Nadia Gallimore, Andy Barnes, and Lynn Abramson | Updated July 8, 2025
This resource is educational only. Taxpayers may consider consulting a tax professional.
Update: On July 7, 2025, President Trump issued an Executive Order titled “Ending Market Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources” regarding the implementation of the energy tax credit provisions in the One Big Beautiful Bill Act. The EO directs the Treasury Department within 45 days to take all action deemed necessary and appropriate to enforce the termination of the Sec. 48E/45Y credits for wind and solar and to implement the Foreign Entity of Concern provisions.
The EO specifies: “This includes issuing new and revised guidance as the Secretary of the Treasury deems appropriate and consistent with applicable law to ensure that policies concerning the ‘beginning of construction’ are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built.”
Under current IRS guidance, a project may qualify for beginning construction either by meeting a “physical work test” (beginning construction work of a significant nature) or a “5% safe harbor” (triggered when a taxpayer has incurred 5% of the total cost of the energy property and thereafter makes continuous efforts to advance towards completion).
The EO further directs the Department of Interior to examine and revise any policies that “provide preferential treatment to wind and solar facilities in comparison to dispatchable energy sources.” CEBN will continue to provide updates on implementation guidance as available.
On May 22, 2025, the House of Representatives advanced a major tax reform package on a largely party-line basis 215-214. The Senate followed shortly thereafter with an amended version that passed the upper chamber on July 1st with 51-50 vote. The legislation passed the House again with a narrow margin of 218-214 on July 3rd and President Trump signed the “One, Big, Beautiful Bill Act” into law on July 4th.
The final legislation leaves some energy industries relatively unscathed, but rapidly eliminates credits for efficiency, residential solar, and electric vehicles (within 2025-2026) and abruptly phases out wind and solar (requiring projects to commence construction within one year of enactment to qualify for current safe-harbor rules). One bright spot was the full and permanent restoration of the R&D tax deduction, with retroactive tax relief for small businesses.
1. TIMELINES:
ITC/PTC:
The legislation treats wind and solar separately from other Sec. 48E/45Y technologies. Wind and solar projects that commence construction before July 4th, 2026 (one year after enactment) retain the current safe-harbor provisions to claim the credit (project must be placed in service within four years). Projects that start after this timeframe must be placed in service by December 31, 2027 to receive the credit. This legislation also prohibits the use of Sec. 48 for wind and solar lease financing.
Current law would be largely preserved for other Sec. 48E/45Y technologies such as geothermal, battery storage, and hydropower, maintaining the full value of the credits through 2033, with a phaseout by 2036. The final bill also includes a slight language modification sought by the waste heat to power industry clarifying the lifecycle emissions rate calculations for eligible projects prior to date of enactment.
Other:
Credits for residential energy efficiency and clean energy (Sec. 25C and D) would be eliminated at the end of 2025, and EVs (Sec. 25E, 30D, 45W) would be eliminated after Sep. 30, 2025. New energy efficient homes (Sec. 45L), EV charging infrastructure (30C), and commercial energy efficient buildings (Sec. 179d) would expire June 30, 2026. The hydrogen PTC (45V) was significantly reduced with the credit expiring at the end of 2027 rather than in 2032. Clean fuels (Sec. 45Z) were given a modest extension (over their current 2027 deadline), terminating at the end of 2029 instead of 2031.
See the table below for a summary of the deadlines under existing law compared to the final legislation. If the table does not show properly, you can access a downloadable pdf here.
2. SAFE HARBOR RULES:
Under existing law, taxpayers can claim energy credits through safe harbor rules triggered through “commence construction.” Under these longstanding rules, projects can qualify for the value of the tax credit at the time construction begins as long as a project is placed in service within four years.
The final legislation preserves the commence construction threshold under existing law for most Sec. 48E/45Y tech-neutral credits, along with the energy efficient home, buildings, and clean hydrogen credits (45K, 179D, and 45V). The safe harbor provisions for wind and solar were the subject of heated debate as the bill moved through the process. Ultimately, the legislation retains current safe-harbor rules for solar and wind projects that commence construction within one year of enactment (July 4, 2026); after that, new projects must be placed in service by the end of 2027 to qualify.
3. FOREIGN ENTITIES OF CONCERN RESTRICTIONS:
Beginning in 2026, the legislation places stringent restrictions on many tax credits for projects involving “foreign entities of concern”—or individuals, organizations, and businesses with certain relationships to countries that U.S. government deems a potential threat to national security or foreign policy interests. Types of entities are as follows:
Limitations on specified foreign entities and foreign-influenced entities will apply to Sec. 48E, 45Y, 45Q, 45X, 45U, and 45Z. Only Sec. 48E and 45Y face additional “material assistance” requirements, which gradually increase the required percentage of materials coming from a non-covered nation. See this previous DOE guidance on FEOC for further insights, but anticipate additional guidance specific to the new tax credit provisions.
4. TRANSFERABILITY:
Current law allows for “transferability,” which enables entities without a financial stake in a project to buy energy credits from project developers. While earlier iterations of the bill rolled back transferability, the final legislation would preserve transferability across the board. Direct pay remains intact.
The Sec. 174 R&D tax deduction previously enabled immediate expensing for nearly 70 years until changes made in the 2017 Tax Cuts and Jobs Act went into effect as of 2022. From then on, businesses were required to amortize domestic R&D expenses over a period of five years, creating significant tax liabilities for many high-tech companies and startups. Foreign R&D was subject to a 15 year amortization schedule.
The legislation permanently reinstates the full value of the Sec. 174 deduction for domestic R&D. Businesses will be able to deduct all eligible R&D expenses in the first year incurred as of January 1, 2025. The final legislation also creates a small business carveout retroactively dating back to 2022, when the Sec. 174 R&D tax deduction first lapsed. Businesses with gross receipts under $31,000,000 will be eligible for retroactive tax relief for tax years 2022, 2023, and 2024.
The House version of the “One Big Beautiful Bill” included a title passed by the House Committee on Energy and Commerce that would repeal elements of the Light Duty/Heavy Duty Vehicle Standards, Greenhouse Gas Reduction Fund (GGRF), and parts of the Loan Programs Office (LPO) in the Department of Energy. To comply with Senate rules for budgetary measures, the final bill pared back some of these outright eliminations of programs and instead focused on defunding them. It rescinded unobligated funding for energy and climate programs from the bipartisan Infrastructure Investment and Jobs Act and Inflation Reduction Act (signed into law in 2021 and 2022, respectively) and prohibited penalties for failure to comply with vehicle standards.
To see precisely how the legislation would amend specific sections of the code relevant to your industry, you can:
The Clean Energy Business Network (CEBN) has been consistently engaging Members of Congress and their staff through dial-in and fly-in meetings with businesses in our network to advocate for the protection of energy tax credits and restoration of Sec. 174 (learn more). We will continue to work to educate the public and policymakers about its impacts on energy businesses and local economies, while helping businesses navigate the new provisions.
