The recently signed-into-law One Big Beautiful Bill Act (OBBBA) significantly reshapes the landscape of federal tax credits and incentives, particularly those introduced or expanded under the Inflation Reduction Act (IRA). While the law accelerates the phaseout of many clean energy credits, it also extends or modifies others, introduces new compliance requirements, and preserves key opportunities for strategic investment. This article focuses on what taxpayers should know about the new credit environment.
Clean Energy Credits: Phaseouts & Extensions
The OBBBA accelerates the phaseout of several IRA-era clean energy credits, while preserving others under revised timelines and conditions:Wind & Solar Credits
- Ends the Section 45 production tax credit (PTC) and Section 48 investment tax credit (ITC) for wind and solar facilities placed in service after December 31, 2027.
- Exception: Projects that begin construction before July 4, 2026, may still qualify under current rules.
- Safe Harbor: Projects that incur at least 5% of total costs before the deadline may qualify under transitional rules.
- Disqualifies Lessees: Introduces a denial of credit for lessees to claim the production or investment credits if they lease wind or solar property to third parties.
Energy Storage, Nuclear, & Geothermal
- Credits for energy storage, geothermal, and nuclear projects are preserved through 2033, with reduced rates in 2034 (75%) and 2035 (50%).
- Advanced nuclear facilities in high-employment communities receive enhanced credit rates.
Foreign Entity of Concern (FEOC) Rules
- Projects beginning construction after December 31, 2025, must comply with new FEOC supply chain restrictions, disqualifying components from certain foreign countries (e.g., China).
- These rules apply across most clean energy credits and may significantly impact solar and battery developers.
Clean Fuel & Hydrogen Credits
Section 45Z Clean Fuel Producer Credit
- Extended through December 31, 2029, with key modifications:
- Feedstocks must originate from the U.S., Canada, or Mexico.
- Negative emissions rates are disallowed, except for fuels derived from animal manure.
- Sustainable aviation fuel (SAF) credit rates are reduced, and the SAF blender’s credit is extended through September 30, 2025.
- Small producer biodiesel credit is extended through 2026.
Section 45V Clean Hydrogen Credit
- Phased out by requiring construction to begin before January 1, 2028.
- Treasury is directed to issue regulations to prevent “double credits” and clarify related-party sales.
Carbon Capture & Sequestration
- Establishes parity in credit rates across all carbon capture processes:
- $17/metric ton base credit
- $85/metric ton if labor requirements are met
- Applies to sequestration, utilization, enhanced oil recovery, and direct air capture for facilities placed in service after enactment.
Terminated or Phased-Out Credits
The OBBA terminates several clean energy and vehicle-related credits:| Credit | Termination Date |
| Section 179D (energy-efficient commercial buildings) | Construction begins after June 30, 2026 |
| Section 45L (new energy-efficient homes) | Property acquired after June 30, 2026 |
| Section 30C (EV charging equipment) | Property placed in service after June 30, 2026 |
| Section 45W (commercial clean vehicles) | Vehicles acquired after September 30, 2025 |
| Individual clean energy credits (EVs, solar, residential energy) | Generally effective after December 31, 2025 |
Transferability & Tax Equity Markets
- Section 6418 transferability is preserved for most credits, allowing taxpayers to sell credits to unrelated parties.
- This provision supports continued growth in tax equity markets, particularly for solar, storage, and biogas developers.
- Developers should act quickly to safe harbor projects and secure credit eligibility before phaseouts take effect.
Advanced Manufacturing & Critical Minerals
- Section 45X credit is expanded to include metallurgical coal used in steel production (2.5% of production costs).
- Updates to the definition of battery modules and integrated components aim to align with FEOC restrictions and domestic sourcing goals.
Community & Education Incentives
- Qualified Scholarship Tax Credit: Individuals may claim a $1,700 nonrefundable credit for contributions to scholarship-granting organizations for elementary and secondary education.
Qualified Opportunity Zones (QOZ)
The QOZ incentive is made permanent, with:- Rolling 10-year QOZ designations starting on July 1, 2026, including new designations of rural qualified opportunity zones
- 10% step-up in basis on eligible capital gains deferred into a qualified opportunity fund (QOF), and the QOF interest is held for at least five years
- QOF investors are not required to dispose of their interest in the QOF, and have the option to sell or exchange their QOF interest between years 10-30 with a step-up in their basis to fair market value
- New incentives for investments in qualified rural opportunity zones, including:
- 30% basis increase after holding the investment for at least five years; and
- Lower substantial improvement threshold (50% vs. 100%)
- Annual reporting requirements for QOF’s and qualified opportunity zone businesses (QOZB’s) to improve transparency and measurability of the incentive (with significant penalties for failure to file timely and accurate reports)
- Annual reports to be made available to the public disclosing aggregate data on qualified opportunity zones, including new rural zones. Such reports will not include taxpayer-specific information.
Low-Income Housing Tax Credit (LIHTC)
For qualified projects placed in service starting in 2026, the LIHTC is made permanent and enhanced by increasing the state housing credit ceiling from 9% to 12%. In addition, the threshold for eligible projects financed with tax-exempt bonds is lowered from 50% to 25%.New Markets Tax Credit (NMTC)
The NMTC incentive is made permanent within the tax code, with the government awarding a total of $5 billion of credit allocations to qualifying taxpayers on an annual basis. In addition, unallocated credits awarded to qualifying taxpayers are able to be carried forward for up to five years.Disaster Relief & Casualty Losses
Casualty loss rules are permanently extended to include federally declared disasters and select state-declared disasters, allowing deductions for personal property losses.Incentives for Children & Child/Dependent Care
- Child Tax Credit: Credit is made permanent and increased to $2,200 beginning in 2025 (indexed for inflation thereafter).
- Child & Dependent Care Assistance Program: Maximum amount excludible from income on an annual basis when directed towards child & dependent care assistance is increased to $7,500, starting in 2026.
- Child & Dependent Care Tax Credit: Credit increased to maximum of 50% of eligible dependent care expenses for lower-income parents, subject to phaseouts based on the parent’s AGI (but not below 20% of eligible expenses).
- Employer-Provided Child Care Tax Credit: The tax credit for employers who provide childcare services to their employees is increased from 25% of qualified childcare expenses to 40% (50% for certain small businesses), starting in 2026. The maximum amount of such credits that can be claimed annually also increases to $500,000 ($600,000 for certain small businesses).
Final Thoughts
The OBBBA reshapes the clean energy and tax credit landscape, offering both challenges and opportunities. While many IRA-era incentives are curtailed, transitional rules, safe harbor provisions, and extended eligibility for storage, nuclear, and biogas projects provide a path forward for strategic investment. Importantly, President Trump signed an Executive Order on July 7, 2025, directing the Treasury Department to strictly enforce the termination of clean electricity production and investment tax credits for wind and solar, as outlined in the OBBBA, reinforcing the administration’s commitment to ending subsidies for what it deems unreliable energy sources. At The Bonadio Group, we are actively helping clients assess the impact of these changes and identify opportunities to optimize credit utilization, project timing, and compliance with new rules. This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship. For more details about what is in the new OBBBA law and its implications for you, please join us on July 18th for a webinar where we’ll break down these changes and answer your questions live. Click the link below to learn more and register.18
9:00 am - 11:00 am
