The One Big Beautiful Bill is phasing out energy incentives, but there’s still time to act
Now that the One Big Beautiful Bill (OBBB) Act has become law, many clean energy incentives are being eliminated or phased out. For construction, real estate development and architecture firms, tribal entities, nonprofits, government and educational institutions, the message is clear: Act now.
Some of the most valuable tax credits will sunset as early as 2025 and 2026, and eligibility often hinges on project milestones like breaking ground or placing assets in service. Others come with new compliance hurdles related to foreign sourcing, labor rules and documentation standards.
Here’s what you need to know — and what you can do to secure energy incentives before they disappear:
Expiration dates for key energy tax credits
1. Individual incentives
The clock is winding down on several well-known, consumer-focused credits.
The clean vehicle credits (Section 25E, Section 30D and Section 45W) are set to expire on September 30, 2025, while the Residential Clean Energy Credit (Section 25D) and the Energy-efficient Home Improvement Credit (Section 25C) are set to expire on December 31, 2025.
IRS guidance is pending, but statutory language for Section 25D suggests that payments made before the deadline may be enough to qualify, even if neither installation nor construction has begun. In contrast, Section 25C requires systems to be placed in service.
The Alternative Fuel Refueling Property Credit (Section 30C), which applies to electric vehicle charging stations, will phase out for property placed in service after June 30, 2026. To get the full 30% credit, projects must meet the prevailing wage and apprenticeship requirements. Union labor does not automatically qualify, so it’s important to verify compliance with contractors early.
During the short time these incentives remain, eligibility will become harder to claim. The administration has made it clear that you’ll need more than a signed contract or deposit. To qualify, the title must be in your name — or in the case of charging infrastructure, the station must be installed and operational — before the cutoff date. More guidance from the Treasury and IRS is expected, likely in the form of informal FAQ. However, waiting for more information could mean missing out.
2. Business incentives
The impact on business energy incentives is more dramatic.
Wind and solar clean energy projects that have not yet begun construction must begin construction by July 4, 2026, to qualify for the new Technology-Neutral Production and Investment Tax Credits (Section 45Y and Section 48E) and to avoid facing a very tight December 31, 2027, eligibility cliff. Projects that start after that date must be placed in service by the end of 2027 — a tight window for large-scale developments.
Beginning of construction will be judged on facts and circumstances. Under an executive order issued July 7, simply committing capital or meeting a minimum expenditure threshold probably won’t cut it. To qualify, you’ll likely need to show that ground was broken and that substantial, continuous progress is being made toward completion. You can’t dig a hole before the deadline and walk away for two years.
Projects already underway — or that can begin on or before July 4, 2026 — should be in good shape eligibility-wise. For new or planned developments or where there is any doubt about when construction began, the safest bet is to have the asset fully in service by the end of 2027.
The IRS is also closing a loophole so business owners can’t claim investment or production tax credits for solar or wind systems leased to residential customers that would otherwise qualify for Section 25D.
3. Other long-standing incentives
Several long-standing energy-related tax incentives are also phasing out:
- Section 179D: The energy-efficient commercial building deduction phases out for construction beginning after June 30, 2026.
- Section 45L: The energy-efficient new home credit ends for homes acquired after June 30, 2026, including leased apartment units. Under the law, “acquisition” requires not just construction but also possession by the end user, a resident. Residential owners or tenants in leased units must move in by this date.
- Section 168 bonus depreciation: Five-year depreciation has been eliminated for certain wind, solar and geothermal energy property for projects that begin construction after December 31, 2024.
- Section 48C: No new allocations will be made under the advanced energy project credit.
4. Geothermal, fuel cells and advanced manufacturing
These updates are also noteworthy:
- The limited-use geothermal rule is eliminated.
- Fuel cell projects that begin construction after 2025 will still qualify for a 30% credit.
- A 10-year recapture rule applies to certain payments involving specified foreign entities (SFEs) starting July 4, 2027.
