Understanding timelines: purchase, carry-back and refund timings for tax credit buyers

Though it’s early in the 2026 tax year, many renewable energy tax credit buyers are beginning to think about their tax credit purchase strategy for the new year. At the same time, many buyers are still actively looking for 2025 credits after finalizing their tax liability calculations and having certainty on how much tax they will pay.

This guide covers timing for all types of buyers: those planning in advance, those coming later to the market, and also those doing carry-backs to previous years.

The key summary is that there is no “one size fits all” solution and that some buyers may see better results by participating early in the market, while others may see better results by coming closer to tax filing. It is important to understand the main options and considerations for each, before making a decision on what works best for each taxpayer.

Main considerations to inform your strategy

There are a few key principles to keep in mind for planning tax credit purchases:

1. Purchasing early in the year enables buyers to have more purchasing power as demand is weaker, leading to better pricing and more optionality.
2. On the other hand, in general, later in the year demand picks up and supply shrinks, leading to fewer tax credit options and higher pricing. This trend is even stronger after the new year and right before tax filing.
3. While purchasing early may seem ideal, there is a risk of over-purchasing (if you overestimate your expected tax liability) or under-purchasing (if you would’ve had capacity to buy more credits and save more). Coming to the market closer to tax filing allows taxpayers to optimize the right amount to purchase.
4. The IRS allows buyers to adjust their quarterly estimates based on tax credit purchase made or expected to be made. Typically, you’ll want to have at least some level of commitment (like a signed term sheet) to be able to reduce estimated payments and to avoid paying penalties. This mechanism favors early purchases to maximize quarterly offsets.
5. If you haven’t offset your quarterly estimates, you have two options to receive a refund: waiting until you file taxes (generally, October 15^th, if extended) or filing a Form 4469 on or after January 1^st but before April 15^th for an early refund of estimated overpayments. Form 4469 provides some relief for buyers that missed quarterly estimates, reducing the need for buying as close to filing as possible.
6. Tax credits can be carried back 3 years (and forward 22 years) which opens up opportunities for buyers who didn’t leverage tax credits in previous years. However, the process requires careful consideration. Carry-back refunds are not materialized until after tax filing, favoring later purchases for buyers planning to do carry-backs.

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Now, let’s jump into it. We will cover (i) early tax credit purchases and planning, (ii) end of year tax purchases, (iii) purchases made in the following year and (iv) carry-backs.

Early Planning and Tax Credit Purchases

If you have visibility on your taxable income, planning your purchases early in the year will certainly yield the best results.

Early in the year, when there is more tax credit availability and less buyer appetite, buyers have more optionality on the type of tax credit, the technology, and sponsor financial strength, as well as more leverage on pricing and terms. 

First, let’s go through the main items to consider as an early buyer to optimize the tax credit purchase:

1. The earlier you have certainty about the purchase occurring (e.g., term sheet or purchase agreement signed), the better, so that you can start saving on quarterly estimates.
2. Additionally, the later the stage of the transaction and hence the higher the certainty of closing (i.e., “I plan to” vs LOI vs term sheet vs Purchase Agreement) the better for tax credit buyers to feel comfortable offsetting estimated tax payments. For earlier stages of a transaction, it is advisable not to offset payments or to reduce the offset amount.
3. The construction status of the project matters: if projects haven’t been completed yet, a delay could add closing risk. Furthermore, IRS guidance suggests that a tax credit should not be taken into account by a transferee until the project is placed in service.
4. And, of course, the later that you pay, the better. This is a commercial term to be negotiated, although in general it is common to execute the agreement and pay simultaneously. This is a great example where early market participants will have additional leverage.

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With these levers in mind, the ideal scenario for a tax credit buyer coming early into the market is that:

1. The buyer locks in something (e.g., term sheet) before their Q1 estimated tax payments so that they can already offset part of it while leveraging better market terms.
2. The project or portfolio that was selected has already been placed in service or is about to be, so there is little to no delivery risk.
3. The buyer closes the transaction in Q2, which allows you to fully offset your Q2 payments.
4. The buyer negotiates paying later in that quarter so that they can better time cash payments, and by the time they pay the tax credit seller, they’ve already received 2/3 of the investment (2 quarters of taxes: Q1 and Q2), and they’ll only have 3 months to recoup the rest (Q3 estimated tax payments). Some sellers may accept further out payments, but it’ll come at the expense of other commercial terms.

