Buying Tax Credits: Guidance for Corporate Tax and Finance Leaders

Provisions in the Inflation Reduction Act (IRA) enable companies to purchase federal clean energy tax credits directly from project developers—unlocking savings, helping to meet ESG goals, and supporting the energy transition.

This guide provides an overview of the transferable tax credit market, including the purchasing process for buyers, as well as analysis of current market dynamics. 

What are Transferable Tax Credits?

Under IRS Code Section 6418, a wide range of clean energy tax credits can now be transferred in whole or part from the project owner (the seller) to any unrelated taxpayer (the buyer). Tax credit buyers must be a C corporation, partnership, or eligible LLC, have U.S. federal tax liability, offset no more than 75% of tax liability and purchase with cash (check, wire, ACH etc.). 

Credits may only be transferred once. Following a purchase, the buyer may not resell credits, but if they have insufficient tax liability in the year of purchase, credits may be carried back three years or carried forward for 22 years.

Buyers can purchase familiar credits like the Investment Tax Credit (ITC) and Production Tax Credit (PTC), along with newer credits established by the passage of the IRA.

Buyers can purchase any of the available credit types via direct transfer and should consider the characteristics of each, including diligence requirements, when determining their ideal credit type. Information on individual credit characteristics is detailed in the “Credit Type Comparison” table that follows. 

The Case for Buying Tax Credits: Three Key Benefits

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1. Tax Credits Offer Buyers Compelling Economics

Tax credits represent one of the most attractive risk-adjusted investment opportunities available to corporations today. Depending on the credit type, vintage, transaction size, and counterparty, buyers can typically secure discounts ranging from 5-12% below face value, translating directly to meaningful tax savings with minimal execution risk.

The mathematics are straightforward and compelling. Consider a buyer purchasing $20 million in Investment Tax Credits (ITCs) at a 7% discount. This transaction would generate an immediate $1.4 million in after-tax savings, which is treated as a non-taxable gain for accounting purposes. The purchase price for tax credits is not deductible by buyers, and buyers do not recognize gross income on the discount of credit. 

Unlike traditional investments that carry market risk, credit transfers offer predictable, government-backed returns with defined timelines.

Beyond the immediate tax benefit, these transactions offer exceptional liquidity compared to traditional tax equity investments. Credits can typically be monetized within 30-90 days of project completion, compared to the multi-year hold periods common with direct tax equity participation. This rapid realization of value makes credit purchases most attractive to companies with immediate tax liability. 

The risk profile is equally compelling. Unlike equity investments in clean energy projects, credit purchases are largely divorced from ongoing operational performance. Once credits are generated and transferred, buyers face minimal counterparty risk, particularly when working with established developers and following proper documentation protocols. 

The primary residual risk centers on potential recapture scenarios—situations where the IRS might require repayment of claimed credits due to project non-compliance with ongoing requirements. However, established risk mitigation strategies offer “belts and suspenders” protection for buyers. Leading developers now routinely provide recapture insurance policies or maintain dedicated cash reserves on their balance sheets to backstop potential recapture obligations. These protections typically cover the full credit amount plus interest and penalties, effectively transferring recapture risk back to the seller.

Beyond recapture protection, the remaining risks are primarily execution-related—ensuring proper origination, transfer mechanics, and IRS compliance—all of which are manageable with experienced advisors and established documentation protocols.

2. Tax Credit Purchases Support ESG & Compliance Goals

Tax credit purchases can be tailored to align with ESG objectives. Unlike traditional carbon offsets with additionality concerns, credit transfers provide direct, quantifiable support for incremental clean energy capacity.

Many corporate buyers are discovering that credit purchases can satisfy multiple sustainability frameworks simultaneously. Strategic bundling with RECs addresses Scope 2 emissions while satisfying Science Based Targets initiative (SBTi) beyond-value-chain mitigation and RE100 commitments.

Further, bonus credit provisions create compelling economic and community impact advantages. Projects in energy communities, low-income areas, disadvantaged communities as well as those utilizing U.S. manufactured components qualify for 10-20% bonus credits and deliver measurable economic benefits to local communities. Targeting bonus-eligible tax credits for purchase can align corporate investments with highest impact projects.

3. Tax Credit Transfers Catalyze Clean Energy Project Deployment

Corporate tax credit buyers directly enable U.S. clean energy deployment, with each credit purchase representing tangible clean energy infrastructure that might not otherwise break ground. This is particularly true for smaller developers and emerging technologies historically excluded from institutional tax equity markets. 

