

The link between AI data centers and these tax credits is usually indirect. The power plant developer owns the project, claims the credit, and sells it. The cash from the sale reduces the developer’s cost of capital. That lower cost flows into the electricity price the AI data center operator pays under a long-term power purchase agreement (PPA).

Microsoft and Three Mile Island. In September 2024, Microsoft signed a 20-year PPA with Constellation Energy for the full 835 megawatt output of the restarted Crane Clean Energy Center at Three Mile Island. The restart is supported by the Section 45U nuclear PTC. At roughly 1.5 cents per kilowatt hour, that credit provides a substantial revenue stream that makes the restart economic. MIT Technology Review, World Nuclear Association

Amazon and Susquehanna. Amazon acquired an AI data center campus next to the 2.5 gigawatt Susquehanna nuclear plant in Pennsylvania. In June 2025 it signed a PPA through 2042 for 1.9 gigawatts from the plant. The Section 45U nuclear PTC benefits Talen Energy’s Susquehanna plant, though the Amazon PPA is structured to reduce Talen’s reliance on the credit. CRS R48583, Talen Energy press release

Google and Kairos Power small modular reactors. In October 2024, Google signed a fleet agreement for up to 500 megawatts of small modular reactors. The first reactor is targeted for 2030. Once placed in service, the projects may qualify for the tech-neutral Section 45Y PTC or Section 48E ITC. Congressional Research Service

Meta and Clinton nuclear plant. In June 2025, Meta signed a 20-year PPA with Constellation for 1.1 gigawatts from the Clinton nuclear plant in Illinois. The plant had been facing retirement. The Section 45U nuclear PTC supports its continued operation. Constellation testimony, CRS R48583

Battery storage ITC sales. Standalone battery storage projects are eligible for the Section 48E ITC. In Massachusetts, Lightshift Energy sold $10 million in storage ITCs for four projects. In California, W Power and Wellhead Electric sold a $60 million storage ITC. Basis Climate. These batteries support grid reliability and can be paired with AI data center loads.

Carbon capture for gas fired data center power. In December 2024, ExxonMobil announced plans for a 1.5 gigawatt gas plant with over 90 percent carbon capture to power an AI data center. The project would claim Section 45Q credits, which are currently $85 per metric ton for geologic storage. Global CCS Institute

Key takeaways

The following points are the concrete practical items for counsel and deal sponsors.

• The transfer market under Section 6418 is a liquid, established way to monetize clean energy credits. Typical pricing is $0.91 to $0.95 per dollar of credit face value.
• The buyer, usually a large C corporation, simply pays cash and takes the credit on its return. The seller gets cash free of income tax.
• Registration on the IRS Energy Credits Online portal is required and must be done well before the filing deadline. Plan for 120 days.
• The buyer bears the recapture risk for ITC property. Tax credit insurance, while more expensive in 2025, can cover that exposure.
• The legacy tech-specific credits are available only for projects that began construction before 2025. Most new projects will use the tech-neutral Section 45Y and 48E credits.
• Wind and solar projects face a hard placed-in-service deadline of December 31, 2027 under the OBBBA. Developers should check whether they can meet that date.
• Buyers that are individuals or trusts face the passive activity limit under Section 469. Purchased credits generally offset only passive income.
• Transfers to specified foreign entities are now blocked for the core clean energy credits.
• AI data center operators benefit indirectly through lower PPA prices. The credit sale lowers the developer’s cost of capital, and that saving is reflected in the contracted electricity rate.
• The market is expected to total $55 to $60 billion in 2025, with storage and nuclear making up a growing share.

Frequently asked questions

Q:Can I buy a stream of PTCs from a wind farm for the next ten years in a single transaction?

A:No. The election is made for each facility and each taxable year during the ten-year credit period. Each year’s credit requires its own transfer election and registration number. You can contract for a forward commitment, but the actual transfer happens year by year.

Q:What happens if the IRS later disallows a credit that the buyer already used?

A:The buyer is liable. If the Secretary determines the transferee claimed more credit than would be otherwise allowable for the facility or property, the transferee must increase its tax by the excess amount (plus 20 percent of that excess, unless the transferee shows the excess resulted from reasonable cause). 26 U.S.C. § 6418(g)(2) A buyer will typically negotiate representations and warranties and may obtain insurance to cover this risk.

Q:Can I sell only the bonus credit from a project?

A:No. The regulations require a proportionate vertical slice. If you sell part of the credit, that portion must include a ratable share of the base credit and all bonus credits. You cannot strip off a domestic content or energy community adder and sell it separately. 26 CFR § 1.6418-1(h)

Q:Can a tax-exempt organization sell a credit?

A:No. Tax-exempt entities, government bodies, tribal entities, and cooperatives are applicable entities under Section 6417(d)(1)(A). They cannot make a transfer election under Section 6418. They can instead use the direct pay election under Section 6417.

Q:How does the OBBBA affect a solar project that started construction in 2024?

A:If the project began construction before 2025, it can still claim the legacy Section 48 ITC. The OBBBA wind and solar deadline applies only to projects claiming the tech-neutral Section 45Y or 48E credits. The legacy project is not subject to the 2027 placed-in-service cutoff. However, if the project instead elects the tech-neutral credit, the 2027 deadline applies.

Q:What is the difference between the investment tax credit and the production tax credit for a buyer?

A:An ITC is a one time credit taken in the year the property is placed in service, equal to a percentage of the qualified investment. A PTC is a per-kilowatt-hour credit taken each year for ten years as electricity is produced and sold. For a buyer, an ITC is a single upfront credit. A PTC is a stream of credits over a decade. Buyers must plan their tax liability accordingly.

Q:Does the AI data center operator ever buy the credit directly?

A:In most deals today, the benefit flows through the PPA. The developer sells the credit and the savings lower the contracted power price. There is no structural barrier to the data center operator buying credits directly, for example if it owns a co located generation asset. However, the operator must have sufficient tax liability and must comply with the passive activity rules. As of now, the market data does not quantify the split between direct and indirect purchases, but the indirect path is the dominant model.

Q:Can a REIT that owns AI data center property also participate in credit transfers?

A:Yes. A REIT may transfer eligible credits from clean energy projects it owns. The credits are disregarded for the REIT asset test, and the cash received is not gross income from a prohibited transaction. RSM tax alert

Q:What documentation does a transfer require beyond the election statement?

A:The regulations require minimum documentation to be provided by the transferor to the transferee. The transfer election statement itself includes a certification that this documentation was given. 26 CFR § 1.6418-2(b)(5) In practice, a purchase agreement will set out detailed representations, covenants, and indemnities, and the documentation package will include IRS registration confirmations, project records, and eligibility studies.

Q:Is there a limit on how many times a credit can be transferred?

A:Yes. A credit can be transferred only once. The transferee cannot transfer it again. 26 U.S.C. § 6418(e)(2)

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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.