Buying transferable solar tax credits as an individual: how §6418 works and who it fits

By the Tax Field Guide editorial team. Published 2026-10-26. Facts checked 2026-10-26. Related strategies: Purchased Energy Credits, Solar Investment Credits.

Education only; not tax, legal or investment advice. Tax rules change, and how they apply depends on your facts. No outcome is guaranteed.

Since 2023, many clean energy credits can be sold for cash under §6418.¹ Buyers usually pay less than face value, so a company or person with the right kind of tax liability can reduce tax at a discount. This guide covers how the purchase works for an individual, and the limit most individuals hit.

How a purchase works

The IRS describes the steps for a buyer (the "transferee"):²

1. Agree to buy an eligible credit from an unrelated party, paying only cash.
2. Get the registration number of the credit property and the other information you need from the seller.
3. Sign a transfer election statement with the seller.
4. Claim the credit on your return for the year it is taken into account, attaching the statement and including the registration number.

Paying less than face value does not create income: the final regulations say a buyer who pays $9 for $10 of credit does not include the $1 difference in gross income.³ The cash paid is not deductible.¹

The limit for individuals: passive income only

The final regulations treat a purchased credit as subject to the passive activity rules of §469.³ The IRS FAQ puts it plainly: individuals "can only use purchased credits to offset passive income tax liability" in general, and "most taxpayers do not have passive income tax liability."² Wages and portfolio income are not passive.⁴ So the people for whom buying credits can work are mostly those with substantial passive income, for example from rental real estate or from businesses in which they do not materially participate. For the details, read solar credits and the passive activity rules.

The buyer inherits the risk

If the IRS later reduces the credit (for example, because the project's cost basis was inflated), the buyer, not the seller, generally has to repay the excess, and can owe an additional 20% penalty on an excessive credit transfer unless reasonable cause is shown.¹ Recapture events at the project can also fall on the buyer.¹² That is why diligence on the underlying project matters, and why the same three red flags apply:

• zero-down or no-money-out-of-pocket pitches;
• 0% or below-market seller financing;
• equipment valued well above suggested retail or market price.

Practical questions

1. How much of my tax is attributable to passive income, really? (Your preparer can model this on Form 8582-CR.)⁵
2. Who prepared the project's cost basis, and is there an independent appraisal or cost report?
3. What indemnity or tax credit insurance backs the deal, and from whom?
4. Is the project subject to the 2026 to 2027 construction and placed-in-service dates? See the solar credit in 2026.

Firms that arrange credit transfers are listed on the purchased energy credits strategy page, with their evidence scores, for example Crux.

Related reading

A purchased credit that is allowed only against the regular income tax does not reduce the 3.8% net investment income tax; see do tax credits reduce the net investment income tax?. State credit markets work differently: how state tax credit transfers work.

Common questions

Can an individual buy solar tax credits?

Yes. Individuals can buy eligible credits under §6418, but the credits are subject to the passive activity rules, so they generally offset only tax on passive income.

Is the discount on a purchased tax credit taxable?

No, under the final regulations the buyer does not have gross income because it paid less than face value, assuming the other §6418 requirements are met. The amount paid is not deductible.

What happens if the IRS reduces a credit I bought?

The buyer generally owes the excess, and may owe an additional 20% penalty on the excessive credit transfer unless it shows reasonable cause.

Education only; not tax, legal or investment advice. Talk to a qualified professional before acting.

Sources

1. 26 U.S.C. §6418, https://www.law.cornell.edu/uscode/text/26/6418
2. IRS, Elective pay and transferability FAQs: transferability, https://www.irs.gov/credits-deductions/elective-pay-and-transferability-frequently-asked-questions-transferability
3. Treas. Reg. §1.6418-2(f)(2) and (f)(3), https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR97a4759977382b4/section-1.6418-2
4. IRS Publication 925, Passive Activity and At-Risk Rules, https://www.irs.gov/publications/p925
5. IRS, Instructions for Form 8582-CR, https://www.irs.gov/instructions/i8582cr