Handbook: Tax credits
Handbook | October 2025
Our in-depth guide explains the accounting for various forms of tax credits in accordance with US GAAP.
Using Q&As and examples, we navigate the complexity inherent in a constantly evolving tax credit environment shaped by ongoing legislative and accounting developments.
Following the enactment of the One Big Beautiful Bill Act, this October 2025 update includes enhanced guidance – including key considerations in accounting for investments in pass-through entities that generate tax credits – and examples based on our recent experience in practice.
Applicability
- Entities that generate tax credits through participation in certain activities or ownership of qualifying property or obtain the benefit of tax credits through ownership of interests in pass-through entities.
Relevant dates
- Effective immediately
Tax credits: Pretax or income tax, or some of each
While tax credits are typically claimed on the income tax return, there is diversity in how they are accounted for in the financial statements. This diversity arises from a number of factors, including:
- who generates the tax credit;
- how the tax credit can be monetized; and
- what the tax credit is designed to incentivize.
Adding to this diversity are the policy choices in US GAAP – of which there are many – and practices that have developed over time as entities try to apply the limited guidance available.
The Inflation Reduction Act (IRA) ushered in a new era of credit monetization – introducing elective payment (direct pay) and third-party transfer provisions that expanded access to tax credits well beyond the traditional tax-paying population. Now, with the enactment of the One Big Beautiful Bill Act (OBBB), the landscape is evolving again. The bill accelerates phase-outs, repeals certain credits altogether, and imposes new eligibility restrictions – while preserving many of the mechanisms that have transformed how tax credits are used and reported.
Report contents
- Overview of US federal tax credits
- Refundable credits
- Nonrefundable, nontransferable tax credits
- Transferable credits
- Tax equity structures: How they work and what accounting models apply
- Tax equity investments: Applying the equity method
- Tax equity investments: Applying the PAM
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