The section 45X advanced manufacturing production credit
The OBBBA makes several changes related to what components are eligible for the section 45X advanced manufacturing production credit. Like the changes to the ITC and PTC, the section 45X credit would phase out differently based on type of component.
Wind components sold after 2027 would no longer be eligible for the credit. Changes to the eligibility rules for integrated components will apply to taxable years beginning after Dec. 31, 2026.
The law also modifies the rules for selling integrated components by limiting the creditability of an eligible component (primary component) that is incorporated into another eligible component (secondary component) by the same taxpayer. A taxpayer may only claim the 45X credit for the primary component if 65% of the costs incurred by the taxpayer to manufacture the secondary component are attributable to the primary component, and the secondary component is sold to an unrelated person.
The OBBBA also modifies what critical minerals are eligible for the section 45X credit. Metallurgical coal—a type of coal used in the steelmaking process—was added to the list of critical minerals with a phaseout for metallurgical coal produced after Dec. 31, 2029.
Interestingly, the credit for metallurgical coal is available for production costs regardless of whether the production occurs outside of the United States. Such a credit is only useful to a credit claimant with a taxable presence in the United States.
Under pre-OBBBA law, there was no phaseout for the production and sale of critical minerals. The OBBBA phases out the credit for critical minerals produced in 2031 through 2033. A significant change to section 45X includes a prohibition on the credit for taxpayers that are prohibited foreign entities, or taxpayers that receive material assistance from prohibited foreign entities.
The section 48C qualifying advanced energy project credit
The OBBBA also modifies funding of the section 48C advanced energy project credit.
This credit requires taxpayers to apply for and receive an allocation from a pool of $10 billion of IRA funding. To date, the IRS, the Department of the Treasury, and the Department of Energy conducted two rounds of applications and allocated the entirety of the $10 billion.
Under pre-OBBBA law, the pool of $10 billion of IRA funding would be increased by the amount of funds revoked from projects that initially received an allocation and certification but ultimately fail to meet certification requirements by not placing the project in service within two years of receiving certification. Under the OBBBA, however, any certification revocations would not increase the pool of available funding, eliminating the possibility of a third round of applications.
For some taxpayers: Although credits for manufacturers remain, phaseout dates and eligibility rules will impact credit forecasting.
Increased and bonus credit amounts
The dual rate structure tied to prevailing wage and apprenticeship requirements for many energy credits would generally be left in place under the OBBBA. The energy community and domestic content bonus credits largely remain the same except for the addition of new nuclear energy communities to the energy community bonus credit rules and the correction to section 48E domestic content rules mentioned above.
Transferability
Under pre-OBBBA law, 11 clean energy credits may be transferred under section 6418. The ability to transfer an eligible credit is tied to the eligible credit’s phaseout date, meaning a taxpayer that could claim a credit could also transfer the credit. The OBBBA maintains the pairing of eligibility dates but prohibits several eligible credits from being transferred to specified foreign entities.
Changes to the transferable credits will impact the market of transferable credits as fewer projects qualify for credits.
Potential credit buyers should: Consider changes to the underlying credits during diligence and verify whether they are a specified foreign entity that may be ineligible for credit purchases.
Prohibited foreign entities
The OBBBA generally prohibits taxpayers from claiming several energy credits, in particular sections 45X, 45Y and 48E, if they receive material assistance from or have certain ties to certain foreign entities, including entities from China, Russia, North Korea or Iran. These complex restrictions generally apply to taxable years beginning after July 4, 2025.
Taxpayers should: Carefully review their organizational chart to determine whether influence or control by certain entities renders them ineligible for various energy credits.
Residential energy credits
The OBBBA phases out by the end of the year the following residential energy credits:
- The section 25C energy efficient home improvement credit will no longer be available for property placed in service after Dec. 31, 2025
- The section 25D residential clean energy credit will no longer be available for expenditures made after Dec. 31, 2025
Electric vehicles and alternative fuel refueling property
Credits for clean vehicles are to be phased out earliest under OBBBA modifications. Individuals may be eligible for credits for certain new and used plug-in hybrid or fully electric vehicles. These are the section 30D clean vehicle credit and section 25E previously-owned clean vehicles credit, respectively. In order to qualify, the buyer and the vehicle must meet various requirements. Under the OBBBA, buyers will also need to acquire those vehicles by Sept. 30, 2025, to remain eligible.
Businesses that use plug-in hybrid and fully electric vehicles in a trade or business may be eligible for the section 45W credit for qualified commercial clean vehicles. Like the credits for individuals, businesses must acquire vehicles by Sept. 30, 2025, to remain eligible for the credit.
Individuals or businesses installing EV chargers or other alternative fuel vehicle refueling property must place such property in service not later than June 30, 2026, to remain eligible for the section 30C credit.
RSM Washington National Tax takeaways: Implications for taxpayers with clean energy projects
While the OBBBA expedites phaseouts and credit termination dates for primarily wind, solar, electric vehicles and residential energy property, there are still significant incentives for the clean fuels industry and other clean energy sources, such as geothermal, hydropower, nuclear, fuel cell, and energy storage technology. Also important is that both transferability of credits and direct pay for certain entities, such as nonprofits and state and local governments, remain for energy projects.
With respect to manufacturing credits, it is important to note that the section 48C credit program was not eliminated. Taxpayers who received credit allocations are still able to claim this credit assuming program conditions are met. Further, credits for U.S. manufacturing of clean energy property and critical minerals also remain but with more restrictions relating to prohibited foreign entities.
For taxpayers considering clean energy investments particularly in wind and solar, adjustments to phaseouts and eligibility rules bring new challenges. Although the credits were not repealed entirely or retroactively, taxpayers will need to consider their ability to satisfy the new phaseout and eligibility requirements or risk losing anticipated credits. Further, condensed timelines for construction commencement and project completion are expected.
It is anticipated that additional IRS scrutiny of claimed clean energy credits may lead to increased examinations under the current administration. Thus, it will be important for project developers and credit claimants to ensure careful compliance with the new rules imposed by the OBBBA.
For example, new, complex rules restricting credit eligibility from foreign entities of concern may become a common foot fault for global project developers and new, inbound U.S. clean energy investments. Careful review of organizational charts and other records will be critical post-OBBBA.
Regarding commencement of construction safe harbors for wind and solar, a July 7, 2025, executive order instructs the Treasury secretary to take actions to ensure strict enforcement of the termination of the technology-neutral ITC and PTC under sections 48E and 45Y. Treasury guidance to be issued may change longstanding industry precedents. Taxpayers should monitor these developments to ensure compliance.
Further, it is important to note that the prevailing wage and apprenticeship requirements are still applicable for most credits; thus, it remains imperative to document compliance with these labor requirements.
Taxpayers should work with their tax advisor to better understand how OBBBA provisions apply specifically to them and monitor for additional guidance.
