Carbon Credits: An Often-Overlooked Tax Strategy for High-Profit Business Owners
Ascent Wealth Strategies
If your business generates $2 million or more in annual net profit, you already know that federal taxes are your single largest expense. You also know that most of the conventional playbook has already been exhausted: retirement plan contributions are maxed, depreciation schedules are running out, and your CPA’s primary role is accurate filing, not proactive tax reduction.
What many successful business owners do not realize is that the federal tax code contains a powerful, codified tax credit tied to carbon capture that can meaningfully reduce your current-year federal tax obligation. And because it operates as a credit rather than a deduction, the math is significantly more favorable than strategies that merely reduce taxable income.
Below, we break down what carbon capture tax credits are, the relevant tax code provisions, how they work in practice, and why they may be the most overlooked tool in the advanced tax planning toolbox for 2025 and beyond.
What Are Carbon Capture Tax Credits?
Carbon capture tax credits are federal incentives under Internal Revenue Code Section 45Q.¹ They were originally established in the Energy Improvement and Extension Act of 2008 and have been expanded several times since, most recently through the Inflation Reduction Act of 2022 and the One Big Beautiful Bill Act (Public Law 119-21) signed on July 4, 2025.²
The basic premise: companies that invest in technologies to capture carbon dioxide from industrial sources or directly from the air, and then permanently store or repurpose that captured carbon, earn a dollar-for-dollar tax credit for every metric ton of carbon oxide captured and sequestered. These credits are verified by the IRS and backed by EPA monitoring and reporting requirements.
Credit values are set by statute at up to $85 per metric ton for point-source industrial capture and up to $180 per metric ton for direct air capture facilities, with inflation adjustments scheduled to apply in subsequent taxable years.³
Credits vs. Deductions: Why the Distinction Matters
A tax deduction reduces your taxable income. A tax credit reduces the actual tax you owe, dollar for dollar. For a business owner in the 37% federal bracket, a $100,000 deduction saves approximately $37,000 in tax. A $100,000 credit saves $100,000 in tax. That difference is significant.
Section 45Q carbon credits operate as general business credits under the Internal Revenue Code. And thanks to the transferability provisions preserved under both the Inflation Reduction Act and the One Big Beautiful Bill Act, businesses can now purchase these credits from qualified carbon capture developers at a discount to their face value. The statutory authority for this transfer is found in Internal Revenue Code Section 6418, which allows eligible taxpayers to elect to transfer certain credits to unrelated third parties for cash.⁴ This is the mechanism that opens the door for business owners who are not themselves in the carbon capture industry.
How Transferable Carbon Credits Work for Business Owners
The Inflation Reduction Act introduced a transferability mechanism that allows the original holders of certain tax credits, including Section 45Q, to sell those credits directly to unrelated third-party taxpayers. The buyer acquires the credit at a negotiated discount, applies it against their own federal income tax liability, and does not recognize the discount as taxable income.
In practice, this means a business owner with a significant federal tax liability can purchase verified, codified carbon credits from a qualified developer. When properly structured, credits can be acquired at a meaningful discount to face value. Every dollar of credit applied reduces federal tax liability dollar for dollar, and the spread between the purchase price and the credit amount represents potential savings.
The credit transfer market has grown substantially. Recent industry estimates place annual transfer volumes in the tens of billions of dollars, with hundreds of corporate buyers now active across credit types and deal sizes. The market infrastructure — including insurance products, indemnification agreements, and standardized due diligence protocols — has matured considerably in recent years.
The Relevant Tax Code Provisions
Several interconnected provisions of the Internal Revenue Code govern how carbon credits work:
Section 45Q establishes the credit itself, defining the per-ton credit amounts, the types of qualifying carbon capture activities, and the 12-year window during which a qualifying facility can generate credits.
Section 6418 (added by the Inflation Reduction Act) provides the statutory authority for credit transferability. This is what allows a carbon capture developer to sell its credits to an unrelated buyer for cash.
Section 469, which governs passive activity loss limitations, has been a point of discussion for carbon credits.⁵ The key distinction is that when a taxpayer purchases a transferable credit under Section 6418, they are not actively or passively participating in the underlying activity. This nuance is important, and qualified tax counsel should provide guidance specific to your situation.
The One Big Beautiful Bill Act preserved and expanded Section 45Q in several meaningful ways. It maintained the up-to-$85 per metric ton credit for point-source capture and up-to-$180 for direct air capture. It created parity between storage and utilization credits, meaning the same credit value applies regardless of whether captured carbon is stored underground or used in enhanced oil recovery. And it preserved the transferability framework, while adding restrictions on foreign entities of concern.
Looking Back: Applying Credits to Prior-Year Tax Liabilities
For business owners filing returns for recent tax years, carbon credits generated in a given tax year can typically be purchased and applied against that year’s federal tax liability. The IRS has issued formal guidance supporting this framework — including Notice 2026-01, which established a safe harbor for businesses claiming Section 45Q credits for carbon captured and stored during the relevant calendar year.⁶
The availability of credits for prior-year application is limited by supply. Developers who have generated credits in a given year have a finite pool to sell. This is a market where acting sooner rather than later matters, particularly for business owners looking to address an already-known tax liability.
