Carbon Credits: An Often-Overlooked Tax Strategy for High-Profit Business Owners
Updated September 5, 2026.
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
Companies that capture qualifying carbon oxide and meet Section 45Q’s storage or utilization requirements may earn a federal income tax credit. The developer must substantiate eligibility and satisfy applicable monitoring, reporting and verification rules. An IRS registration number is not IRS approval of the credit, its amount or the purchaser’s eligibility to use it.
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, a potential purchaser must establish that it can use the credit before negotiating price. Eligibility, general business credit limits and passive activity rules can prevent a credit from offsetting the tax the purchaser expected to reduce. A discounted purchase price alone does not establish a usable tax benefit.
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’s passive activity credit limitations generally apply to purchased credits for individuals, estates, trusts and closely held C corporations. An individual generally needs qualifying passive income to use these credits; purchasing a credit does not make salary or active operating-business income passive. Qualified tax counsel should model the purchaser’s actual ability to use a transferred credit before any commitment.⁵
The One Big Beautiful Bill Act preserved Section 45Q transferability and changed several eligibility rules. Its parity in credit values for storage and certain utilization applies to qualifying facilities or equipment placed in service after July 4, 2025. Prevailing-wage and apprenticeship requirements, facility characteristics and foreign-entity restrictions can also affect eligibility and the available amount.
Match the Credit Year and Filing Deadlines
A transferred credit must be assigned to the proper tax year and reported under Section 6418’s election and return rules. Notice 2026-1 provides a specific safe harbor concerning evidence of secure geological storage for 2025; it does not create general permission to buy credits and apply them to any prior-year tax liability. Have tax counsel verify the credit year, required documentation and election deadline.⁶
A late-stage purchase is not a substitute for establishing eligibility. Availability of a credit in the market does not extend a filing deadline or overcome a purchaser’s limitations.
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 a business with recurring eligible tax liability, transferred credits may warrant periodic evaluation. Recheck the applicable law, the buyer’s limitations and each project’s documentation for every tax year; availability and savings are not assured.
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.
Obtain independent tax and legal review before purchasing credits. A tax opinion is not an IRS approval or a guarantee against penalties. Indemnities and insurance depend on their terms and the provider’s ability to pay; they do not eliminate disallowance, recapture or transaction risk.
The Bottom Line
Section 45Q credits can be relevant for eligible purchasers, but high business profit alone does not establish a fit. Begin with the type of taxpayer, the character of its tax liability and the applicable credit limitations. Only then evaluate project quality, documentation, pricing and risk.
The practical next step is a calculation with the CPA and independent tax counsel of what credit, if any, the purchaser could actually use. The transaction should make sense after restrictions, fees and risk are included.
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 2026-1, safe harbor for qualified carbon oxide disposed of in secure geological storage in calendar year 2025.
7. Internal Revenue Code § 6662 — Imposition of Accuracy-Related Penalty on Underpayments. 26 U.S.C. § 6662.
Important Disclosures
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.
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.
Sources for this update: IRS transferability FAQs; IRS Notice 2026-1.