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The above process would work very similarly if a buyer engages a transaction in Q2 and closes in Q3, which may be more attainable for the average buyer. In such a scenario, the buyer would also be able to roughly offset two quarterly estimated payments before actually paying cash, with the main drawbacks being potentially less purchasing leverage for buyers and fewer quarters left as a buffer if the transaction closing is delayed. 

We won’t cover this in detail, but doing more than one closing, if a buyer is purchasing tax credits from a portfolio or a strip of production tax credits (PTCs), can be a good way to smooth out payments and optimize cash, although it comes with a bit more operational complexity in terms of closings and underwriting. Of these options, quarterly closings of PTCs may be the best one, because you only do one underwriting and the delivery of credits is more predictable.

Example:

Let’s go through an example with actual numbers to see how the above would work in a real case.

For sake of argument and to make it easier to follow, let’s assume that Buyer A expects to pay roughly $20 million in federal tax (“tax liability”). To keep it simple, we will also assume a steady revenue profile, so Buyer A will be paying $5 million in taxes on every quarterly estimate. 

Since they can only offset 75% with general business credits, that means they could purchase $15 million of tax credits (the “tax appetite”). Assuming the buyer is able to find a $15 million tax credit at a  discount of around 7-10%, the cash price will be $13.5 million (the “paid amount”).

They follow the above advice and kick off a transaction in mid-February 2026:

• They could theoretically already offset their entire Q1 $5 million estimated tax payments. Whether or not they do so will depend, as explained above, on whether the project has been placed in service and whether the transaction is in an advanced or more certain stage.
• The transaction process takes 2.5 months and closes in early May, with payment due within two weeks of closing. As such, they pay $13.5 million in cash to the seller on May 15^th.
• Now, they would be able to confidently offset $5 million in their June 15^th payment (Q2 estimate), 1 month afterwards.
• Lastly, they would offset the remaining $5 million in their September 15^th payment (Q3 estimate), 4 months afterwards.

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Without requesting any delays in payment timings, they would have recouped the full investment in 4 months, with one third of it being offset before payment and another third being offset within a month, leading to a very substantial time-based yield (>100% IRR).

The outcome would be very similar for a May 15^th engagement closing in August.

 As a result, buyers who can enter the market early can achieve strong outcomes, combined with gaining transaction leverage given fewer competing buyers.

‍Tax Credit Purchases Later in the Year 

If, like a large share of buyers, you have to enter the market later in the year, the outcomes can still be very good, especially if buyers are aware of the key levers to optimize the outcome.

The main considerations to keep in mind are:

1. As the end of the year approaches, prices typically go up (maybe $0.01 to $0.02 more by end of Q4). The earlier that a project is secured, the better.
2. Offsetting quarterly estimates is key for cashflow, so closing before December 15^th is a big unlock if you are buying late in the year, and having some certainty before September 15^th provides even more benefit by allowing further offsets before filing for a refund.
3. Buyers don’t have to wait to file to receive a refund and can, after December 31^st, file Form 4466 to get a “quick refund of excess estimates” or, put differently, a refund for the overpayment that they made in early quarters by not accounting for the credits purchased. More on this form below.
4. One of the main things to consider for end of year purchases is the risk of projects being placed in service before the end of the year. Therefore, if you are buying credits from projects that “will be placed in service before the end of the year”, it is advisable not to offset payments until the projects have been placed in service. It is not uncommon for projects to have last minute delays and “slip” into the new year.

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Now, let’s go back to our $15 million purchase and what the ideal scenario would be assuming a “later in the year” purchase:

1. Buyer A signs a term sheet before September 15^th, and offsets some of their Q3 estimates. Since the assets have been placed in service and the transaction looks certain, they offset $3M (leaving some buffer).
2. The buyer manages to close the transaction, with no loose ends, before December 15^th, so that they can fully offset the $5 million Q4 estimated tax payment.
3. Immediately after December 31^st, they file Form 4466 to receive a refund for the overpaid amount – in this case, $7 million. They may want to be conservative with the size of refund you request so that they do not cut it too close and avoid penalties for underpayment. For that purpose, they may only offset $6 million. It will take the IRS ~45 days to process and a few more to make payment, so probably the buyer may receive the cash by March/April.
4. You may be able to further optimize cash flow by negotiating later payment terms, but at this time in the year it may come at the expense of commercial terms or reduce the range of credit options.