A $50 million credit transaction typically represents 200-300 MW of new capacity while eliminating the 6-12 month tax equity negotiation timeline that constrains project development. When multiplied across the growing corporate buyer base, individual transactions collectively represent billions in incremental clean energy investment that traditional tax equity markets could never accommodate. This financing evolution directly addresses grid reliability challenges by accelerating deployment of dispatchable resources including battery storage, while supporting domestic energy security through faster build-out of critical infrastructure.

Corporate credit purchases directly address the financing gap that has constrained clean energy deployment, particularly in underserved and developing markets.

Finding the Ideal Tax Credit Type to Purchase

Once a corporation decides to pursue a tax credit purchase, the buyer's requirements—risk tolerance, tax appetite, target discount—will drive credit selection. Each credit type presents distinct risk profiles and diligence considerations that directly impact pricing and transaction structure.

Regardless of credit type, buyers should understand the corporate structure and the financial strength of the seller and any guarantors, as well as reviewing the IRS pre-filing registration documentation and IRS registration numbers.  

Credit Type Comparison from a Buyer's Perspective

Fitting Credit Type to the Tax Credit Buyer's Profile

48E Investment Tax Credits (ITCs): Due to recapture exposure, ITC transactions generally involve more detailed diligence processes compared to PTC or 45X credits, but this complexity is often rewarded with higher discount rates that translate to greater savings for buyers. Buyers should conduct thorough reviews of project ownership structures and financing agreements to confirm that parties with collateral interests are willing to enter forbearance agreements, while ensuring adequate property and casualty insurance for facility reconstruction. 

Best for: yield-focused buyers with sophisticated transaction capabilities who can navigate complex due diligence in exchange for enhanced returns.

45Y Production Tax Credits (PTCs): PTC rates are published annually by the IRS using an Inflation Adjustment Factor, providing predictable pricing benchmarks for transaction planning. Given the inherent variability in renewable generation, it is common to use conservative production estimates in credit transfer agreements to account for factors including curtailment, maintenance downtime, and weather conditions.

Best for: risk-averse buyers seeking predictable, straightforward transactions with minimal recapture exposure.

45X Advanced Manufacturing Credits: Credits are generated only upon valid third-party sales of eligible components to unrelated parties, making sales documentation a critical diligence element. Sellers typically provide memos or opinions from reputable accounting or legal firms to ensure compliance with technical specifications, as products must meet specific technological or administrative requirements to qualify for credits. 

Best for: strategically-minded buyers supporting domestic supply chain objectives while accessing emerging credit markets.

Familiarizing Tax Credit Buyers With Key Deal Documents & Mechanics 

Basis Climate is focused on simplifying the tax credit purchasing process for buyers by providing a structured, compliance-ready framework that streamlines transfers from sourcing through execution. 

Sourcing / Discovery of Tax Credits

The initial step in the process is sourcing an appropriate credit that matches a buyer’s tax appetite, return targets and risk profile. Critical components of the credit profile include 

• Project technology and location. With proper structuring, most buyers can be agnostic to project technology and location unless there are secondary goals, such as supporting projects in the locations you have a presence or helping to support more nascent technologies   
• Credit type (e.g., 48E, 45Q, 30C)
• Dollar volume and transfer window. In order to maximize returns, it is important for buyers to determine their tax liability and align credit purchase timing with estimated quarterly tax payments to the extent possible
• Legal, tax and insurance diligence materials

Basis provides buyers with pre-vetted opportunities that have met initial screening requirements, ensuring buyers are only focused on actionable opportunities that meet their ideal profile.

Term Sheet

Once high-level interest is confirmed, Basis facilitates an introduction with the seller and assists in the negotiation and execution of a term sheet. The term sheet covers the key commercial terms of the deal which include:

• Purchase price and discount
• Timing of payment(s) 
• Tax Credit Insurance / Seller Indemnifications

After execution of the term sheet, buyer and seller move to negotiations of the Tax Credit Transfer Agreement and completion of the diligence process.

Tax Credit Transfer Agreement

A key component of the transfer process is negotiating the Tax Credit Transfer Agreement (TCTA) between the buyer and seller. This serves as the contractual framework for the transfer.

Structure & Commercial Terms

A TCTA is generally structured in one of two ways depending on whether tax credits have already been generated. For credits that have already been generated, where all closing conditions can be met, a simultaneous sign and close structure will typically be used. In this structure, payment happens upon execution of the TCTA. 

