The One Big Beautiful Bill Act (the "OBBBA"), which was passed on July 4, 2025, included several changes to the energy tax credits introduced and expanded by the Inflation Reduction Act of 2022 (the "IRA"). The key changes to these credits are summarized in this White Paper.
A major change under the OBBBA was the introduction of the so-called foreign entity of concern restrictions (the "FEOC Restrictions"), which apply to a number of the IRA energy credits. The impacted credits and effective dates of the FEOC Restrictions are noted here. Future commentary will provide an in-depth analysis of the FEOC Restrictions.
TERMINATION OF CLEAN VEHICLE CREDIT
(IRC § 30D)
(OBBBA § 70502)
Effective Date | Applies to vehicles acquired after September 30, 2025. |
Former Law |
Section 30D provided a tax credit for the purchase of a new electric vehicle up to $7,500. Section 30D was set to expire for vehicles placed in service after December 31, 2032 |
Change | Under the OBBBA, the credit is not available for vehicles acquired after September 30, 2025. |
Insights |
The electric vehicle credits were expected to be a target of the OBBBA and face an even earlier termination than what was included in earlier drafts of the bill. Although section 30D cannot be utilized after September 30, 2025, the OBBBA allows individuals to claim a deduction for car loan interest, up to $10,000 per year. This provision is subject to certain income threshold limitations and domestic assembly requirements and does not exclude electric vehicles from eligibility. |
TERMINATION OF QUALIFIED COMMERCIAL CLEAN VEHICLES CREDIT
(IRC § 45W)
(OBBBA § 70503)
Effective Date | Applies to vehicles acquired after September 30, 2025. |
Former Law |
Section 45W provided a credit for electric vehicles purchased by a taxpayer for use in a trade or business. Section 45W was set to expire for vehicles acquired after December 31, 2032. |
Change | Under the OBBBA, the credit is not available for vehicles acquired after September 30, 2025. |
Insights |
Many criticized section 45W for creating a "leasing loophole" to the restrictions applicable to the section 30D clean vehicle credit. Lessors and other commercial purchasers of electric vehicles may benefit from accelerated depreciation under the OBBBA. |
PHASE-OUT OF CLEAN HYDROGEN PRODUCTION CREDIT
(IRC § 45V)
(OBBBA § 70511)
Effective Date | Applies to facilities the construction of which begins after December 31, 2027 |
Former Law |
Section 45V provided a tax credit for the domestic production of hydrogen in a process that results in lifecycle greenhouse gas emissions of four kilograms or less of carbon dioxide equivalents per kilogram of hydrogen produced. The construction of the hydrogen production facility previously was required to begin before 2033 to be eligible |
Change | Under the OBBBA, section 45V is no longer available for facilities the construction of which begins after December 31, 2027. |
Insights |
The OBBBA is more favorable to section 45V than initial drafts of the bill, extending the credit's termination by two years as compared to initial drafts. An executive order was published on July 7, 2025, ordering the Secretary of the Treasury to strictly enforce the termination of clean electricity production and investment tax credits under sections 45Y and 48E for wind and solar facilities, including by providing new guidance on what constitutes "beginning of construction." While section 45V was not mentioned in the executive order, it utilizes the "beginning of construction" language that is likely to be addressed by the new guidance. |
PHASE-OUT AND RESTRICTIONS ON CLEAN ELECTRICITY INVESTMENT CREDIT
(IRC § 48E)
(OBBBA § 70513)
Effective Date |
FEOC Restrictions
All other changes generally apply to taxable years beginning after the date of enactment of the OBBBA. |
Former Law | Section 48E provided a tax credit of up to 30% for investments in qualified facilities used for the generation of electricity for which the anticipated greenhouse gas emissions rate is not greater than zero and for energy storage technology, assuming certain wage and apprenticeship requirements are met. |
Change |
Wind and solar facilities are subject to an accelerated phase-out under the OBBBA with the credit available only for wind and solar projects that begin construction within 12 months after the date of enactment or that are placed in service by December 31, 2027. The credit will be phased out for all other qualified facilities that begin construction starting in 2034 with the credit fully phased out for facilities that do not begin construction before 2036. Beginning in 2026, fuel cells are automatically eligible for the credit without needing to prove that the cell has a greenhouse gas emissions rate of less than zero. The OBBBA introduces FEOC Restrictions to section 48E. Beginning in 2028, if a taxpayer makes a payment that violates the FEOC Restrictions in the first 10 years after the energy facility is placed into service, all section 48E tax credits generated by such facility for all prior taxable years are subject to recapture. |
Insights |
Wind and solar projects are significantly impacted under the OBBBA; however, other eligible facilities fare better and were granted an extension as compared to the original House draft of the bill. Notably, energy storage technology remains eligible for the credit even if located at a wind or solar facility. Subject to any guidance on the "beginning of construction" requirements issued pursuant to the executive order published on July 7, 2025, taxpayers that start construction before the end of 2025 may avoid the FEOC Restrictions, which may be difficult to comply with. The new FEOC recapture rule may encourage developers of energy generation projects to opt for production tax credits under section 45Y. It remains to be seen whether the current administration will provide guidance for combustion and gasification facilities to claim section 48E credits. |
PHASE-OUT AND RESTRICTIONS ON CLEAN ELECTRICITY PRODUCTION CREDIT
(IRC § 45Y)
(OBBBA § 70512)
Effective Date |
FEOC Restrictions
All other changes generally apply to taxable years beginning after the date of enactment of the OBBBA. |
Former Law | Section 45Y provided a tax credit for the production of electricity at a qualified facility for which the anticipated greenhouse gas emissions rate is not greater than zero. The credit amount available was up to 1.8 cents per kWh of qualified renewable electricity produced, assuming certain wage and apprenticeship requirements are met. |
Change |
The OBBBA makes similar changes to section 45Y as it does to section 48E, including the phase-out schedule and introduction of FEOC Restrictions (see above). In addition, the OBBBA introduces a 10% bonus credit under section 45Y for advanced nuclear facilities in certain nuclear-related communities a nd penalties for substantial misstatements on supplier certifications related to credit eligibility |
Insights |
Like under section 48E, the OBBBA significantly impacts access to section 45Y for wind and solar facilities. Furthermore, there is no production tax credit for operating energy storage technologies like batteries. It remains to be seen whether the current administration will provide guidance for combustion and gasification facilities to claim section 45Y credits. |
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