Energy Tax Credits and Incentives: Federal Tax Law Updates

Article

The One Big Beautiful Bill Act (OBBBA) picked winners and losers with alternative energy. Discover its effects on year-end tax planning.

6 minute read

November 20, 2025

Sean Muller

Partner-in-Charge, Specialty Tax Services

Jon Pezzi

Partner, Tax Transactions Advisory

Dawn Rhea

Partner, National Tax Office

Never miss a thing.

The Inflation Reduction Act expanded the framework of federal tax credits available for alternative energy intended to incentivize adoption of renewable projects. The One Big Beautiful Bill Act (OBBBA) prioritized certain incentives and added additional requirements to qualify for tax credits, reflecting a shift in policy priorities.

For both individuals and businesses, the landscape of energy-related tax planning has changed dramatically in many ways.

Individual Credits Ending

Energy Efficient Home Improvement Credit (Section 25C) eliminated for all property not placed in service on or before December 31, 2025
Residential clean energy (Section 25D) eliminated for expenditures made after December 31, 2025
Clean vehicle credits (Sections 25E and 30D) eliminated for any vehicle acquired after September 30, 2025 (commercial clean vehicle credit eliminated too)

Example: A family installing solar panels and upgrading windows must complete installation by year-end 2025 to qualify. Delays past that deadline mean no credit.

Business Credit Changes

Energy efficient commercial buildings (Section 179D): Construction of such buildings must begin on or before June 30, 2026.
New Energy Efficient Home Credit (Section 45L): Such homes and apartments must be acquired on or before June 30, 2026.
Alternative Fuel Vehicle Refueling Property (Section 30C): Refueling property must be placed in service on or before June 30, 2026.
Clean Hydrogen Production Credit (Section 45V): Eliminated credit for facilities beginning construction on or after December 31, 2027
Solar and wind projects: Credits were denied for facilities beginning construction after July 4, 2026, and placed in service after December 31, 2027 (change to cost recovery from five-year property for property beginning construction after December 31, 2024).
Foreign restrictions: Projects tied to specific foreign entities of concern or foreign-influenced entities cannot claim credits.

This may limit financing for projects that rely on imported components or foreign investors.

Continuing Opportunities

Not all credits are eliminated under the OBBBA. These include:

Carbon capture (Section 45Q) remains including parity in the credit for sequestration and various uses but excludes specified foreign and foreign-influenced entities from credit eligibility.
Nuclear power (Section 45U) credits continue with similar restrictions.
Clean fuel production (Section 45Z) extended through 2029, requires North American feedstocks, prohibits negative emission rates and excludes specified foreign and foreign-influenced entities from credit eligibility.
Advanced manufacturing production (Section 45X) eliminates credit for solar and wind components produced and sold after December 31, 2027; critical mineral phase out starting December 31, 2030; for critical minerals completely terminating by December 31, 2033.
Advanced manufacturing (Section 48D) credit increase from 25% to 35% for investment producing semiconductors or equipment for producing semiconductors. Reflecting the policy priority of providing strong incentives for domestic semiconductor and equipment facilities.
New Markets Tax Credit (Section 45D) permanently extended.

Practical Considerations

The distinction between “manufacturing” and “assembly” is critical. For example, attaching imported panels to U.S. frames may not qualify as production for Section 45X credit.
Executive orders caution against manipulating beginning of construction safe harbors. Beginning of construction will only be demonstrated when physical work of a significant nature begins. Additionally, taxpayers must demonstrate construction of a continuous and ongoing nature, not merely a spend.
Prevailing wage and apprenticeship requirements remain for enhanced credit amount.
Transferability and direct pay remain, but buyers assume liability for credit validity. This creates market risk if IRS challenges eligibility.

Example: A developer seeking to sell carbon capture credits must verify that the facility meets qualified standards, or buyers may demand steep discounts.

Key Takeaways

Homeowners must act quickly to capture credits before expiration.
Wind and solar projects face earlier phaseouts, foreign influence and sourcing restrictions.
Transferability remains but carries buyer-beware risk.

Missed deadlines, foreign sourcing and influence and credit transfer risks can leave businesses and individuals exposed to costly setbacks. Our team can help evaluate projects, timelines, sourcing strategies and financing structures, so you can maximize available credits and avoid unnecessary risks. Contact us.

Federal Tax Law Updates Series

Weaver’s Federal Tax Law Updates series explores key provisions of recent federal tax legislation and the implications for businesses and individuals. From depreciation and R&D expensing to energy incentives and state conformity, the series highlights what taxpayers should know to plan effectively in the evolving tax landscape.

Additional Resources

The Tax Navigator is a comprehensive insight hub for updates on tax policy, planning and legislation. The following videos hosted by Sean Muller, Weaver’s partner-in-charge, specialty tax services, feature updates related to the federal tax legislation and trending topics mentioned in this blog.