Renewable Energy Credits: What You Need to Know After the OBBBA

The One Big Beautiful Bill Act (OBBBA) modified several business and individual renewable energy credits included in the Inflation Reduction Act. The OBBBA accelerates the phase-out of several key incentives, introduces new restrictions, especially regarding foreign involvement, and modifies the eligibility and calculation of credits for a range of clean energy technologies. 

Changes in Energy Tax Credits for Businesses   

There is a new, updated deadline for wind and solar energy credits after the passage of OBBBA. To be eligible, the property needs to be placed in service by December 31, 2027. The energy credit can still be claimed beyond 2027 if the project meets the “Beginning of Construction Rules” or has an output of less than 1.5 Megawatts and 5% of the project costs have been incurred by July 4, 2026.   

To meet the construction rules, the project must pass “The Physical Work Test” as described in IRS Notice 2025-42. One stipulation for the Beginning of Construction Rules is that the work on the project must be continuous. If a project is not placed in service within four years of starting construction, eligibility is determined by facts and circumstances. The Treasury Department will provide additional details on what constitutes the facts and circumstances at a later date. 

New Foreign Requirement for Energy Credits  

Besides the new phase-outs for certain projects, the OBBBA introduced new Foreign requirements for Energy Credits. The two new foreign stipulations for energy credits are the Foreign Entities of Concern (FEOC) and Prohibited Foreign Entity (PFE). 

Foreign Entities of Concern (FEOC)  

Foreign Entities Of Concern (FEOC) energy credits are disallowed if a company is “owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation” (the covered nations are the People’s Republic of China, the Russian Federation, the Democratic People’s Republic of North Korea, and the Islamic Republic of Iran)  

Prohibited Foreign Entity (PFE)  

For projects beginning construction after 2025, credits are denied if the project receives “material assistance” from a prohibited foreign entity. This is measured by a “material assistance cost ratio,” which requires a minimum percentage of direct material costs to be attributable to non-prohibited sources.   

The required percentage will increase annually from non-prohibited sources. The IRS is required to issue safe harbor tables by December 31, 2026, for the percentage amounts. Also, if a taxpayer makes certain payments to a prohibited foreign entity within 10 years after the energy facility is placed in service, the credit is subject to full recapture. 

Projects that began construction before the relevant deadlines (July 4, 2026, for wind/solar; December 31, 2025, for FEOC supply chain rules) are generally grandfathered under prior law but must still comply with ownership restrictions for credits claimed in taxable years after July 4, 2025.   

Other Key Changes to Business Energy Credits  

• The New Energy Efficient Home Credit under Section 45L is eliminated for builders and contractors for homes acquired after June 30, 2026.   
• The Energy Efficient Commercial Buildings Deduction (IRC §179D) is not available for property construction beginning after June 30, 2026.  
• The Section 45X (Advanced Manufacturing Production Credit) wind component eligibility is eliminated for components sold after December 31, 2027. For vertically integrated producers, at least 65% of the direct material costs of a secondary component must be attributable to U.S.-sourced primary components for credits to be available (for sales after 2026). 
• The Section 45Z (Clean Fuel Production Credit) is extended through December 31, 2029. Credits are denied for fuels produced from feedstocks not sourced in the U.S., Mexico, or Canada (for fuels produced after 2025). Negative emissions rates are generally prohibited, except for certain animal manure feedstocks.  
• The Section 45Q (Carbon Capture Credit) credit remains available for projects beginning construction before 2033. The same FEOC restrictions apply as for other credits.   

Changes in Energy Tax Credits for Individual Taxpayers  

The changes to individual energy credits significantly shortened the phase-out, with most of these credits set to sunset during or at the end of 2025.   

Energy Efficient Home Improvement & Residential Energy Credits  

The Energy Efficient Home Improvement Credit and the Residential Energy Credits will not be available for any property placed in service after December 31, 2025. The 30% Efficient Credit was available for energy efficiency improvements, including insulation, windows, doors, and certain types of HVAC equipment.   

The Residential Clean Energy Credit was 30% of the cost of qualified solar electric systems, solar water heating systems, geothermal heat pumps, small wind energy systems, fuel cells, and battery storage systems. To qualify for both credits, installation or original use must be completed by December 31, 2025, regardless of purchase or payment date.  

Electric Vehicle & Alternative Fuel Credits  

Electric Vehicle Credits for both previously owned clean vehicles and new clean vehicles are eliminated if the property is purchased after September 30, 2025.   

Alternative Fuel Vehicle Refueling Property Credit (IRC §30C) is not available for any property placed in service after June 30, 2026. This credit applied to the installation of electric vehicle charging stations and other alternative fuel refueling property. This credit was available to both individuals and businesses.   

Let the Experts Help You Understand Modified Energy Credits  

The energy credits available through the Inflation Reduction Act, modified by the One Big Beautiful Bill Act, can be complicated and confusing. Whether you are a business or an individual taxpayer, Maner Costerisan has the expertise and experience to help guide you through the process to claim the credits. Feel free to contact us, and one of our tax credit experts will be happy to assist you with any questions you may have.