If credits will be generated at a future date or any of the closing conditions have not been met, a sign and subsequent close structure will be used. 

In addition to the key terms negotiated at the term sheet stage, other important commercial items covered in the TCTA typically include: 

• Maximum Credit Amount: in most cases buyers will set an upper limit on the amount of credits they are willing to acquire. These caps are often quarterly and most applicable in deals that include a portfolio of projects that reach placed in service over a period of multiple months or in 45X transactions where volume depends on production/sales
• Payment Terms: Buyers may negotiate and document payment timing in the TCTA to better align with their estimated tax payment dates.
• Transaction Costs: Buyers will typically include provisions requiring sellers to pay some or all of the buyer transaction costs up to a negotiated cap

Seller Representations and Warranties

Seller Representations and Warranties will also be explicitly defined in the TCTA and are an important tool for managing risk. Standard reps will include: 

• Seller owns the credit property
• The credit property is qualified to generate transferable credits
• Seller is eligible to claim and transfer credits
• Credits have not been previously transferred or sold

In addition to the above, the seller will be required to make representations related to the project. These typically these ensure that the project has been placed in service as of the closing date (for ITCs), that electricity was generated and sold to a third party (PTCs), any bonus credit adders (energy community, domestic content or low income) and, if required, whether the project has complied with prevailing wage requirements. 

Conditions Precedent

Defining the Conditions Precedent (CPs) to closing is another key element of the TCTA. CPs are drafted to ensure the credits have been generated and can be validly transferred. Common CPs for tax credit transfers include

• Evidence that the project has been placed in service (PIS) for tax purposes by an agreed date
• Completion of pre-filing registration with the IRS and a completed transfer election statement (depending on timing a transfer election statement may be a post-closing item)
• Procurement of tax credit insurance (if required in the transaction)
• Evidence that the project has met all prevailing wage requirements
• For 48 ITCs, due diligence reports including a cost segregation report prepared by an agreed upon 3rd party and in cases where an FMV step-up is used, a 3rd party appraisal
• For 45 PTC, evidence that electricity has been produced and sold to a 3rd party
• For 45X, evidence that the manufactured product has been produced and sold to a 3rd party
• No changes in tax law have occurred

Post Closing Covenants

Entering into a tax credit transfer requires that both the buyer and seller have legal obligations to each other for a period of time following the transaction to ensure compliance with the transfer requirements. These covenants require that both parties file their tax returns and properly reflect the credit transfer. For ITC transfers, post-closing covenants also address the recapture risk allocation. The seller agrees not to take any actions that would trigger a recapture event (e.g.selling or abandoning the project) and to meet any ongoing PWA requirements. 

Indemnification

In a majority of transfer agreements, sellers will provide broad indemnification that shifts a majority of ongoing risk (e.g. losses, reduction, recapture or disallowance of credits) from the buyer to the seller. Given that buyers do not have governance rights over the project and this is viewed as a reasonable allocation of risk by the market. 

The value of indemnification against losses associated with reduction, recapture or disallowance depends largely on the sellers creditworthiness and financial condition. As such, many transactions will require the seller to provide a parent guaranty, tax credit insurance or both. Although the insurance market has tightened in the first half of 2025, deals with tax credit insurance are continuing to comprise the majority of volume. 

Current Tax Credit Buyer Landscape

Demand for tax credits in the first half of 2025 has been extremely robust with consistent buyer appetite across all types and sizes of credits. Basis has worked with several repeat buyers as well as a significant number of new entrants to the market to secure tax credits through the first half of the year. We have seen buyers focused on a few key priorities:

• Pricing: as expected, buyers are heavily focused on securing the best possible deal economics. Pricing is often the key lever that can allow buyers to secure a deal, especially with larger credits from high quality sponsors. 
• Payment Timing: buyers also remain focused on deals that can allow for optimization of payment timing to better align with their estimated tax payments
• Insurance: a majority of buyers are requiring sellers to procure tax credit insurance

While demand remains strong across the market, we see the best opportunity for buyers to secure better value by moving early to purchase credits. Pricing for current year credits trends upward as we move toward the back end of the year, so buyers with a focus on pricing will benefit from moving quickly to secure credits. 

Buyers can also differentiate themselves with speed and certainty of execution. Basis can facilitate this on a buyer’s behalf by working with you upfront to understand what credits and sellers will best fit your ideal credit profile, streamlining negotiations and diligence via our systematic approach and deep market knowledge.