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Commercial Solar for Nonprofits and Houses of Worship

A nonprofit or church that owns its solar array can receive the Section 48E federal credit as a direct cash payment from the IRS through elective pay (Section 6417), which was preserved under the One Big Beautiful Bill Act. The practical questions are whether the organization can fund the system until that payment arrives, whether it meets the registration and filing rules, and whether a power purchase agreement is the better fit for its balance sheet and board.

Ferrius Energy engineers and builds commercial solar for 501(c)(3) organizations, congregations, social service agencies, and cultural institutions in Massachusetts, New England, Florida, and Texas. We produce the numbers and documents a finance committee and board need to vote on, not a sales brochure.

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Last reviewed: September 2026. Tax summaries are general information, not tax advice. Confirm elective pay eligibility and filing obligations with your organization's accountant.

How elective pay works for a nonprofit, step by step

Elective pay, often called direct pay, lets an applicable entity treat certain clean energy credits as a payment of tax. Applicable entities include 501(c)(3) organizations, churches and other houses of worship, and state and local governments. Because a nonprofit usually owes no income tax, the full credit is refunded. Partnerships are not eligible, which matters if the nonprofit plans to own the array through a joint venture.

Own the system. Elective pay applies to property the organization owns. If a third party owns it under a PPA or lease, the third party claims the credit, not the nonprofit.
Place it in service. The credit is claimed for the tax year in which the system is placed in service.
Register before filing. Each facility must go through IRS pre-filing registration and receive a registration number. Registration can take up to 120 days, so it should begin well before the return is due.
File Form 990-T on time. The credit is claimed on Form 990-T with Form 3800 and the credit form. The due date is the 15th day of the fifth month after the end of the tax year, extendable six months with Form 8868. A late return forfeits the election. Churches that do not normally file an annual return still file a 990-T to claim the payment.
Receive the payment. The IRS pays after processing the return. Between construction and payment, the organization needs bridge funding, which is where many projects are won or lost.

What OBBBA changed, and what it did not

The One Big Beautiful Bill Act, enacted July 4, 2025, did not remove elective pay for tax-exempt owners of solar. It changed the timing of the underlying credit. Under Section 48E the base credit is 6 percent, and 30 percent for net output under 1 MW AC or where prevailing wage and apprenticeship are met. Solar facilities that began construction on or before July 4, 2026 are not subject to the 2027 placed-in-service deadline, subject to continuity rules; facilities beginning construction after July 4, 2026 must be placed in service by December 31, 2027. OBBBA also added foreign entity material assistance restrictions for projects beginning construction after December 31, 2025. The full picture is in our guide to the federal ITC and SMART 3.0.

The 1 MW line matters twice for nonprofits. Under 1 MW AC, the 30 percent rate applies without prevailing wage and apprenticeship. And under the elective pay domestic content rules, a facility of 1 MW or larger that begins construction in 2026 or later and does not meet domestic content receives no elective payment unless a cost or availability exception applies. Most congregations and small nonprofits are well under 1 MW; large institutions should plan equipment procurement around this rule.

Common Pitfalls

Rules that reduce a nonprofit's payment

Grants and restricted gifts

If restricted grants or forgivable loans plus the credit exceed the project's eligible cost, the credit is reduced under the excess benefit rule. A capital campaign gift restricted to solar counts. Build a sources and uses table before accepting it.

Tax-exempt bond financing

Where the project is funded with tax-exempt bonds, the credit can be reduced by up to 15 percent. Larger institutions with bond programs should model the effect or finance solar separately.

Missed deadlines

Elective pay has no late-filing cure. Organizations with volunteer treasurers should assign the registration and filing task to their outside accountant in writing.

Depreciation

A tax-exempt owner gets no benefit from 5-year MACRS or bonus depreciation. That is the main reason a PPA can sometimes offer a competitive price: the investor uses a benefit the nonprofit cannot.

Ownership versus a PPA for a tax-exempt organization

With elective pay available, direct ownership is now the default comparison, not the exception. But a PPA is still right for some organizations.

Choosing a structure: what tends to decide it
Situation	Usually favors	Why
Reserves or a capital campaign can fund the system	Ownership	Keeps the credit, bill savings, and state incentives
No capital and no appetite for debt	PPA	No upfront cost; pay only for delivered kWh
Small staff, no facilities manager	PPA, or ownership with a full O&M contract	Someone must own performance risk
Uncertain long-term occupancy of the building	Caution with both	A 20 to 25 year PPA or an owned array both assume the building stays
Bridge loan available against the expected credit	Ownership	Covers the gap until the IRS payment

A PPA contract deserves careful legal review: escalators, buyout schedules, roof access and removal terms, and what happens if the congregation merges or sells the building. For financing options, including loans sized against the expected credit, see commercial solar financing and how commercial solar financing works.

