In April 2024, the IRS released final guidance for buyers, and as a result, there was a heavy uptick in buyer activity, even for 2023 credits into mid-May 2024. This final guidance came with a lot of discounts on the transferable tax credits. But why does it matter? There are multiple reasons like transaction deadlines, expanding buyer pool, and growing focus on understanding true net proceeds. But remember, price discounts aren’t just about “market rate”, but they reflect transaction costs, risk allocation, and the buyer’s accounting treatment.
The way buyers set prices has stayed pretty much the same, so this time we’re looking at how transaction expenses affect sellers’ net proceeds. Buyers usually want the seller to pay for transaction costs, like an appraisal or cost-segregation report, legal fees, and broker fees. In this article, we’ll dive deep into the price discounts into transferable tax credits and understand what they are.
What Drives Price Discounts in Today’s Transfer Market?
But the question is, what has driven the discounts in today’s markets? There are several reasons for this, but two primarily tend to stand out.
Buyer Behavior Has Stabilized
The first reason is that the Buyer behavior has stabilised significantly. For a long time, buyers have had an expectation that sellers will absorb transaction costs. This is explained in detail in the following table:
| What It Is | Where It Shows Up in Financials | Why Buyers Care |
| Transaction costs (legal fees, insurance, broker fees, diligence) | Above the line → counted as an expense before profits are calculated | These costs reduce the buyer’s reported earnings. Their EBITDA and net income go down. If buyers pay these, it directly hurts their financial performance. |
| Purchased tax credits | Below the line → applied directly to the tax bill, not the income statement. | Credits don’t increase reported earnings. They quietly reduce taxes owed, but don’t offset any expenses the buyer took earlier. |
| Resulting dynamic | Mismatch between where the cost hits and where the benefit shows up | Buyers say: “If we pay expenses above the line, we need a bigger discount on the credits to make the math work.” So they push these costs to sellers. |
| Impact on pricing | Headline price stays the same, but net price changes | If sellers pay most costs, buyers can keep discounts tighter. If buyers pay costs, they widen their discount to compensate for the earnings hit. |
The Growing Gap Between Gross Price and Net Price
The second reason is the growing gap between gross price and net price. This is increasing because sellers are holding on tight to the headline discount: let’s say 92 cents on the dollar. They don’t account for the fact that the transaction costs are coming out of their pocket. Legal fees, insurance premiums, buyer legal caps, and advisor fees can easily impact the costs, as they can reduce the net proceeds by several additional cents. If you have a $10 million credit, a 92-cent headline might mean 86–88 cents net after all fees are taken off. Sellers have a tendency to underestimate this, because individually these fees seem small, but together they add up.
The Transaction Costs That Shape Price Discounts
So, what are the transaction costs that shape these discounts? They directly affect the discount buyers offer, which in turn affects the final price sellers get.
| Cost Type | What It Usually Looks Like | Why It Matters |
| Legal Costs | Typically, 0.5–1.5% per side, with minimum fees hitting small deals hardest. | Legal gets pricey fast because you need lawyers who actually know your technology, can negotiate tax insurance, and can navigate complex corporate structures. If your counsel is new to tax credits, you may pay for their learning curve. |
| Insurance Costs | Usually 2–5% of the credit value, depending on coverage level and the buyer’s required limit of liability (100–140% is common). | Buyers carry recapture and eligibility risk, so they often insist on insurance. Costs vary based on credit size, seller strength, and policy scope. Some buyers may waive insurance—but only if you post collateral or accept a deeper discount. |
| Platform, Broker & Advisor Fees | Generally 0.25–2.00%, and sometimes higher when multiple advisors are involved. | These fees aren’t just introductions; they cover deal management, diligence support, and market expertise. They tend to be lower than old-school tax equity syndication fees but still meaningful. Transparent cost buildup is key to understanding your real net price. |
Why Buyers Push These Costs to Sellers
Now, the question is, why do buyers push these costs to sellers? Well, there are a couple of reasons why that is the case.
- The accounting issue: The first issue is accounting: costs are above the line, while credits are below it, causing confusion and leading buyers to push costs to sellers.
- Incentive: Keeping the headline price high is more beneficial to the buyer, so they tend to shift as many expenses as possible to the seller.
While these don’t appear much, they certainly shape the market dynamics and discount expectations by significant margins.
What These Discount Dynamics Mean for Market Evolution
So, what do these discounts mean for the market?
| Where the Market Is Today | Where the Market Is Heading | What That Means for Discounts |
| Transfers feel like small M&A or tax-equity-light deals — lots of lawyers, diligence, insurance negotiation, and bespoke processes. | Platforms, data standards, and insurance products are getting better, faster, and more standardised. | Costs stay high today, which keeps discounts wider as processes become easier and more repeatable; discounts naturally tighten. |
| Every transaction feels custom, even if the credit type is common. | Expect more plug-and-play workflows where buyer and seller info is verified quickly and cleanly. | Less friction means fewer surprises → smaller spreads between gross and net pricing. |
| Sellers often feel like they’re selling part of a real asset (with asset-level diligence, risk reviews, documentation). | Long-term, transfers should feel more like selling a financial asset — clean, standardised, and low-drag. | As the market matures, the “all-in cost load” drops, and sellers keep more of the headline price. |
Conclusion
Sellers will be able to make smart choices about tax credit transfers and get the most money possible by understanding these transaction costs. Keep in mind that these charges can change based on the details of each transaction.