The OBBBA Eliminates Clean Energy Tax Incentives

The recently enacted One Big Beautiful Bill Act (OBBBA) marks a significant step by President Trump and congressional Republicans toward dismantling several clean energy tax incentives. These tax breaks were created or expanded under the Inflation Reduction Act (IRA). Below is an overview of the key clean energy tax benefits — both for individuals and businesses — that will soon be reduced or eliminated.

Clean Vehicle Incentives

Consumers and businesses considering clean vehicle purchases should act quickly to benefit from the soon-to-expire tax credits. Here are three that are ending under the OBBBA:

1. New clean vehicle tax credit. Under this credit, eligible taxpayers can claim up to $7,500 for new electric vehicles (EVs) and fuel cell vehicles based on the sourcing of battery components and critical minerals. Vehicles meeting only one condition may qualify for a $3,750 credit. The credit's original expiration date was the end of 2032. The new expiration date is September 30, 2025. (See chart below for income and price eligibility requirements.)

2. Used clean vehicle credit. This tax credit provides up to $4,000 or 30% of the vehicle's sale price for eligible used EVs and fuel cell vehicles bought through dealers. It also expires on September 30, 2025. (See chart below for income and price eligibility requirements.)

3. Qualified commercial clean vehicle credit. With this credit, under Section 45W of the tax code, eligible businesses and tax-exempt organizations can claim up to $7,500 for light clean vehicles or $40,000 for heavy clean vehicles. The credit now expires on September 30, 2025.

Alternative Fuel Vehicle Refueling Property Credit

If you install property to store or dispense clean-burning fuel or recharge electric vehicles in your home or business, you may be eligible for the Section 30C alternative fuel vehicle refueling property tax credit. The property must be installed in a qualifying location.

The credit amount is based on the placed-in-service date for the refueling property. It was extended and modified by the IRA.

For property you buy and place in service at your main home after 2023, the credit equals 30% of the cost of the property up to a maximum credit of $1,000 per item (each charging port, fuel dispenser or storage property). For businesses, this tax credit offers up to $100,000 per item for installing clean fuel or EV charging infrastructure.

Before the OBBBA, the Sec. 30C credit was set to expire at the end of 2032. Now, eligible property must be placed in service by June 30, 2026.

Individual Home Energy Tax Breaks

The OBBBA brings an early end to various tax credits available to individual taxpayers, though it offers short transition windows for final eligibility. For example, homeowners considering making energy-efficient upgrades may need to act before year end to take advantage of these two breaks:

1. The Energy Efficient Home Improvement Credit. Under Section 25C, eligible taxpayers can receive a 30% tax credit for certain expenses, up to certain limits. These include energy-efficient windows, doors, skylights, insulation materials, heat pumps and home energy audits. The credit is nonrefundable, so you can't get back more on the credit than you owe in taxes.

There are no income limits on this credit; instead, the limit amount depends on the expense. The maximum credit you can claim each year is $1,200 for energy-efficient property costs and certain energy-efficient home improvements, including:

• $250 for an exterior door ($500 total),
• $600 for exterior windows and skylights, central air conditioners, electric panels and certain related equipment, natural gas, propane or oil water heaters, natural gas, propane or oil furnaces or hot water boilers,
• $150 for home energy audits, and
• $2,000 for qualified heat pumps, water heaters, biomass stoves or biomass boilers. (This supersedes the usual $1,200 annual limit.)

The previous expiration date for the Sec. 25C credit was the end of 2032. The new expiration date is December 31, 2025.

2. The residential clean energy credit. Section 25D provides a 30% credit for renewable energy systems, such as solar panels, wind turbines, and geothermal or biomass equipment, installed after 2022. The credit is nonrefundable, and there are no income limits. The previous expiration for the Sec. 25D credit was at the end of 2034. The new expiration date is December 31, 2025.

Business Clean Energy Tax Incentives

Several credits targeting business investments in clean energy infrastructure are also being phased out or severely limited. For example, the OBBBA severely limits the tax breaks for new wind and solar projects. Here are two other tax breaks that are ending under the law.

1. Energy-efficient commercial buildings deduction. Building owners may claim a tax deduction when they place in service energy-efficient commercial building property or energy-efficient commercial building retrofit property. While this deduction, under Section 179D, dates back to 2006, the IRA significantly expanded its scope and potential value. Under the OBBBA, there will be no deduction for buildings or systems with construction starting after June 30, 2026.

2. Advanced manufacturing production credit. Several modifications have been made to this tax credit, under Section 45X. It's equal to a specific credit rate based on the eligible component(s) produced by a manufacturer in their trade or business and sold within the taxable year for which the credit is claimed. Eligible components include:

• Solar energy components,
• Wind energy components (including offshore wind vessels),
• Inverters,
• Electrode active materials,
• Qualifying battery components and
• Applicable critical minerals.

The OBBBA adds "metallurgical coal" (for steel production) to the critical mineral list. For wind components, there will be no credit after 2027. Most critical material credits will phase out between 2031 and 2033. The metallurgical coal credit ends after 2029.

Planning Ahead

With the accelerated phaseouts and new restrictions for green tax breaks under the OBBBA, both individual and business taxpayers should act promptly to lock in tax incentives. Forward-looking planning is essential to maximize benefits before these clean energy credits disappear. Contact your Porte Brown tax advisor soon about how to proceed.

Clean Vehicle Tax Credit Eligibility