Board and congregational approvals

Nonprofit solar projects rarely fail on engineering. They fail in governance, usually months in, when someone discovers the vote that was taken was not the vote that was needed. Before we issue a final proposal, we ask the organization to confirm:

Who owns the building and land. Many congregations hold property through a diocese, synod, conference, or trust. Denominational approval of a long-term roof encumbrance or a PPA may be required.
What the bylaws require. Capital expenditures or long-term contracts above a threshold may require a full board or congregational vote, not a committee decision.
Historic and zoning status. Many churches and older nonprofit buildings sit in historic districts. Local historic commission review can govern visibility of roof arrays from the street.
Roof life. If the roof needs replacement within roughly 10 years, re-roof first. Removing and reinstalling an array later can erase years of savings.
Who files with the IRS. Name the person or firm responsible for registration and the 990-T in the board resolution.

We provide a board packet: the design, a 25-year cash flow for each structure, a list of assumptions, and a one-page summary for members who will not read the rest.

Massachusetts

SMART 3.0 and net metering for nonprofits

In Massachusetts, the SMART 3.0 program pays a 20-year tariff on solar generation. For Program Year 2026 the base rate is $0.2807 per kWh for systems above 25 to 250 kW AC, the band most nonprofit roofs fall into, and $0.2430 for above 250 to 500 kW AC. Systems of 25 kW AC or less receive a flat incentive of $0.03 per kWh. For behind-the-meter systems above 25 kW AC, compensation is the base rate plus adders minus the Value of Energy, so the tariff does not pay on top of bill savings in full.

A project can claim one location-based adder and one off-taker-based adder. The off-taker adders are where nonprofits most often ask questions:

Public entity adder, $0.04 per kWh

This adder is for public entity off-takers such as municipalities and state agencies. A private nonprofit or church is generally not a public entity, so do not assume it applies. Confirm eligibility against the SMART 3.0 definitions.

Low income property adder, $0.05 per kWh

Relevant to nonprofit affordable housing providers where the facility serves a qualifying low income property. Low Income Property also has a dedicated capacity set-aside in PY2026.

Location adders

A roof-mounted array qualifies for the Building Mounted adder of $0.03 per kWh. A canopy over the parking lot earns $0.08 per kWh, the largest location adder. See solar parking canopies.

Net metering credits also depend on whether the system serves on-site load. Many churches use most of their energy on weekends and evenings, so a large share of weekday midday generation is exported. We size the array to the real load profile rather than the roof area, and show the export share in the model. The full rate table and stacking rules are in our Massachusetts SMART program guide.

Outside Massachusetts

Elective pay is federal, so it works the same way in New Hampshire, Connecticut, Rhode Island, Maine, Vermont, Florida, and Texas. What changes is how exported energy is compensated and which state incentives exist. In states or utility territories where exports are credited at a low value, sizing to on-site load becomes more important, and battery storage can shift weekday production into evening use. We cover state specifics on our locations pages.

What we do for a nonprofit client

Feasibility. Roof and structural review, shading, 12 months of bills, and a load profile analysis.
Structure comparison. Ownership with elective pay versus PPA, with bridge financing costs included.
Documentation for the credit. Cost basis records, placed-in-service documentation, and equipment certifications your accountant needs for registration and the 990-T.
EPC delivery. Engineering, procurement, construction, and utility interconnection by our own team. See commercial solar EPC.
Operations. Monitoring and maintenance under a defined scope. See solar operations and maintenance.

Questions

Frequently asked questions

Can a church get the federal solar tax credit?

Yes. Churches and other houses of worship are applicable entities for elective pay under Section 6417. If the church owns the array, it can register the facility with the IRS and claim the Section 48E credit as a payment on Form 990-T, even if it does not normally file an annual return.

Is elective pay still available after the One Big Beautiful Bill Act?

Yes. OBBBA, enacted July 4, 2025, kept elective pay for tax-exempt owners but changed the timing of the solar credit. Solar facilities that began construction on or before July 4, 2026 are not subject to the 2027 placed-in-service deadline, subject to continuity rules. Those beginning construction after July 4, 2026 must be placed in service by December 31, 2027.

When does a nonprofit receive the elective pay money?

After it files a timely Form 990-T for the tax year the system was placed in service and the IRS processes it. Pre-filing registration can take up to 120 days. Most organizations need bridge funding to cover the period between paying the contractor and receiving the payment.

Should a nonprofit choose a PPA or own the system?

Ownership with elective pay usually delivers more lifetime value because the organization keeps the credit, bill savings, and state incentives. A PPA makes sense when there is no capital, no appetite for debt, or no staff to manage performance. We model both for the same design so the board can compare them.

Does the SMART public entity adder apply to nonprofits in Massachusetts?

Generally not. The $0.04 per kWh public entity adder is for public entity off-takers such as municipalities. A nonprofit affordable housing provider may qualify for the $0.05 per kWh low income property adder if the project meets program requirements. Confirm eligibility against current SMART 3.0 rules.

Sources

Internal Revenue Service, Domestic content bonus credit (elective payment phaseouts). irs.gov
Office of the Law Revision Counsel, 26 U.S.C. 6417. uscode.house.gov
Office of the Law Revision Counsel, 26 U.S.C. 48E. uscode.house.gov
Lawyers for Good Government, Elective Pay 101. lawyersforgoodgovernment.org
Reunion Infrastructure, Direct Pay and Domestic Content (Notice 2024-9 phaseout schedule). reunioninfra.com
Commonwealth of Massachusetts, SMART 3.0 Program Details. mass.gov
Commonwealth of Massachusetts, Net Metering Guide. mass.gov

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