With the enactment of the One, Big, Beautiful Bill Act
(OBBBA), many of the tax incentives created or enhanced by the Inflation Reduction Act (IRA) are set to be reduced or eliminated. Below is an overview of some of the individual-related and business-related clean energy tax
incentives that are being scaled back or eliminated by the OBBBA.
Clean energy tax breaks affecting
individuals
The OBBBA eliminates several tax credits that have benefited
eligible individual taxpayers. It provides short "grace periods" before they
expire, though, giving taxpayers a window to take advantage of
the credits.
For example, the Energy Efficient Home Improvement Credit
(Section 25C) was scheduled to expire after 2032. It's now available for
eligible improvements put into service by December 31, 2025. The IRA
increased the credit amount to 30% and offers limited credits for exterior
windows, skylights, exterior doors, and home energy audits.
The Residential Clean Energy Credit (Sec. 25D) was
scheduled to expire after 2034. It's also now available only through
December 31, 2025. The IRA boosted the credit to 30% for eligible clean
energy improvements made between 2022 and 2025. The credit is available for
installing solar panels or other equipment to harness renewable energy sources
like wind, geothermal or biomass energy.
Clean energy tax breaks affecting
businesses
The Alternative Fuel Vehicle Refueling Property Credit
(Sec. 30C) for property that stores or dispenses clean-burning fuel or
recharges electric vehicles will also become unavailable sooner than originally
set by the IRA. The credit — worth up to $100,000 per item (each charging port,
fuel dispenser or storage property) — had been scheduled to sunset after 2032.
Under the OBBBA, property must be placed in service on or before June 30,
2026, to qualify for the credit.
The law also eliminates the Sec. 179D Energy Efficient
Commercial Buildings Deduction for buildings or systems on which the
construction begins after June 30, 2026. The deduction has been around
since 2006, but the IRA substantially boosted the size of the potential
deduction and expanded the pool of eligible taxpayers.
Wind and solar projects stand to take a big hit. The OBBBA
eliminates the Clean Electricity Investment Credit (Sec. 48E) and the
Clean Electricity Production Credit (Sec. 45Y) for wind and solar
facilities placed in service after 2027, unless construction begins on or
before July 4, 2026. Wind and solar projects begun after that date must be
put in service by the end of 2027.
In addition, wind energy components won't qualify for the
Advanced Manufacturing Production Credit (Sec. 45X) after 2027. The law
also modifies the credit in other ways. For example, it adds "metallurgical
coal" suitable for the production of steel to the list of critical minerals.
And, for critical materials other than metallurgical coal, the credit will now
phase out from 2031 through 2033. The credit for metallurgical coal expires
after 2029.
Note: The
OBBBA permits taxpayers to transfer clean energy credits while the credits are
still available (restrictions apply to transfers to "specified foreign
entities").
Clean vehicle credits
If you've been pondering the purchase of a new or used electric
vehicle (EV), you'll want to buy sooner rather than later to take advantage of
available tax credits. The Clean Vehicle Credit (Sec. 30D) was scheduled
to expire after 2032. Under the OBBBA, the credit is available only through
September 30, 2025.
The IRA significantly expanded the credit for qualifying clean
vehicles placed in service after April 17, 2023. For eligible taxpayers,
it extended the credit to any "clean vehicle," including EVs, hydrogen fuel
cell cars and plug-in hybrids. The maximum credit for new vehicles is $7,500,
based on meeting certain sourcing requirements for 1) critical minerals
and 2) battery components. Clean vehicles that satisfy only one of the two
requirements qualify for a $3,750 credit.
The IRA also created a new credit, Sec. 25E, for eligible
taxpayers who buy used clean vehicles from dealers. The credit equals the
lesser of $4,000 or 30% of the sale price. It also expires on
September 30, 2025.
Additionally, the OBBBA targets the incentive for a business's
use of clean vehicles. The Qualified Commercial Clean Vehicle Credit
(Sec. 45W) had been scheduled to expire after 2032. It's now available
only for vehicles acquired on or before September 30, 2025. Depending on
vehicle weight, the maximum credit is up to $7,500 or $40,000.
Other limitations
The OBBBA also limits access to the remaining clean energy
credits for projects involving "foreign entities of concern" and imposes
tougher domestic content requirements. We can help you plan for accelerated
expiration dates on repealed clean energy incentives and comply with the new
restrictions going forward.