What is Section 6418?
Section 6418 of the Internal Revenue Code, added by the Inflation Reduction Act of 2022, allows eligible taxpayers to transfer all or a portion of certain clean energy tax credits to unrelated taxpayers for cash consideration. This groundbreaking provision creates a new market for tax credits and makes clean energy investments more accessible.
Key Innovation: For the first time, clean energy tax credits can be sold directly for cash without complex partnership or lease structures.
This simplifies transactions, reduces costs, and expands the pool of potential credit buyers.
Eligible Credits
Eligible Credits Under Section 6418
Key Rules of Section 6418
Transfer Requirements
- Transfer must be for cash consideration
- Transferee must be an unrelated party
- Election made on tax return for credit year
- IRS registration required before transfer
Limitations
- Credits can only be transferred once
- Cannot transfer to related parties
- Transferee assumes recapture risk
- Election is irrevocable once made
Tax Treatment
For the Seller (Transferor)
- - Cash received is NOT taxable income
- - Must reduce basis in property by credit amount
- - No gain/loss recognition on transfer
For the Buyer (Transferee)
- - Cash paid is NOT deductible
- - Claims credit as if originally earned
- - Subject to recapture provisions
Registration Process
- 1Transferor registers with IRS for each eligible credit
- 2Obtain unique registration number from IRS
- 3Provide registration number to transferee
- 4Both parties report transfer on tax returns