Congress Phases Out Energy Tax Credits

On July 3, 2025, Congress approved a version of the “One Big Beautiful Bill Act” (the Bill), which significantly impacts the energy tax credits enacted under the Inflation Reduction Act of 2022 (IRA). President Trump held a signing ceremony in the Oval Office on July 4, 2025, during which he signed the Bill into law. 

Below are some of the Bill’s key changes to the IRA’s energy tax credits.

Accelerated Termination and Phase-Out Schedules

Most significantly, the Bill contains an early termination of the solar and wind tax credits (Internal Revenue Code (IRC) §§ 45Y and 48E). Specifically, the Bill eliminates a taxpayer’s ability to claim the 45Y Production Tax Credits and 48E Clean Electricity Investment Tax Credits for a solar and wind project (i) where beginning of construction (BOC) occurs on or after July 4, 2026 (the one-year anniversary of the Bill’s enactment), and (ii) the project is placed in service after December 31, 2027.

Thus, a solar or wind project placed in service before December 31, 2027, is still eligible for the credits. Additionally, a solar or wind project where BOC occurs before July 4, 2026, is eligible for the credits even if it is placed in service after December 31, 2027. We expect that the standard “continuity” requirements would apply, which would allow for 2028, 2029, and 2030 placed in service dates. 

Other types of projects, such as geothermal, fuel cell, combined-heat-and-power systems, biogas systems, waste energy recovery, thermal energy, and battery storage, may still claim the § 45Y Production Tax Credits and § 48E Clean Electricity Investment Tax Credits. The credits, however, will phase out after December 31, 2032, as follows:

• 100% credit available if BOC occurs on or before December 31, 2033

• 75% credit available if BOC occurs on or before December 31, 2034

• 50% credit available if BOC occurs on or before December 31, 2035

• 0% credit available if BOC occurs on or after January 1, 2036

With respect to the § 45V Clean Hydrogen Production Credit, a project must begin construction on or before December 31, 2027, to remain eligible.

The Bill also extended and modified the § 45Z Clean Fuel Production Credit, inserting provisions that: (i) require the feedstock for qualifying Sustainable Aviation Fuel be produced or grown in the U.S., Mexico or Canada; (ii) exclude from the definition of Transportation Fuel any fuel that is produced from a fuel for which a 45Z credit is allowable, thus precluding double counting, and (iii) preclude the use of a negative emission rate for a transportation fuel. The Bill also extends the recovery period for the § 45Z Clean Fuel Production Credit for an additional two years through December 31, 2029. 

The following tax credits for clean vehicles and energy efficient buildings terminate on the below dates:

• IRC § 25C – Energy Efficient Home Improvement Credit December 31, 2025

• IRC § 25D – Residential Clean Energy Credit December 31, 2025

• IRC § 25E – Previously Owned Clean Vehicle Credits September 30, 2025

• IRC § 30C – Alternative Fuel Vehicle Refueling Credit June 30, 2026

• IRC § 30D – Clean Vehicle Credit September 30, 2025

• IRC § 45L – New Energy Efficient Home Credit June 30, 2026

• IRC § 45W – Commercial Clean Vehicle Credit September 30, 2025

Transferability Impacts

The Bill generally left alone the current energy credit transferability provisions in IRC § 6418. However, the Bill did impose new limitations on transferring credits to “specified foreign entities” (SFEs) and “foreign influenced entities” (FIEs), and in some cases, both SFEs and FIEs as “prohibited foreign entities” (PFEs).

• SFEs are generally: (i) foreign entities of concern listed in 15 U.S.C. 4651; (ii) Chinese military company entities; or (iii) entities with ties to North Korea, China, Russia, or Iran.

• FIEs are generally: (i) entities where an SFE can appoint an executive-level officer or board director; (ii) entities where an SFE controls at least 25% of such entity; (iii) SFEs in the aggregate own at least 40% of such entity; (iv) an SFE holds at least 15% of the debt of such entity; or (v) an entity over which an SFE has “effective control” (defined as authority over key aspects of the energy project’s components, energy generation, or energy storage as well as an SFE that receives payments from such an entity via licensing arrangements).

• PFEs are generally both SFEs and FIEs determined as of the last day of the taxable year.

With respect to PFEs, the Bill denies energy credits under IRC §§ 45X, 45Y, and 48E where the eligible taxpayer receives “material assistance from prohibited foreign entities.” The Bill determines “material assistance” by looking at the taxpayer’s total direct costs for all manufactured products and components that are mined, produced, manufactured, or otherwise attributable to a PFE. 

The energy credit will be denied where the “threshold percentage” for material assistance is exceeded. For projects that begin construction in: (i) 2026 – 40%; (ii) 2027 – 45%; (iii) 2028 – 50%; (iv) 2029 – 55%; and (v) 2030 and onward – 60%.

Other Impacts

Domestic Content Percentages for § 48E Clean Electricity Investment Credits: The Bill revises the domestic content applicable percentages for qualified facilities and energy storage technology seeking to claim 48E Clean Electricity Investment credits as follows:

• 40% if BOC occurs on or before June 16, 2025

• 45% if BOC occurs after June 16, 2025, and before December 31, 2025

• 50% if BOC occurs on or before December 31, 2026

• 55% if BOC occurs on or after January 1, 2027

Tax Depreciation: Although IRC §§ 45Y and 48E property would still be listed as five-year modified accelerated cost recovery system (MACRS) (i.e., accelerated depreciation), the Bill specifically removes solar and wind energy property from the five-year MACRS designation where BOC occurs on or after January 1, 2025. Despite this, the Bill retains 100% bonus depreciation under IRC § 168(k), which may still be available for such projects.

The following chart summarizes other key energy credits the Bill impacts:

For additional information regarding how the recent tax legislation impacts your energy project, please contact Pierce Atwood attorneys Kris Eimicke, Joe Donovan, Allen Braddock, or any other member of our Energy Infrastructure and Project Development team.