US residential solar · 2026 data

Solar for Nonprofits: Can You Use the ITC If You Don't Pay Taxes?

Q: "Can a 501(c)(3) church or religious organization claim solar direct pay?"

"Yes. Churches and religious organizations recognized as 501(c)(3) entities qualify for elective pay under the IRA. The organization must complete IRS pre-filing registration, install a qualifying solar system, and file Form 990-T for the tax year the system is placed in service. There is no minimum system size. Many congregations are claiming $10,000 to $80,000 in direct payments depending on roof size and local electricity rates."

Q: "Does the 30% ITC apply to the full installed cost, including labor?"

"Yes. The credit basis includes all costs considered part of the energy property: panels, inverters, mounting hardware, wiring, installation labor, permitting fees, and interconnection costs. Costs unrelated to the energy property — such as roof repairs done simultaneously — must be excluded from the basis. Typically 80–90% of a total project invoice qualifies as eligible basis under IRS rules."

Q: "What happens if a nonprofit sells its property within 5 years of claiming elective pay?"

"The IRS applies a recapture rule. If a qualifying property is disposed of within 5 years of the credit being claimed, a portion of the elective pay must be repaid. The recapture percentage starts at 100% in Year 1 and decreases by 20 percentage points per year — so by Year 5, no recapture applies. Organizations expecting to relocate or sell should carefully model this risk before committing to a project."

Q: "Can nonprofits claim direct pay for solar installed on leased property?"

"Generally, no. The tax credit requires the claimant to own the energy property. If a nonprofit leases its building, the landlord typically owns the structure and the credit is unavailable to the tenant. If the nonprofit owns the solar equipment as separate personal property under a long-term lease of 20-plus years remaining, some advisors argue a claim is supportable — but obtain written legal opinion before proceeding."

Q: "Is there a deadline to claim direct pay for systems placed in service in 2024 or 2025?"

"Claims are made on a 990-T filed for the tax year the system was placed in service. Deadlines mirror standard 990 schedules — the 15th day of the 5th month after fiscal year-end, with a 6-month extension available. Late pre-filing registrations have caused processing delays of 6 months or more, so register with the IRS as early in the process as possible."

SAVE

$0+

Over 25 Years

$16,800 Cost after ITC

9.3 yrs Payback

8.0 kW Typical system

Most homeowners need:

20–24 panels typical
8.0 kW average system
$16,800 after tax credits
9.3 year payback

✓ Updated monthly ✓ NREL data ✓ Reviewed by solar experts ✓ IRS tax credit included

Updated April 12, 2026 · 10 min read ·By Mark Sullivan ·Reviewed by Green Energy Calculators Editorial Team

Calculate My Savings View State Incentives

Without solar vs with solar

25-year cost comparison for a $300/month US electric bill.

Without solar

25-year utility cost

$75,000

Rates rise ~3% per year (EIA avg.)

With solar

Net system cost

$16,800

After 30% federal ITC

Your savings

Difference

+$58,200

Estimated lifetime advantage

Author Mark Sullivan

Reviewed by Green Energy Calculators Editorial Team

Last updated Apr 12, 2026

Sizing formula kW = Annual kWh ÷ (Peak Sun Hours × 365 × 0.82)

Roughly 1.5 million tax-exempt organizations operate in the United States, and until 2023, almost none of them could directly benefit from the federal solar Investment Tax Credit. That changed when the Inflation Reduction Act introduced a provision called direct pay — or “elective pay” in IRS language — that lets nonprofits, churches, schools, and government entities claim a cash refund equal to 30% of a solar installation’s cost, even with zero federal tax liability. For a $200,000 rooftop system, that’s a $60,000 check from the Treasury.

The mechanism is genuinely new. Before the IRA, nonprofits had two awkward workarounds: find a tax-equity investor willing to take the credit in exchange for partial ownership, or lease panels from a for-profit company and hope the lease savings were meaningful. Direct pay eliminates both compromises. The nonprofit owns the system outright, files a registration with the IRS, and receives the credit amount as a direct payment — treated like a tax refund, not taxable income.

This guide explains how direct pay works, which entity types qualify, what the installation must include, and how to stack direct pay with other incentives to drive the total cost down further. Numbers matter here, so every figure below is sourced from the IRS, NREL, or SEIA.

