Highlights
- The Republicans' budget reconciliation bill passed the Senate 51-50 on July 1, 2025.
- This Holland & Knight alert summarizes certain key proposals in the Senate text as they relate to the Inflation Reduction Act's clean energy tax credits.
The U.S. Senate on July 1, 2025, passed an updated version of the budget reconciliation bill 51-50, along party lines.
Certain key proposals in the text as they relate to the Inflation Reduction Act's (IRA) clean energy tax credits are summarized below. Holland & Knight will update this alert. The following does not reflect final language. The bill must now be taken up by the House.
Technology-Neutral Tax Credits
|
Tax Credit |
Termination Date |
Transferability |
Foreign Entity of Concern (FEOC) Restrictions |
Other |
|
Section 45Y (Clean Electricity Production
Tax Credit) |
Available for facilities that begin
construction (BOC) by 2033; phases down afterward as provided under
current law without regard to possible extension |
Available, but no transfers under Section 6418 to Specified Foreign Entities (SFEs) (see FEOC discussion below) |
Yes (see discussion below) |
Eliminates credit for solar water heating
and wind leased property that would otherwise qualify for the
residential credit under Section 25D (elimination does not apply to
leased solar electric generating property) |
|
Section 48E (Clean Electricity Investment
Tax Credit) |
Available for facilities that BOC by 2033; phases down afterward as provided under current law without regard to possible extension Exception: wind and solar facilities that BOC 12 months after enactment, if placed in service after Dec. 31, 2027 |
Available, but no transfers under Section 6418 to SFEs (see FEOC discussion below) |
Yes (see discussion below, including discussion on the 10-year recapture) |
Eliminates credit for solar water heating
and wind leased property that would otherwise qualify for the
residential credit under Section 25D (elimination does not apply to
leased solar electric generating property) |
Investment Tax Credits
|
Tax Credit |
Termination Date |
Transferability |
FEOC Restrictions |
Other |
|
Section 48 (Investment Tax Credit) |
Limited change to eliminate the 2 percent credit under Section 48(a)(2)(ii) (generally applies only to qualified microturbine property and has no practical impact) |
None |
None |
None |
|
Section 48C (Qualifying Advanced Energy Project Credit) |
No new allocations will be provided No changes to existing allocations |
None |
None |
None |
Production Tax Credits
|
Tax Credit |
Termination Date |
Phaseout |
Special Rules |
Transferability |
FEOC Restrictions |
|
Section 45Q (Carbon Oxide Sequestration Credit) |
No change from current law |
None |
Credit amount for utilization of captured carbon increased to align with sequestration effective facilities or equipment placed in service after enactment |
Available, but no transfers under Section 6418 to SFEs (see FEOC discussion below) |
Yes (see discussion below) |
|
Section 45U (Zero-Emission Nuclear Power Production Credit) |
No change from current law |
None |
None |
Available, but no transfers under Section 6418 to SFEs (see FEOC discussion below) |
Yes (see discussion below) |
|
Section 45V (Credit for Production of Clean Hydrogen) |
For facilities that BOC after Dec 31, 2027 |
None |
None |
Unchanged |
None |
|
Section 45X (Advanced Manufacturing Production Credit) |
No credit for wind components produced
and sold after Dec. 31, 2027 |
For critical minerals (other than metallurgical coal) produced, by year: 2031, 75 percent; 2032, 50 percent; 2033, 25 percent; 2033 and thereafter, zero percent |
Adds metallurgical coal as eligible component Effective tax years after enactment, definition of "battery module" is modified to require that such module is "comprised of all essential equipment needed for battery functionality" Effective for eligible components sold after Dec. 31, 2026, a person shall be treated as having sold an eligible component that is integrated (a primary component) into another eligible component (a secondary component) where at least 65 percent of the direct material cost to produce the secondary component is attributable to primary components mined, produced or manufactured in the U.S. |
Available, but no transfers under Section 6418 to SFEs (see FEOC discussion below) |
