Renewable Energy Tax Credits for Farmers: Solar, Wind, Biofuel, and More

Farms are uniquely positioned for renewable energy. They have acreage, sun exposure, organic feedstock, and infrastructure that most businesses can only envy. The tax code recognizes this, and the Inflation Reduction Act of 2022 extended and expanded a set of credits that can cut the cost of solar, wind, biofuel, and related installations by a third or more. When you combine the credits with accelerated depreciation, the first-year tax benefit on a renewable energy project can approach 60% of the total cost. That changes the math on projects that would otherwise take a decade to pay for themselves.

What’s the Investment Tax Credit for farm solar and wind?

The ITC under IRC 48 is a dollar-for-dollar credit against your federal income tax, calculated as a percentage of the cost of qualifying energy property placed in service during the year. The Inflation Reduction Act restructured the credit into a two-tier system. The base credit rate is 6%, but it increases to 30% if the project meets prevailing wage and apprenticeship requirements. For most farm installations, the 30% rate is available automatically: projects that begin construction with less than 1 megawatt of capacity, or that are under the labor hour threshold (roughly $1 million in installed cost for smaller projects), satisfy the requirements without additional compliance steps. Even for larger projects, the prevailing wage and apprenticeship rules are well-established and most qualified installers already comply.

The ITC covers several categories of property relevant to farms. Solar energy property includes photovoltaic panels, inverters, racking, and wiring used to generate electricity, as well as solar water heating equipment. Small wind energy property (turbines with a nameplate capacity under 100 kW) qualifies. Geothermal heat pump systems, which use underground temperature differentials for heating and cooling, qualify and are increasingly common in farm buildings with high climate-control needs (poultry houses, dairy barns, greenhouses). Battery energy storage technology was added by the IRA, with a minimum capacity of 5 kWh. Biogas property, meaning equipment that converts biogas (from manure digesters, for example) into electricity, heat, or fuel, also qualifies.

The credit has been extended through at least 2032 under the IRA, with a phase-down thereafter tied to national emissions reduction targets. If greenhouse gas emissions in the electric power sector drop below 75% of 2022 levels, the phase-down begins, but the credit is guaranteed through at least the end of 2032 regardless.

The ITC is claimed on Form 3468, and the credit flows to the taxpayer who owns the property and places it in service. Farmers who lease solar panels under a power purchase agreement do not claim the ITC (the lessor does), but farmers who purchase their own systems outright, or finance them with a loan, claim the full credit.

What’s the Production Tax Credit, and when beats the ITC?

The PTC under IRC 45 works differently from the ITC. Instead of a one-time credit based on cost, the PTC provides a per-kilowatt-hour credit for electricity generated from qualifying sources and sold to an unrelated party. The credit runs for 10 years from the date the facility is placed in service. For wind energy facilities, the inflation-adjusted credit rate is approximately $0.028 per kWh at the full 30% rate (with prevailing wage and apprenticeship), and $0.0055 per kWh at the 6% base rate.

For a farmer who owns wind turbines and sells the electricity, the PTC can be more valuable than the ITC if the installation generates substantial, sustained output over the 10-year credit period. The breakeven depends on capacity factor, electricity prices, and installation cost. For solar, the ITC is generally the better choice, especially for smaller installations where the upfront credit is more immediately useful and the farmer’s primary purpose is offsetting their own utility bill rather than selling power.

There’s an important restriction: for solar property placed in service after 2021, the taxpayer must elect either the ITC or the PTC, not both. You choose one. For wind property, the same election applies. The election is made on the return for the year the property is placed in service and is irrevocable.

Farmers who host commercial wind turbines on their land under a lease arrangement typically do not claim either credit themselves. The wind developer owns the turbines, claims the PTC (or ITC, by election), and pays the farmer a lease or royalty. That lease income is reported on Schedule F if the leased land is part of the farm operation, or on Schedule E if the lease is separate from farming activities.

How does the new Clean Fuel Production Credit (45Z) work?

The Clean Fuel Production Credit under IRC 45Z took effect January 1, 2025, and runs through December 31, 2027. It replaced several previously separate credits that had expired at the end of 2024, including the biodiesel and renewable diesel credit (former IRC 40A), the second-generation biofuel producer credit (former IRC 40(b)(6)), and the alternative fuel credit.

The 45Z credit is structured differently from the old credits. Instead of a flat per-gallon amount, it is based on the lifecycle greenhouse gas emissions of the fuel produced. Fuels with lower lifecycle emissions receive higher credits. For transportation fuel, the maximum credit is $1.00 per gallon for fuels with an emissions factor at or below zero (very low lifecycle emissions). For sustainable aviation fuel, the maximum is $1.75 per gallon. The credit scales down proportionally as the emissions factor increases, reaching zero for fuels at or above 50 kg CO2e per mmBTU.

For farmers who produce biodiesel from soybean oil, canola, or other agricultural feedstocks, the credit depends on the production process and the feedstock’s lifecycle emissions score. A well-managed soybean-biodiesel operation can achieve credits in the range of $0.50 to $1.00 per gallon, depending on the specific emissions analysis. Farmers producing cellulosic ethanol from agricultural waste, corn stover, or switchgrass can also qualify, as the cellulosic pathway typically scores favorably on lifecycle emissions.