What Is the Investment Tax Credit and How Does Direct Pay Work?

The Investment Tax Credit, governed by IRC Section 48, allows the owner of a qualifying solar energy system to claim a credit equal to 30% of the system’s eligible cost basis. That rate applies to systems placed in service through December 31, 2032, after which it steps down to 26% in 2033 and 22% in 2034 before expiring for most commercial projects.

For a taxable business, the credit reduces dollar-for-dollar what the company owes in federal income tax. A nonprofit, by definition, owes nothing — so the credit was historically worthless to them. The IRA’s elective pay provision, effective for tax years beginning after December 31, 2022, changes the mechanics entirely. Instead of reducing a nonexistent tax liability, the credit is treated as a payment that exceeds the nonprofit’s zero-dollar liability, generating a refund.

To claim it, the organization must complete a pre-filing registration through the IRS Energy Credits Online portal (IRS.gov/energy-credits-online) and receive a registration number before filing Form 990-T. The registration process typically takes two to four weeks. The 990-T is not filed to report unrelated business income — it’s filed solely as the vehicle for elective pay, and the IRS has clarified in Notice 2023-29 that this filing does not create taxable income for the organization.

Eligible entities include 501(c)(3) organizations, 501(c)(4) social welfare organizations, states, local governments, Tribal governments, rural electric cooperatives, and certain other tax-exempt entities. Notably, 501(c)(6) trade associations and 501(c)(7) social clubs do not qualify for elective pay, though they may benefit from tax credit transferability rules if they have some tax liability. For organizations planning a larger project, using our commercial solar ROI calculator can help model whether the economics justify moving forward before engaging an installer.

The 30% base credit applies to the full installed cost: panels, inverters, racking, wiring, labor, and permitting fees. Battery storage paired with a solar system is also eligible under IRC Section 48, and a battery added to an existing solar installation qualifies independently if it is charged at least 70% from solar power.

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Which Bonus Credits Can Nonprofits Stack on Top of 30%?

The base 30% rate is not a ceiling for nonprofits — it’s a floor. The IRA created several bonus adders that can push the effective credit rate to 50% or higher under certain conditions, and these adders are available through elective pay just like the base credit.

The Energy Community Adder adds 10 percentage points if the system is installed in a qualifying energy community. The IRS defines these as areas with closed coal mines or coal-fired power plants, or statistical areas where fossil fuel employment represents at least 0.17% of total employment. Roughly 25% of US census tracts qualify, according to the Department of Energy’s mapping tool. A church in rural West Virginia or a food bank in parts of Ohio may find their project site qualifies for this bonus without any extra effort.

The Low-Income Communities Adder provides an additional 10 percentage points for systems installed in low-income census tracts or on affordable housing properties. This adder requires a separate application through the IRS, and the program has annual capacity caps — it was oversubscribed in its first year, so early applications matter.

The Domestic Content Adder adds 10 percentage points when a defined percentage of the steel, iron, and manufactured components are produced in the United States. Meeting this threshold is genuinely difficult: as of 2025, SEIA estimated that fewer than 20% of installed residential and commercial systems could meet the domestic content requirements, primarily because most solar panels are manufactured outside the US.

Stack the base rate plus energy community plus low-income adder and a nonprofit can reach 50% of total installed cost — cutting a $300,000 system to a net cost of $150,000 after the Treasury payment. Some community development organizations installing solar in both energy communities and low-income census tracts have hit that threshold. You can model exactly what bonus adders mean for your specific project using the solar tax credit calculator. For more on this topic, see our guide to How to Claim the Solar Tax Credit on Form 5695.

How Much Can a Nonprofit Realistically Save?

Concrete numbers help here. NREL’s 2024 benchmark report put the median installed cost for commercial rooftop solar at $2.65 per watt before incentives. A 100 kW system — appropriate for a mid-sized school, hospital wing, or community center — would therefore cost approximately $265,000 installed.

Stacked bar chart showing nonprofit solar credit rate from 30% base up to 50% with IRA adders — **IRA bonus adders can push nonprofits’ effective solar credit rate from 30% to 50%.** A 100 kW system costing $265,000 yields $79,500 at the base rate — or $132,500 at the maximum 50% stacked rate. Source: IRS, NREL, DOE 2026.