Yes (see discussion below) |
|
Section 45Z (Clean Fuel Production Credit) |
For transportation fuel sold after Dec. 31, 2029 Eliminates enhanced rates for SAF, effective fuel sold after Dec. 31, 2025 |
None |
No negative emissions rate for fuel produced after 2025, except for manure feedstocks (provided U.S. Department of Energy secretary must issue rate) Requires feedstock produced or grown in U.S., Mexico or Canada for fuel produced after 2025 Indirect land use emissions are excluded for purposes of greenhouse gas (GHG) emissions rate as determined consistent with forthcoming regulations or methodology for fuel produced after 2025 Directs the U.S. Department of the Treasury to provide emissions for fuel produced from animal manure after Dec. 31, 2025 Permits Treasury Department to issue guidance regarding related party sales of qualifying fuels No credit under Section 6426(k)(1) for fuel produced from fuel for which Section 45Z allowed |
Available, but no transfers under Section 6418 to SFEs (see FEOC discussion below) |
Yes (see discussion below) |
|
Section 40A (Small Agri-Biodiesel Producer Credit) |
For fuel sold or used after June 30, 2025, and on or before Dec. 31, 2026 |
None |
Increases credit to 20 cents per gallon of qualified agri-biodiesel production for fuel Requires feedstock produced or grown in U.S., Mexico or Canada for fuel produced after 2025 |
Available for fuel sold or used after June 30, 2025 |
None |
Clean Vehicles and Refueling Property Tax Credits
|
Tax Credit |
Termination Date |
|
Section 25E (Previously Owned Clean Vehicles) |
For vehicles acquired after Sept. 30, 2025 |
|
Section 30D (Clean Vehicle Credit) |
For vehicles acquired after Sept. 30, 2025 |
|
Section 45W (Credit for Qualified Commercial Clean Vehicles) |
For vehicles acquired after Sept. 30, 2025 |
|
Section 30C (Alternative Fuel Vehicle Refueling Property Credit) |
For property placed in service after June 30, 2026 |
Energy-Efficient Homes and Buildings Tax Incentives
|
Tax Incentive |
Termination Date |
Exceptions |
|
Section 25C (Energy Efficient Home Improvement Credit) |
For property placed in service after Dec. 31, 2025 |
None |
|
Section 25D (Residential Clean Energy Credit) |
For expenditures made after Dec. 31, 2025 |
None |
|
Section 45L (New Energy Efficient Home Credit) |
For qualified new energy-efficient homes acquired after June, 30, 2026 |
None |
|
Section 179D (Energy Efficient Commercial Buildings Deduction) |
For property BOC after June 30, 2026 |
None |
Tax Depreciation
|
Tax Incentive |
Termination Date |
Exceptions |
|
Section 168 (Accelerated cost recovery system) |
Removes five-year property designation under Section 168 for any energy property under Section 48(a)(3)(A) (i.e., generally wind, solar, energy storage, etc.) for property BOC after 2024 However, 100 percent bonus depreciation may be available for property acquired and placed in service after Jan. 19, 2025; bonus depreciation not available to certain utilities |
None |
FEOC Restrictions
|
Section |
Specified Foreign Entity |
Foreign-Influenced Entity (FIE) |
Material Assistance From Prohibited Foreign Entity |
Other Special Rules |
|
Section 45Y |
Tax years beginning after enactment |
Tax years beginning after enactment |
Facilities that BOC after Dec. 31, 2025 |
|
|
Section 48E |
Tax years beginning after enactment |
Tax years beginning after enactment |
Facilities that BOC after Dec. 31, 2025 |
Special 10-year recapture period – looks to payments made to SFE pursuant to arrangement that provides SFE "effective control"; applies to credit allowed for tax years beginning two years after enactment |
|
Section 45X |
Tax years beginning after enactment |
Tax years beginning after enactment |
Tax years beginning after enactment |
|
|
Section 45Q |
Tax years beginning after enactment |
Tax years beginning after enactment and determined without regard to payment rule |
N/A |
|
|
Section 45Z |
Tax years beginning after enactment |
Tax years beginning two years after enactment and determined without regard to payment rule |
N/A |
|
|
Section 45U |
Tax years beginning after enactment |
Tax years beginning two years after enactment and determined without regard to payment rule |
N/A |
FEOC Definitions
- Prohibited Foreign Entity (PFE). Includes both
SFEs and FIEs.