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It is very important to file Form 4466 as soon as possible to realize the gains, especially if you don’t manage to offset in Q3 or even Q4 (e.g., if you didn’t close by December 15^th and prefer to be conservative).

Running the numbers in the above case, the cash timing is very similar to the ones described in the “early purchases” scenario, especially if the buyer manages to offset Q3 tax payments. The main disadvantage will be potentially higher pricing and less leverage as a buyer on transaction timings and other commercial terms. The other disadvantage may be that buyers may want to be more conservative on the amount requested in Form 4466, forcing them to leave some amount on the table until their taxes are filed.

About Form 4466:

Form 4466, the “Corporation Application for Quick Refund of Overpayment of Estimated Tax”, enables corporations to get cash back quickly when they have overpaid estimated taxes during the year. This is especially relevant for tax credit buyers because you might pay estimates early in the year based on your expected tax liability, then later reduce the final liability with purchased credits, which would leave you with an estimated tax overpayment.

The IRS is required to act on the case within 45 days (i.e., maximum processing time), but refund timings are subject to IRS times. In general, it should take a couple of months to see the cash back.

It is important to note that (i) you can only file after 12/31, (ii) you can only file before your Form 1120 or original tax filing and (iii) the threshold of overpayment has to be 10% of your expected income tax liability or $500 (which we assume everyone reading this would meet).

For more information about Form 4466, refer to the IRS Instructions or to the Form 4466 IRS Page.

Credit purchases made in the following year

A large share of credit purchases happen in the year after the credit has been earned, and before filing taxes (the deadline). The main reason behind this trend is that a fair number of buyers prefer to finalize their tax calculations before participating. Transaction delays are also a driver of closings happening after the new year.

If you find yourself in this bucket, you are probably benefiting from higher certainty on the amount to purchase. However, there are a few things to consider:

1. As September 15^th of the following year approaches (the extension deadline for partnerships or most transferee taxpayers), the availability of options shrinks and most likely the price goes up. Remember, we’re talking about purchases made in the year after the credit is earned (e.g., 2026 if purchasing a 2027 project).
2. Additionally, the closer to September 15^th, the higher the time pressure to close the deal and hence the risk of the transaction not closing. The impact of that is more meaningful for the transferee, who will not be able to transfer the credit any longer.
3. The closer to tax filing that payment and/or closing occurs, the better the cash timing, although buyers always have the option to file Form 4466 for a refund if they close before April 15^th.
4. It is worth noting that you need to close the transaction before you file your original tax filing for the transaction to be valid, which means that you need to file for an extension if you close past April 15^th.

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In this category there is less room for optimization beyond paying closer to filing or filing a Form 4466 right away (only if you close before April 15^th). However, there are a couple of important dates to track:

• March 15^th: If you close a transaction past this date, you should ensure that the transferee has filed for an extension and not filed an original return.
• April 15^th: You cannot file Form 4466 any longer and you need to file for an extension if you haven’t closed yet.
• September 15^th: Unless the transferee is a corporation (less common), this is the deadline to transact – no transaction will be valid past this date (or the applicable deadline, for example if it falls in a weekend).
• October 15^th: This is your deadline to file, you need to recognize the transaction in an original tax return that is filed in a timely manner.

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Carry-backs to previous years

The Inflation Reduction Act introduced carry-back and carry-forward provisions to tax credits, allowing taxpayers to carry-back credits up to three years and carry-forward up to 22 years. 

The carry-forward provision serves more as a safety net for taxpayers to use the credit in upcoming years if they cannot fully utilize it in the year that it is earned. The carry-back provision is a tool used by some buyers to take advantage of unused tax capacity from previous years. This section will focus on the carry-back mechanism and how it can be used effectively.