At the base 30% rate, that $265,000 system yields a direct payment of $79,500. If the site qualifies for the energy community adder, the payment rises to $106,000 — leaving the nonprofit with a net cost of $159,000 before any state incentives. At the 50% ceiling, the payment reaches $132,500 and net cost drops to $132,500.

Payback periods depend heavily on electricity rates and the nonprofit’s consumption profile. A school or medical clinic running significant daytime loads is a better candidate than a warehouse used only evenings. According to NREL modeling, commercial systems in states with high retail electricity rates — California, Massachusetts, New York — typically achieve simple payback periods of six to nine years even without the ITC. With direct pay reducing the capital outlay by 30–50%, that payback can compress to four to six years, and ongoing utility savings then flow back into the organization’s mission budget for the remaining 20-plus years of panel life. For state-level payback data with the ITC applied, see our guide to Solar Panel Payback Period by State.

State incentives layer on top of federal direct pay. Arizona exempts solar equipment from state sales tax and property tax, a saving that can represent 1–3% of system cost. Many states also allow net metering, letting nonprofits credit excess generation against future bills. The interaction between net metering policy and system output varies considerably by utility and season, and sizing the system carefully against actual consumption data is essential to maximizing savings.

Practical Steps: Applying for Elective Pay as a Nonprofit

The process has more moving parts than a standard tax credit claim, but it is manageable with good preparation. Here is what the IRS guidance and experienced tax advisors recommend for nonprofits pursuing solar direct pay for the first time.

Step 1: Confirm entity eligibility. Verify your organization’s 501(c) status and confirm it is one of the qualifying entity types listed under IRC Section 6417. If you are a 501(c)(6) or 501(c)(7), you do not qualify for elective pay — consult a tax attorney about transferability options instead.

Step 2: Get the system under contract. The credit applies to the placed-in-service date, not the contract signing date. Work with your installer to understand when commissioning is likely to occur, because the IRS registration must be completed before you file your return for that tax year.

Step 3: Complete IRS pre-filing registration. Create an account at IRS.gov/energy-credits-online, complete the registration for each qualifying facility, and obtain registration numbers. The IRS has processed most registrations within two to four weeks, though complex projects involving multiple adders have taken longer. Starting this process six to eight weeks before expected commissioning is prudent.

Step 4: File Form 990-T. Even though your organization may have never filed a 990-T, you must file one for the tax year in which the system was placed in service, attaching Form 3468 and referencing your pre-filing registration numbers. Most organizations will need a CPA or tax attorney experienced with the IRA’s energy credits for this filing — the form instructions are detailed, and errors can delay payment by six months or more.

Step 5: Receive payment. The IRS issues the elective pay amount as a refund. Timing varies: organizations that filed 2023 returns with elective pay claims generally received payments within 90 to 120 days of a complete, accurate filing. Budget for this lag when structuring project financing, since the cash is not immediate.

Step 6: Explore additional financing. Many nonprofits pair a USDA Rural Energy for America Program (REAP) grant — which can cover up to 50% of eligible costs for rural organizations — with ITC direct pay. The interaction is legal, though the grant reduces the ITC basis dollar-for-dollar, so the math needs careful modeling. A community development financial institution (CDFI) loan can also bridge the gap between installation and Treasury payment receipt. For nonprofits evaluating whether to borrow against future savings or fund the project differently, the solar loan calculator can help model total cost of ownership under different financing structures.

Common Misconceptions About Nonprofit Solar Tax Credits

Several misunderstandings circulate in nonprofit finance and facilities circles, and they sometimes cause organizations to delay projects or leave money unclaimed.

“We have to find a tax equity partner.” This was true before 2023. It is no longer true for eligible tax-exempt entities. Direct pay eliminates the need for complicated tax equity structures, third-party ownership arrangements, or lease agreements. The nonprofit can own the system outright and still capture the full credit value — no outside investor required.

