Federal Business Tax Credits for Renewable Energy
July 22, 2025
By Holly Cushman, CPA
Shareholder
The U.S. government has long supported renewable energy development through federal tax credits. However, these incentives often shift with political changes and last-minute legislation. Two key business credits—one for the production of clean electricity and one for the investment in facilities that generate clean electricity—have already undergone significant changes from 2024 to 2025 and are further altered by the One Big Beautiful Bill (OBBB). Below is a general overview.
Section 45Y: Clean Electricity Production Credit
What it is:
This annual credit supports the production and sale of zero-emissions electricity from facilities placed in service after Dec. 31, 2024. The amount of the credit is calculated by kilowatt-hours and depends on factors like:
- Use of prevailing wage and apprenticeship labor
- Domestic content in materials
- Facility location (e.g. energy communities)
What’s changing under OBBB:
- Wind and solar projects: No credit if placed in service after Dec. 31, 2027, if construction begins after July 4, 2026
- Other technologies: Begins phase-down and termination of credit after Dec. 31, 2032, regardless of U.S. emission decreases
- Foreign involvement: No credit for facilities that begin construction after Dec. 31, 2025, if they use materials or services from China or other prohibited foreign entities
- Leasing: Wind and solar projects under leasing arrangements are no longer eligible
- Energy communities: Now includes nuclear energy communities
Section 48E: Clean Electricity Investment Credit
What it is:
This credit is based on a percentage of upfront cost and applies to investments in:
- Zero-emissions electricity generation
- Energy storage systems
- Interconnection property
Like the Section 45Y production credit, eligibility depends on labor standards, domestic content and location.
What’s changing under OBBB:
- Wind and solar projects: Same cutoff as Section 45Y—no credit if placed in service after Dec. 31, 2027, if construction starts after July 4, 2026
- Other technologies: Begins phase-down and termination of credit after Dec. 31, 2032, regardless of U.S. emission decreases
- Foreign involvement: No credit for projects starting after Dec. 31, 2025, if they involve prohibited foreign entities
- Leasing: Wind and solar leasing arrangements are excluded
- Geothermal: New rules for determining ownership of geothermal heat pump property
- Fuel cells: The zero-emissions requirement is removed for fuel cell projects starting after Dec. 31, 2025
- Domestic content: Minimum U.S.-made component requirements increase beginning June 16, 2025, and continue to increase through 2027
Wait, there's more:
- OBBB eliminates the accelerated five-year depreciation life for energy property assets placed in service after 2024. It is not yet clear what the new depreciation life for these assets will be.
- Days after signing the OBBB, President Trump issued an executive order emphasizing strict enforcement of solar and wind credit termination, prevention of attempts to manipulate beginning of construction periods and immediate implementation of enhanced foreign entity restrictions. Treasury was instructed to provide additional guidance within 45 days of the bill’s enactment.
The recent changes to clean electricity tax incentives introduce a degree of uncertainty and urgency, particularly for those in the early stages of an energy project such as installing windmills, solar panels or geothermal pumps. Taxpayers should work with qualified professionals who understand how the new eligibility and phaseout rules apply to their specific tax circumstances—for both compliance and overall tax and financial strategy.
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