Buying & Selling Credits
Section 6418 lets businesses sell clean energy credits for cash. See the 12 eligible credits, election rules, the 20% penalty and what changed under the OBBBA.
Author -
Paulestini Francois
Published -
READ TIME
Section 6418, also cited as 26 USC 6418, is the law that turned clean energy tax credits into something companies can buy and sell. It now supports a market of about $42 billion a year. Here's what IRC 6418 says, which credits it covers, how the election works, what triggers the 20% penalty, and what changed in 2025.
QUICK ANSWER
Section 6418 of the Internal Revenue Code lets a taxpayer sell an eligible clean energy or manufacturing tax credit to an unrelated buyer for cash. It covers 12 credits. The seller excludes the cash from income, the buyer can't deduct it, and an excessive transfer costs the buyer the excess plus 20%.
KEY FACTS
What is IRC 6418? The tax code section that allows the transfer of 12 clean energy and manufacturing credits to unrelated buyers for cash.
What is a transferable tax credit? A federal credit that its owner can sell to an unrelated taxpayer, who then claims it on its own return.
How many credits are eligible under Section 6418? Twelve, since Public Law 119-21 added the small agri-biodiesel producer credit. The IRS FAQ still lists 11.
What is the Section 6418 penalty? On an excessive credit transfer, the buyer's tax rises by the excess plus 20%; reasonable cause waives only the 20%.
Can a Section 6418 credit be sold twice? No. A credit can be transferred once, and the election is irrevocable.
Does Section 6418 cover the investment tax credit (ITC) and production tax credit (PTC)? Yes. It covers ITCs under Sections 48, 48E and 48C and PTCs under Sections 45, 45Y and others.
What is Section 6418?
Section 6418 of the Internal Revenue Code lets a taxpayer sell all or part of an eligible clean energy or manufacturing tax credit to an unrelated buyer for cash. The buyer is then treated as the taxpayer for that credit. A credit sold this way is what people call a transferable tax credit.
Congress added IRC 6418 through the Inflation Reduction Act of 2022, and it applies to tax years beginning after 2022. Treasury's final regulations appear at 26 CFR 1.6418-1 through 1.6418-5. The One Big Beautiful Bill Act of 2025 left transferability in place and added new limits. For a plain-language overview, read can you sell tax credits or our transferable tax credits guide.
Which credits are eligible under Section 6418?
Section 6418(f)(1)(A) now lists 12 eligible credits: Sections 30C, 45, 45Q, 45U, 45V, 45X, 45Y, 45Z, 48, 48C and 48E, plus the small agri-biodiesel producer credit under Section 40A. The IRS FAQ still shows 11 because Public Law 119-21 added the 12th for fuel sold or used after June 30, 2025.
Investment Tax Credit (ITC) types: Sections 48, 48E, 48C and the business portion of 30C.
Production Tax Credit (PTC) types: Sections 45, 45Y, 45X, 45Q, 45V, 45U and 45Z.
Fuel credit: The small agri-biodiesel producer part of Section 40A.
The statute excludes business credit carryforwards and carrybacks under Section 39. For Sections 45, 45Q, 45V and 45Y, the election is made facility by facility and year by year, over the 10-year credit period, or 12 years for 45Q.
Who is an eligible taxpayer under Section 6418?
An eligible taxpayer is any taxpayer that isn't an applicable entity under Section 6417(d)(1)(A). That covers corporations, partnerships, S corporations and individuals who earn a listed credit. It excludes tax-exempt organizations, state and local governments, tribal governments, Alaska Native Corporations, the Tennessee Valley Authority and rural electric co-ops.
The IRS FAQ gives this list. Those excluded entities use elective pay under Section 6417 instead. A taxpayer can't use one program's registration number for the other.
Buyers face a separate limit. Individuals, estates, trusts and closely held C corporations can buy credits, but the passive activity rules generally let them use purchased credits only against passive income tax liability. That's why most buyers are large corporations. Crux says 1 in 4 Fortune 1000 companies now participate.
What are the rules for a Section 6418 transfer?
A Section 6418 transfer must be paid in cash, go to an unrelated buyer and be elected by the return due date, including extensions. The election is irrevocable, a credit can be transferred only once, and the seller excludes the cash from income while the buyer can't deduct it.
Unrelated parties: The buyer can't be related under Section 267(b) or 707(b)(1).
Cash window: Payment must be in U.S. dollars, starting on the first day of the seller's tax year. A buyer can commit in advance if the payments fall inside that window.
Partial sales: A seller can sell portions to several buyers, but not more than the credit on that property. A bonus adder can't be split off alone.
Timing for buyers: The buyer takes the credit in its first tax year ending with or after the seller's tax year.
Progress expenditures: Credits allowed for progress expenditures can't be transferred.
Anti-abuse: The IRS can disallow a transfer with a principal purpose of avoiding tax beyond the intent of Section 6418.
How do partnerships and S corporations use Section 6418?
A partnership or S corporation that directly holds the property makes the Section 6418 election itself. Individual partners and shareholders can't. The cash counts as tax-exempt income under Sections 705 and 1366, and each owner's share follows its share of the credit that would otherwise have been allocated.
