How to Calculate IRA Domestic Content Bonus Share
The Inflation Reduction Act (IRA) awards an additional investment tax credit (ITC) or production tax credit (PTC) when clean energy projects satisfy domestic content requirements. Finance teams therefore need a repeatable method to prove that enough steel, iron, and manufactured products originate in the United States. This guide walks through the calculations, documentation, and internal controls required to defend domestic content claims alongside capital models such as the levelized cost of hydrogen walkthrough and credit stacking evaluations supported by the direct air capture credit stack calculator.
We define each component of the domestic cost numerator, clarify how to set the denominator for different technologies, and show how to interpret Treasury guidance on rising thresholds. Worked examples demonstrate how to translate procurement data into a domestic share percentage and bonus credit value. Validation and governance tips keep the calculation aligned with enterprise carbon accounting controls described in the materiality threshold guide.
Definition and compliance boundary
Domestic content share measures the proportion of total project cost attributable to U.S.-sourced steel, iron, and manufactured products, as defined in Internal Revenue Code sections 45 and 48. Projects meeting or exceeding the prescribed percentage earn a bonus credit—typically 10 percentage points for ITC projects or a 10% increase to PTC payments. The analysis must follow Treasury’s “adjusted percentage” framework, which counts 100% of qualifying steel and iron but includes only the domestic portion of manufactured products after backing out non-U.S. subcomponents.
The denominator should align with the tax basis used to compute the base credit. For ITC projects, use the eligible depreciable basis after removing disallowed costs (for example, interconnection upgrades for small projects). PTC applicants often translate expected megawatt-hour output into a present value to compare with capital expenditures. Document the boundary once and keep it consistent across filings to avoid questions during IRS examination.
Variables, symbols, and units
Track the following elements in U.S. dollars and percentages:
- B – Eligible project tax basis or present value of PTC revenue (USD).
- S – Cost of domestic steel and iron used in the project scope (USD).
- M – Cost of manufactured products that meet domestic content rules (USD).
- τ – Applicable domestic content threshold (percent). Defaults to 40% for most assets placed in service before 2027, rising to 55% thereafter.
- β – Bonus credit rate (percent). Often 10% for ITC projects or 10% uplift to the PTC value.
- DC – Domestic content share expressed as a percentage.
- ΔC – Incremental credit value (USD) awarded if DC ≥ τ.
Maintain a cost ledger that tags each procurement line with origin, documentation date, and applicable IRS safe harbor. Projects using the manufactured product safe harbor must exclude inverter subcomponents or offshore nacelle assemblies that fail the domestic test. Harmonise cost recognition with the financial close schedule used for other incentive analytics to keep your assumptions coherent.
Formulae for bonus share and credit value
DC = (S + M) ÷ B
ΔC = B × (β ÷ 100) when DC ≥ τ; otherwise ΔC = 0
The domestic share is capped at 100% to prevent overstatement when procurement logs marginally exceed the basis. Treasury guidance allows you to include transport and installation labour associated with qualifying manufactured products, but exclude site work unrelated to those components. When basing the denominator on PTC revenue, ensure the discount rate and production forecast match the assumptions in your long-term revenue stack.
Apply the correct threshold for the placed-in-service year. Utility-scale solar and onshore wind assets begin at 40% and climb to 55% by 2027; offshore wind starts at 20% but also steps up to 55%. Storage assets colocated with solar inherit the solar threshold, so coordinate with technology teams when mix changes alter the applicable percentage.
Step-by-step workflow
1. Set the eligible basis
Begin with the depreciable tax basis or present value used for credit calculations. Align with the capital stack underlying your levelized cost modelling so financing scenarios share a single source of truth. Remove costs ineligible for the credit, such as land acquisition or transmission upgrades above the threshold for small projects.
2. Catalogue domestic steel and iron
Identify structural steel, rebar, foundations, and balance-of-plant iron goods manufactured in the United States. Maintain mill test reports or supplier affidavits to support the classification. For hybrid projects, tag each cost to the relevant asset component to prevent double counting when later allocating to manufactured products.
3. Evaluate manufactured products
Determine whether each manufactured product—modules, nacelles, batteries, inverters—meets the substantial transformation test or qualifies under safe-harbour lists. Subtract the cost of non-domestic subcomponents before adding the product to M. Document your methodology, including currency conversions and supplier attestations, so auditors can trace the calculation.
4. Compute domestic share and compare to threshold
Sum S and M, divide by B, and express the result as a percentage. Compare DC to τ for the relevant placed-in-service year. If the share falls short, run sensitivity analyses that model alternative sourcing or renegotiated supply contracts. Our embedded calculator accepts a custom threshold to accommodate projects entering service after 2026.
5. Translate into bonus credit value
Multiply B by β/100 when DC meets or exceeds τ. Capture the result in both absolute dollars and, for ITC projects, in the tax equity partnership model so allocations remain consistent. For PTC assets, the bonus raises the per-megawatt-hour payment; convert it to present value to match your revenue recognition cadence.
Validation, controls, and documentation
Reconcile the domestic content ledger with procurement invoices and payment schedules. Implement a segregation-of-duties review where supply chain, finance, and legal each sign off on the classification of high-value items. Cross-check totals against the fixed asset register to ensure the sum of qualifying costs plus excluded items equals the total capitalised amount.
Maintain a policy memo summarising methodology, data sources, and interpretations of Treasury notices. Attach supplier affidavits, mill certificates, and safe-harbour references. Version control the workbook or script performing the calculation so subsequent updates—such as new threshold percentages—are traceable. Align the controls with broader assurance workflows you already use for sustainability disclosures and tax provision processes.
Limits and strategic considerations
The calculation does not guarantee eligibility if documentation is incomplete. IRS guidance continues to evolve, and certain technologies (for example, offshore wind) have additional apprenticeship or wage rules that must be satisfied concurrently. Projects with mixed-use assets—like hybrid solar-plus-storage—should run the analysis per asset class before rolling up to ensure each component meets its threshold.
Treat the domestic share as a planning signal, not a static fact. Supplier mix shifts, price escalators, and currency moves can alter percentages late in procurement. Refresh the calculation at each major sourcing milestone and compare scenarios within your incentive stack so the incremental bonus remains aligned with overall project economics.
Embed: IRA domestic content bonus calculator
Provide eligible basis, domestic cost components, bonus rate, and threshold to determine domestic content share and incremental credit value.