Looking Forward: Building This Into Your Annual Tax Planning
The forward-looking planning opportunity is substantial. Credit values are codified in statute, with inflation adjustments scheduled to apply in subsequent taxable years. The transferability framework is intact. And as more carbon capture facilities come online, the supply of available credits is expected to grow.
For business owners with predictable, high net profit, incorporating transferable carbon credits into annual tax planning creates a repeatable strategy. Each year, a portion of the anticipated federal liability may be addressed by purchasing credits at a discount, generating potential savings that can compound over time.
Why Carbon Credits Are Often Overlooked
There are several reasons transferable carbon credits remain underutilized among the high-net-profit business owner community:
First, many CPAs operate in a compliance role rather than a strategic planning role. They are experts at accurately preparing returns. Proactively identifying and sourcing transferable tax credits from carbon capture developers is a fundamentally different skill set that typically requires relationships with specialized providers.
Second, the transferability mechanism is a relatively recent addition to the tax code, introduced by the Inflation Reduction Act of 2022. Much of the market infrastructure is still maturing. Many advisors are simply not yet familiar with it, or do not have the due diligence framework to evaluate credit quality.
Third, the overlap between environmental policy and tax strategy creates a perception issue. Business owners hear “carbon credits” and think of voluntary offset markets. Section 45Q credits are codified in the Internal Revenue Code and verified through federal reporting requirements. They are not voluntary market credits.
Due Diligence and Risk Considerations
As with any tax strategy, proper due diligence is essential. Key considerations include verifying that the carbon capture developer holds valid credits that meet Section 45Q requirements, ensuring proper documentation under Section 6418 for the transfer, and evaluating the developer’s indemnification provisions in the event of a credit challenge by the IRS.
Many reputable providers offer indemnification provisions, and the specific terms — including scope, caps, survival periods, and treatment of interest and penalties — vary by provider and should be carefully evaluated. Tax credit insurance products have also become available and may provide an additional layer of protection in certain transactions.
As always, consult with qualified tax counsel before executing any strategy. A tax attorney who can issue a “more likely than not” opinion letter under Internal Revenue Code Section 6662 may provide important penalty protection in the event of an audit.⁷
The Bottom Line
Carbon capture tax credits under Section 45Q represent one of the more effective, underutilized tax reduction strategies available to high-profit business owners today. They are codified in federal law, supported by a maturing market infrastructure, and available at a meaningful discount to face value. For business owners generating $2 million or more in annual net profit, the potential savings are significant and the strategy merits serious evaluation.
Whether you are looking to address a current-year liability or build a forward-looking tax plan for future years, carbon credits belong in the conversation alongside retirement plan optimization, cost segregation, and the other advanced strategies that separate proactive planning from simple compliance.
References and Citations
1. Internal Revenue Code § 45Q — Credit for Carbon Oxide Sequestration. 26 U.S.C. § 45Q. See also IRS overview: “Credit for Carbon Oxide Sequestration (Section 45Q)” at IRS.gov.
2. One Big Beautiful Bill Act, Public Law 119-21, signed July 4, 2025 (H.R. 1, 119th Congress). Full text available via Congress.gov.
3. 26 U.S.C. § 45Q(b)(1). Credit values were modified under § 70522 of Public Law 119-21, with inflation adjustments applying to taxable years beginning after 2026. See also Congressional Research Service, “The Section 45Q Tax Credit for Carbon Sequestration.”
4. Internal Revenue Code § 6418 — Transfer of Certain Credits. 26 U.S.C. § 6418. Enacted by the Inflation Reduction Act of 2022, Public Law 117-169.
5. Internal Revenue Code § 469 — Passive Activity Losses and Credits Limited. 26 U.S.C. § 469.
6. IRS Notice 2026-01, “Safe Harbor for the Credit for Carbon Oxide Sequestration under Section 45Q” (December 19, 2025). Issued jointly by the Department of the Treasury and the Internal Revenue Service.
7. Internal Revenue Code § 6662 — Imposition of Accuracy-Related Penalty on Underpayments. 26 U.S.C. § 6662.
Important Disclosures
Ascent Wealth Strategies is a DBA of Clear Creek Financial Management, LLC, a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Clear Creek Financial Management, LLC and its representatives are properly licensed or exempt from licensure.
This article is for informational and educational purposes only and does not constitute tax, legal, or investment advice. Tax laws and regulations are complex and subject to change. The information presented here is based on current understanding of the Internal Revenue Code and recent legislative developments as of the date of publication. Individual results will vary based on specific circumstances.
Readers should consult with their own qualified tax advisor, CPA, and/or tax attorney before implementing any tax strategy discussed herein. Neither Ascent Wealth Strategies nor Clear Creek Financial Management, LLC provides tax or legal advice. References to specific sections of the Internal Revenue Code are for informational purposes and should not be relied upon as definitive guidance without independent professional review.
No representation is made that any tax strategy will achieve the results described. Tax credits, including transferable credits under Section 45Q and Section 6418, are subject to IRS rules, limitations, and potential audit. Past availability of credits does not guarantee future availability.