The rules are in 26 CFR 1.6418-3. Co-owners in a valid tenancy-in-common or a Section 761(a) election are treated differently: each owner's undivided share counts as its own property and can be sold separately. This matters in hybrid tax equity deals, which Crux says reached $28.8 billion of volume in H1 2026.
How do you make a Section 6418 election?
Complete IRS pre-filing registration, get a registration number for each property, sign a transfer election statement with the buyer, and attach it to a timely filed original return. The buyer attaches the statement to its own return. Without a valid registration number on the return, the seller can't make the election.
Registration is mandatory. The IRS says the statement covers both parties' names and tax IDs, the credit type and amount, the cash timing and amount, and the registration number. A purchase agreement can serve as the statement if it has the required content and is labeled "Transfer Election Statement." Our guides cover IRS pre-filing registration and Form 3800.
What is an excessive credit transfer?
An excessive credit transfer happens when a buyer claims more credit than the property can actually support. Under Section 6418(g)(2), the buyer's tax rises by the excess plus 20% of the excess. The 20% addition is waived if the buyer shows reasonable cause, but the excess itself is still owed.
The seller's retained credit acts as a cushion. In Treasury's example, a seller expecting $100 sells $60 and keeps $40. If the facility earns only $60, the seller loses its $40 and the buyer loses nothing. Sell $75 instead, and the buyer has a $15 excess and an $18 tax increase.
All buyers of credits from one property count as one for the calculation, and each bears a pro rata share. Recapture is a separate rule and isn't an excessive credit transfer. Careful diligence supports a reasonable cause defense, which is why buyers ask for cost segregation reports, and why many use a purchase checklist and tax credit insurance.
The buyer claimed $7.50M but only $6.00M is allowable, so $1.50M is excessive. The buyer's tax rises $1.80M, including the 20% addition. The $1.35M of cash tied to the excess loses Section 6418's tax-free treatment.
Illustrative only, one property in one tax year. All buyers on a property count as one, and each bears its pro rata share. Recapture is a separate rule and isn't an excessive credit transfer. Not tax advice.
What did the One Big Beautiful Bill Act change in Section 6418?
The One Big Beautiful Bill Act kept transferability but added Section 6418(g)(5), which bars selling Section 45Q, 45U, 45X, 45Y, 45Z and 48E credits to a specified foreign entity, for tax years beginning after July 4, 2025. It also added the small agri-biodiesel credit to the eligible list.
The bar doesn't list Sections 30C, 45, 45V, 48 or 48C. The law also applies separate prohibited foreign entity rules to some credits, and the market prices that risk: Crux reports discounts of about $0.015 for ITCs and $0.02 for PTCs subject to those rules. Section 6418 itself has no sunset date, so a credit stays saleable for as long as you can earn it. For the credit deadlines, see our OBBBA guide.
How big is the Section 6418 market?
Crux estimates about $42 billion of transferable credits sold in 2025, up from about $28 billion in 2024, and forecasts $47.5 billion to $49 billion for 2026. Sales reached $21 billion in the first half of 2026, including a record $14.9 billion in the second quarter.
The mix is shifting. PV Tech reports solar fell from 35% to 30% of the market and wind from 23% to 7.5%, while Crux says battery storage and 45Z clean fuels grew to fill the gap. Pricing averaged $0.913 for 2026 ITCs and $0.930 for 2026 PTCs. Our transfer market statistics page tracks more data.
U.S. transferable tax credit sales by year, $ billions
Credit sales, 2026 forecast: Crux forecasts $47.5B to $49.0B for the full year.
Sources: Crux, The State of Clean Energy Finance: 2026 Mid-Year report; Crux, guide to transferable tax credits; PV Tech, Aug. 18, 2026. H1 2025 is back-calculated from the reported year-on-year change.
Sources
Cornell Legal Information Institute, 26 U.S. Code § 6418, Transfer of certain credits
Cornell Legal Information Institute, 26 CFR § 1.6418-1, Definitions
Cornell Legal Information Institute, 26 CFR § 1.6418-2, Rules for making transfer elections
Cornell Legal Information Institute, 26 CFR § 1.6418-3, Partnerships and S corporations
Cornell Legal Information Institute, 26 CFR § 1.6418-4, Pre-filing registration
Cornell Legal Information Institute, 26 CFR § 1.6418-5, Special rules
Crux, Takeaways from the 2026 Mid-Year Market Intelligence Report
PV Tech, US clean energy tax credit transfers up to US$21 billion in H1 2026
Frequently Asked Questions
What is Section 6418?
Section 6418 of the Internal Revenue Code allows a taxpayer to sell all or part of an eligible clean energy or manufacturing credit to an unrelated buyer for cash. The buyer is then treated as the taxpayer for that credit. It applies to tax years beginning after 2022.
Which credits qualify for Section 6418?
What is the deadline for a Section 6418 election?
Who pays if the IRS reduces a transferred credit?
Can Cenet Capital help with a Section 6418 transfer?
Planning a Section 6418 transfer?
Cenet Capital helps sellers and corporate buyers structure Section 6418 transfers, from registration and diligence to pricing and credit insurance. Share your credit type, amount and tax year to get started.
More Insights