“The ITC only covers panels — not the battery.” Not accurate. Battery storage systems paired with solar and charged at least 70% from that solar source qualify under IRC Section 48 and are eligible for elective pay. A 20 kWh battery added to a solar system on the same project costs roughly $12,000–$18,000 installed and generates an additional $3,600–$5,400 in direct pay at the base 30% rate.

“Our state tax exemption already covers this.” Federal direct pay and state tax exemptions are entirely separate. A 501(c)(3) in Texas that is exempt from state franchise tax still qualifies for federal elective pay on its solar system — the two operate independently and neither reduces the value of the other.

“Filing a 990-T will put our tax-exempt status at risk.” The IRS explicitly addressed this in Notice 2023-29: filing a 990-T solely for elective pay purposes does not constitute unrelated business income and does not jeopardize tax-exempt status. The filing is purely a procedural requirement to receive the payment, and no income tax becomes due as a result.

“The credit is too small to matter for a small congregation.” Even a 20 kW system on a small church roof, costing roughly $53,000 installed, generates a $15,900 direct payment at the base rate. In energy communities, that rises to $21,200. For a congregation with a facilities budget measured in thousands per year, a five-figure Treasury payment is significant. Organizations with smaller roofs or tighter capital budgets may also explore community solar subscriptions — though those do not qualify for elective pay the way an owned system does.

“We need to wait until the system is fully paid off.” The direct pay claim is tied to the placed-in-service date, not to when financing is retired. A nonprofit can finance 100% of the installation cost, receive the direct pay within roughly 90–120 days, and apply that payment against the loan principal — meaningfully accelerating payoff and reducing total interest cost.

Frequently asked questions

Direct answers for US homeowners — sized for a $150/month electric bill.

Can a 501(c)(3) church or religious organization claim solar direct pay?

Yes. Churches and religious organizations recognized as 501(c)(3) entities qualify for elective pay under the IRA. The organization must complete IRS pre-filing registration, install a qualifying solar system, and file Form 990-T for the tax year the system is placed in service. There is no minimum system size. Many congregations are claiming $10,000 to $80,000 in direct payments depending on roof size and local electricity rates.

Does the 30% ITC apply to the full installed cost, including labor?

What happens if a nonprofit sells its property within 5 years of claiming elective pay?

Can nonprofits claim direct pay for solar installed on leased property?

Is there a deadline to claim direct pay for systems placed in service in 2024 or 2025?

$150/month electric bill by state

System size and payback vary by electricity rate and sun hours — see your state.

CA California $150/mo · 29.4¢/kWh TX Texas $150/mo · 13.8¢/kWh FL Florida $150/mo · 13.5¢/kWh AZ Arizona $150/mo · 13.2¢/kWh NC North Carolina $150/mo · 12.8¢/kWh NY New York $150/mo · 22.4¢/kWh MA Massachusetts $150/mo · 24.5¢/kWh CO Colorado $150/mo · 14.2¢/kWh

Compare all 50 states for $150/mo →

Popular state solar guides

Electricity rates and incentives vary — see data for your state.

CA California 29.4¢/kWh · 5.8h sun TX Texas 13.8¢/kWh · 5.6h sun FL Florida 13.5¢/kWh · 5.7h sun AZ Arizona 13.2¢/kWh · 6.5h sun NC North Carolina 12.8¢/kWh · 5.2h sun NY New York 22.4¢/kWh · 4.3h sun MA Massachusetts 24.5¢/kWh · 4.2h sun CO Colorado 14.2¢/kWh · 5.5h sun

View all 50 states →

Popular utility companies

Solar rules and net metering vary by utility — not just by state.

PG&E California Duke Energy NC · FL · Midwest Florida Power & Light Florida Oncor Texas APS Arizona Georgia Power Georgia

Methodology & data sources

Calculation method: System size uses NREL PVWatts derate factor (0.82). Costs based on SEIA 2026 installed cost ($2.75–$3.20/W). Payback uses net cost after 30% federal ITC (IRC Section 25D). Savings assume full-retail net metering unless noted.

Official sources: EIA state electricity rates · NREL PVWatts · Energy.gov ITC guide · DSIRE incentives · SEIA market data · IRS Publication 5695.

All figures are estimates for educational purposes — not tax, legal, or investment advice. Consult a licensed installer and CPA for your situation.