- Determination made as of last day of taxable year, except for first taxable year after enactment, determination made as of first day of such taxable year (i.e., Jan. 1, 2026) as it relates to certain discrete criteria
- SFE. An entity that:
- meets the definition as provided in Section 9901(6) of the
William Thornberry National Defense Authorization Act (NDAA) for
fiscal year (FY) 2021:
- designated as a foreign terrorist organization by the U.S. Secretary of State under Section 219 of the Immigration and Nationality Act (8 U.S.C. 1189)
- included on the list of specially designated nationals and blocked persons maintained by the Treasury Department's Office of Foreign Assets Control (OFAC)
- alleged by the U.S. Attorney General to have been involved in activities for which a conviction was obtained
- is identified as Chinese military company
- is included on a list as a result of the Uyghur Forced Labor Prevention Act
- is specified under Section 154(b) under the NDAA of FY 2024 (specifically, the entities listed in paragraphs 1-7 on page 47 of L. 118-31)
- is a "foreign controlled entity" (the government of a covered nation, an agency or instrumentality, a person who is a citizen or national of a covered nation, an entity or business unit incorporated or organized or having its principal place of business in a covered nation, or any entity "controlled" by those described in this parenthetical) (where "control" = 50 percent vote or value of stock of corporation or 50 percent capital interest or beneficial interests)
- meets the definition as provided in Section 9901(6) of the
William Thornberry National Defense Authorization Act (NDAA) for
fiscal year (FY) 2021:
- FIE. An entity whereby:
- an SFE has direct authority to appoint a covered officer (where "covered officer" = board of director, supervisor or equivalent, or executive officer or equivalent)*
- a single SFE owns at least 25 percent of such entity*
- one or more SFEs owns, in aggregate, 40 percent or more of such entity*
- at least 15 percent of the debt is issued to aggregate by one or more SFEs*
(*exception for certain publicly traded companies)
- During the previous taxable year, the entity (or related
person) made a payment to an SFE pursuant to a contract, agreement
or other arrangement under which the SFE (or related person) has
effective control (referred to as the "payment rule").
- Effective control generally means authority over key aspects of production of eligible components, energy generation or energy storage that are not included in measures of control through authority, ownership or debt.
- With respect to a licensing agreement, this includes when such agreement allows an SFE to source items (components, subcomponents, critical minerals), direct the operation, utilize intellectual property, or receive royalties or any license agreement entered into or modified after enactment. Only exception is for bona fide purchase of intellectual property.
- Material Assistance to a Prohibited Foreign
Entity. This requires consideration of "material
assistance cost ratio" to determine if less than applicable
"threshold percentage."
- Threshold percentages vary by year and technology but increase over time.
- For Section 45Y and Section 48E, the ratio looks to total direct costs to the taxpayer for all manufactured products (including components) that are mined, produced or manufactured by a PFE.
- For Section 45X, the ratio looks to the total direct materials costs for the production of the eligible component that are attributable to a PFE. This test includes constituent materials and subcomponents.
- Certain safe harbor tables (pulled from Notice 2025-08) are available for material assistance cost ratio until further guidance is issued but do not apply to Section 45X as currently drafted.
- Certain costs can be excluded from the material assistance cost ratio if the existing contract exception applies. Exception requires, inter alia, that the taxpayer had a binding written contract prior to June 16, 2025.
- There is a six-year statute of limitations on material assistance and increased tax penalties on taxpayer and suppliers making certifications.
- Covered Nation. Means North Korea, China, Russia and Iran
- Covered Entity. Means an entity organized under laws or otherwise subject to jurisdiction of a covered nation
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