With carry-backs, buyers can utilize their excess tax capacity from up to three years back, but there are specific rules around how it can be done and timing considerations that need to be evaluated by buyers to ensure the carry-back strategy is worth it for them.

Ordering Rules:

First, you need to account for all your credits in your current tax year and you then need to go back to the earliest year in the carry-back window, then the second, and lastly the third (i.e., the previous year to the current one). This means you cannot choose the year in which to carry-back the credit, there is a specific ordering. As an example, for 2026 you would first start with 2026 (current year), and then go back to 2023 first, then 2024 and lastly 2025.

While these ordering rules are not something that should be a dealbreaker for doing a carry-back, they are important to account for when thinking through the strategy.

Carry-back timings:

Second, carry-backs cannot be recognized until you file your original tax return for the current year, after which you can file Form 1139 or an amended tax return for each year.

This is a critical point that buyers considering carry-backs may not be aware of, as the “time value of money” or cash timing considerations may change the equation to whether a carry-back is worth it.

For example, if a buyer purchased 2026 credits in May 2026 with the intention of doing a carry-back, they wouldn’t be able to claim a refund until late in 2027, depending on when they file their tax returns (e.g., if filed in October 15^th, it could take them well over a year).

There are two main options to materialize the carry-back: (a) filing Form 1139 (tentative refund), which is the fastest way or (b) filing Form 1120x (amended tax return), which could be preferable in situations where further changes are being made to previous tax returns.

If you choose to file 1139, you can do so within 12 months of the end of the credit year, which means the end of the following year. For example, if you purchase a 2026 credit that you intend to carry back, you’d have to file by 12/31/2027.

The IRS processes within ~90 days of the complete application or the return due date (including extensions), hence why timings are critical.

Other specific rules to consider:

Lastly, there are a couple of other specific rules around carry-backs that should be considered when making the decision.

First, while not a rule per se, you may want to hold on requesting carry-backs until you have fully finalized your tax return, not just filed. Since your carry-back refund is calculated based on your “origin year” credit computation, any changes to that calculation could trigger an “excessive refund” situation which could create administrative complications.

As such, buyers should avoid filing Form 1139 if there are open items in the tax return that may be superseded. And, especially, they should avoid the temptation of filing an early return to file Form 1139 as soon as possible, with the intention of then superseding that early return before the extended deadline.

Second, if the total refund being requested is north of $5M, a Joint Committee on Taxation (JCT) review may be triggered. It does not necessarily mean trouble, it just means an extra layer of review and process, and probably that you should consult with your CPA and/or tax counsel what considerations you need to keep in mind.

Third, it is worth remembering that there is a 75% utilization cap for General Business Credits. The cap prevents corporations from reducing their cash tax below 25% of net income tax. This limitation, of course, still applies to carry-backs.

Carry-back advice:

As a summary of this section, carry-backs can be a powerful tool for taxpayers to utilize tax capacity from previous years, opening up the door to further savings via tax credit purchases.

However, there are specific rules and considerations to keep in mind, to ensure that a carry-back is the right strategy and to execute it in the most efficient way possible.

In practical terms, unless discount sizes justify it, it may be advisable to execute tax credit purchases that will lead to carry-backs closer to tax filing (for example, in Q1 or Q2 of the year after the credit is earned), to optimize cash timings and when the returns will be realized.

Conclusion

Timing strategy can be a game changer for tax credit buyers to optimize the outcome of their purchases, based on each taxpayer's characteristic.

There is no “one size fits all” solution. For example: (a) buyers with higher tax predictability may see the best outcomes purchasing credits early in the year to obtain better discounts, while also being able to already offset quarterly estimated payments, leading to better returns and cash outcomes; while (b) buyers with less tax predictability and targeting a carry-back, may see better outcomes by waiting until after the new year, to make a better informed purchase in terms of the amount, and maximize the total tax savings as well as the time to receive the carry-back refunds.

The best advice that we can give is that you work with your CPA, tax counsel and/or tax credit advisor of choice, to outline your main considerations and optimize your strategy early in the year.

At Concentro, we are always happy to work with tax teams and help guide them through the approach that best fits their situation.