The credit is claimable by the fuel producer, not the feedstock supplier. A farmer who grows soybeans and sells them to a biodiesel refinery does not claim the 45Z credit. A farmer who operates their own biodiesel processing facility and produces fuel from their own or purchased feedstock does claim it.

What happened to the old biodiesel and fuel credits?

The biodiesel credit under former IRC 40A provided a flat $1.00 per gallon for biodiesel and renewable diesel. It expired December 31, 2024, and was replaced by the 45Z credit described above. The second-generation biofuel producer credit under former IRC 40(b)(6) also expired at the end of 2024 and is now subsumed within 45Z.

Legislation has been introduced (H.R. 3137, Biodiesel Tax Credit Extension Act of 2025) to retroactively extend the old flat-rate credits, but as of September 2026, those bills have not been enacted. The 45Z credit is the operative provision for fuel produced in 2025 and beyond. Farmers producing biofuel should evaluate their eligibility under 45Z rather than relying on the potential return of the old structure.

Can USDA REAP grants be combined with the tax credits?

The Rural Energy for America Program (REAP), administered by the USDA, provides grants covering up to 50% of the cost of renewable energy systems and energy efficiency improvements for agricultural producers and rural small businesses. REAP is a grant, not a tax credit, and it can be combined with the ITC or PTC.

There is an interaction to be aware of: a REAP grant reduces the depreciable basis of the property. If you receive a REAP grant covering 25% of the cost and also claim the 30% ITC, the ITC applies to the full cost (not the post-grant amount), but the depreciable basis is reduced by both the grant amount and half the ITC amount. The net effect is still strongly favorable, but you need to model the combined benefit correctly.

REAP grants are competitive and require an application before installation. The application includes an energy assessment or audit, a project description, and financial documentation. Farmers who are planning a renewable energy project should apply for REAP early in the process, because installing before the grant is approved disqualifies the project.

How does depreciation work for renewable energy property?

Solar panels, small wind turbines, battery storage, biogas equipment, and biofuel processing equipment are all depreciable under the Modified Accelerated Cost Recovery System (MACRS). Solar energy property falls into the 5-year MACRS recovery class. Wind property is also 5-year. This means that even without bonus depreciation, the cost is recovered over five years using the 200% declining balance method.

With 100% bonus depreciation (now permanent under the One Big Beautiful Bill Act for property acquired after January 19, 2025), the full depreciable cost can be expensed in the first year. But if you also claim the ITC, the depreciable basis is reduced by half the ITC amount. So for a $400,000 solar installation with a 30% ITC ($120,000 credit), you reduce the depreciable basis by $60,000, leaving $340,000 for depreciation. You then expense that $340,000 in year one through bonus depreciation.

The interaction between the ITC and depreciation is where the combined benefit becomes striking. The farm equipment depreciation guide covers the mechanics of Section 179 and bonus depreciation in detail. For renewable energy property, the bonus depreciation route is typically more straightforward than Section 179, because the ITC basis-reduction rule applies identically and there are no Section 179 business-income limitations to worry about at the higher investment levels common in renewable energy projects.

How is net metering income taxed?

If a farm’s renewable energy system generates more electricity than the farm consumes, and the excess is sold back to the utility through a net metering arrangement, the income is taxable. For sole-proprietor farmers, it is generally reported on Schedule F as farm income if the solar or wind installation is part of the farm operation.

If the renewable energy operation grows large enough to become a separate business (for example, a multi-megawatt solar installation that dwarfs the farming activity), it may need its own Schedule C, or the farmer might operate it through a separate LLC or entity. The determination depends on whether the energy production is part of the farming trade or business or constitutes a separate trade or business. For most farms with rooftop or on-site solar that offsets the farm’s own utility bill and occasionally sends excess to the grid, Schedule F is the right place. The Schedule F guide covers the income categories in detail.

State net metering rules vary significantly. Some states provide credits rather than cash payments for excess generation, and the tax treatment of those credits depends on how the state program is structured. The federal rule is clear: any economic benefit received for excess electricity production is income.

What should I do next?

Renewable energy credits represent one of the largest planning opportunities available to farmers under current law. The combination of the ITC (or PTC), accelerated depreciation, and potential REAP grants can reduce the effective cost of a solar or wind installation to a fraction of the sticker price. For biofuel producers, the 45Z credit adds another layer of benefit.

The key is modeling the combined effect correctly. The ITC basis-reduction rule, the interaction with REAP grants, the choice between ITC and PTC, and the depreciation timing all need to be calculated together, not in isolation. A credit claimed on the wrong form, an election missed on the return, or a basis calculation that ignores the ITC reduction can cost tens of thousands of dollars.

These related guides cover the intersecting topics:

• Farm equipment depreciation: Section 179, bonus depreciation, and MACRS, the full breakdown of how accelerated depreciation applies to farm energy property
• Schedule F for farmers, where net metering income and energy-related expenses are reported
• Farm income averaging and Schedule J, smoothing the high-income year when a large credit and depreciation deduction create an unusual income profile

Related guides:

• General Business Credit: How Tax Credits Work Together and the Carryback and Carryforward Rules Under IRC 38

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.