Updates to Energy Credits Under the OBBBA

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Some of the most impactful changes of the One Big Beautiful Bill Act (OBBBA) affect federal energy tax credits. In this article, we outline key energy credit provision changes and what they mean for your business and investments.

Other key provisions of the OBBBA can be found in our recent article here.

Energy Credits Expiring After September 30, 2025

• Clean Vehicle and Used Clean Vehicle Credits (IRC Sections 30D and 25E for new and used vehicles, respectively) – Individuals may purchase qualifying new or pre-owned electric vehicles subject to the manufacturer’s suggested retail price (MSRP) caps and modified adjusted gross income limitations to receive a tax credit capped at $7,500 for new qualifying vehicles and $4,000 for pre-owned qualifying vehicles. These credits no longer exist for electric vehicles purchased after September 30, 2025.
  
  
• Commercial Clean Vehicle Credits (IRC Section 45W) – Businesses may purchase qualifying electric vehicles to receive a tax credit capped at $7,500 for light vehicles and $40,000 for heavy vehicles. These credits no longer exist for electric vehicles purchased after September 30, 2025.

PKF O’Connor Davies Observations: It will be imperative to identify purchase dates for the 2025 tax year. Additional guidance will be needed from the Internal Revenue Service (IRS) regarding updated electric vehicle reporting by auto dealers to the IRS and clarification regarding the distinction between acquisition date versus placed in service date.

Energy Credits Expiring After December 31, 2025

• Residential Clean Energy Credit (IRC Section 25D) – Individuals may claim a tax credit for 30% (for 2025) of the costs for new clean energy property. This includes solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, fuel cell property and qualified battery storage technology property. Any expenditures made after December 31, 2025, will be ineligible for credits.
  
  
• Energy Efficient Home Improvement Credit (IRC Section 25C) – Individuals may claim a non-refundable tax credit for 30% of the costs for qualified energy-efficient improvements to their homes up to a maximum of $3,200 depending on the improvement.

PKF O’Connor Davies Observations: For both of these credits, there are some questions around purchase date versus installation date. We currently recommend ensuring all items are in service/place by December 31, 2025, although IRS guidance could provide clarity.

Energy Credits/Deductions Expiring After June 30, 2026

• Alternative Fuel Vehicle Refueling Property Credit (IRC Section 30C) – Individuals and businesses may claim a tax credit for installing property to store or dispense clean-burning fuel or electric vehicle rechargers if the property is installed in a qualifying location (generally a low-income community census tract or non-urban census tract). For individuals, the credit is 30% of the cost of the property up to a maximum credit of $1,000 per item. For businesses, if prevailing wage and apprenticeship requirements are met during the installation, the credit is 30% of the cost with a $100,000 per item limit. If the wage and apprenticeship requirements are not met, then the credit is 6% of the cost with a $100,000 per item limit. Property must be placed in service and operational by June 30, 2026.

• New Energy Efficient Home Credit [IRC Section 45L(h)] – Home builders that construct or substantially reconstruct qualified new energy-efficient residential single family or multi-family homes that own the homes during construction may be eligible for tax credits ranging from $500-$5,000 depending on whether standards are met for the Energy Star Program, Zero Energy Ready Home Program requirements and Prevailing Wage requirements. Construction must begin before June 30, 2026, to be eligible.

• Energy Efficient Commercial Buildings Deduction (IRC Section 179D) – Business owners of qualified commercial buildings and designers of energy-efficient commercial building property or energy-efficient commercial building retrofit property owned by specific tax-exempt entities (including government entities) are eligible for a deduction that is the lesser of the cost of the installed property OR the maximum savings per square foot of the building, subject to an additional square footage bonus if prevailing wage and apprenticeship requirements are met, capped out in 2025 at $5.81 per square foot. Construction must begin before June 30, 2026, to be eligible. The date construction starts has very specific parameters that should be analyzed in detail to ensure the requirement is met.

Energy Credits Expiring After December 31, 2027

• Accelerated Phase-Out of Solar & Wind Credits (IRC Sections 45Y & 48E) – The IRC Section 45Y is a Clean Electricity Production Credit available for electricity produced by a qualified facility. The credit has a base of 0.3 cents per kilowatt-hour (kWh) with a full credit of 1.5 cents per kWh if the taxpayer meets certain requirements.
  
  The IRC Section 48E credit is a Clean Electricity Investment Credit that applies to investments in energy property including solar and wind facilities. The credit is 6% of the cost with a bonus credit of 30% if the wage and apprenticeship requirements are met and the facility is under 1 megawatt (MW) in capacity.
  
  These credits phase out completely for facilities placed in service after December 31, 2027, but there are exceptions for facilities where construction began on or before July 4, 2026.

• Clean Hydrogen Production Credit (IRC Section 45V) – Businesses may claim a production credit for each kilogram of qualified clean hydrogen produced at a qualified clean hydrogen production facility. These credits phase out completely for facilities placed in service after December 31, 2027.

Additional Restrictions on Energy Credits

• Foreign Entities of Concern (FEOC) Restrictions – Clean energy credits are now ineligible if the project is owned by, controlled or receives material assistance from entities linked to countries of concern. Although not defined under the regulations, China, Russia, North Korea, Iran and Cuba are generally considered countries of concern.
  
  
• Removal of Accelerated Recovery Period – The accelerated cost recovery period/depreciable life period of five years for energy property has been terminated for tax years beginning after December 31, 2024.

PKF O’Connor Davies Observations

It will be imperative to ensure compliance with the above items to create a supportable and audit-able credit as we expect scrutiny to be heightened with these changes.

IRS guidance is still needed to clarify many of the limitations imposed by OBBBA on energy credits. Planning with your tax advisors is imperative with these new phase-outs and changes to ensure maximum benefit of your energy efficiency investments.

​​​​​​​Contact Us

If you have any questions or would like assistance to review your particular situation, please contact your PKF O’Connor Davies client service team or:

Elisha M Brestovansky, CPA, MBA
Director
ebrestovansky@pkfod.com

Nicholas Rochedieu, JD
Partner
nrochedieu@pkfod.com