The Section 45X advanced manufacturing production credit — which supports domestic production of clean energy components like battery modules — is also winding down. Wind components won’t qualify after 2027. And beginning in 2031, credits for critical minerals will start to phase out (except metallurgical coal, which was added as a “critical” material).
Prohibited foreign entities: A new compliance hurdle
If your energy project uses foreign components — especially those sourced from China — there’s a new set of rules you need to understand.
The OBBB has a framework to limit access to energy tax credits for companies that are connected to prohibited foreign entities (PFEs). While definitions are still evolving, the intent is clearly to reduce U.S. reliance on countries like China and Russia for critical energy infrastructure.
There are three categories of potential exposure:
- Specified foreign entities (SFEs): Entities linked to foreign adversaries, including military-controlled companies and those listed under forced labor sanctions.
- Prohibited foreign entities (PFEs): These are broadly defined as organizations associated with “covered nations,” including their governments, nationals and any organizations they control.
- Foreign-influenced entities (FIEs): U.S.-based entities with ownership, board representation or financing from SFEs. For example, a board member could be appointed by an SFE, or the company could hold a major contract with one.
Why PFEs matter
If your energy project involves materials, components or agreements that are tied to any of these entities, you could lose eligibility for energy credits, including Section 45Y, Section 48E, Section 45Q, Section 45U, Section 45X and Section 45Z. It doesn’t matter if you’re a direct recipient or just part of the supply chain.
The government will use cost-ratio tests to evaluate exposure and determine whether a project receives “material assistance” from a PFE. For example, in the case of Section 45Y and Section 48E credits, the ratio compares:
- The total direct costs of all manufactured products in the project, and
- The portion of costs that came from PFEs.
This test is particularly concerning for solar developers since many key components are currently sourced from China.
To help navigate these requirements, the IRS issued safe harbor tables and clearer guidance in Notice 2025-08. In some cases, binding contracts signed before June 16, 2025, may allow developers to exclude certain costs from the FEOC ratio calculation — but only if those contracts remain unchanged.
How to stay compliant with PFE rules
When it comes to PFE compliance, paperwork is your friend.
Projects that fall under PFE scrutiny will be subject to a six-year statute of limitations and come with increased penalties for both taxpayers and their certifying suppliers. Supplier representation letters are allowed as part of your documentation, but strictly relying on those letters may not protect you if information turns out to be false.
Suppliers now have stronger incentives to disclose the truth — and developers have a new compliance burden to help ensure every party in their supply chain is properly vetted. To protect yourself: document, document, document.
Protecting your incentives: Timing is everything
Timing can make or break your eligibility. Under the OBBB, each energy credit is tied to one or both of these dates:
- Beginning of construction
- Placed in service
Starting construction by July 4, 2026, technically avoids the cutoff cliff — but it’s safer to have projects fully in service by December 31, 2027.
IRS guidance isn’t final yet, but the Treasury is expected to release a “facts and circumstances” test to determine whether your project milestones occurred on time. That means it’s not enough to sign a contract, frontload design costs or move a little dirt. To qualify, you need to:
- Complete significant physical work, or
- Incur at least 5% of the total project costs (i.e., the “5% test”).
You also need to demonstrate continuous progress — so don’t plan to rely on the 5% test alone.
Be proactive, not reactive
The safest move is to act now — not wait for final guidance.
Some projects, like solar installations, shouldn’t take more than three to six months to execute, but contracting delays and approvals can push timelines beyond that. Work with advisors, general contractors, architects and engineers to schedule work that aligns with IRS expectations. Depending on your project, that could mean:
- Accelerating payments to meet cost thresholds.
- Scheduling physical construction as early as possible.
- Keeping detailed, dated records of activity and expenditures.
The earlier you plan — and the more thoroughly you document — the better protected your incentives will be.
How Wipfli can help
Our energy and tax professionals can help you evaluate projects against the new legislative reality so you can make informed, tax-advantaged decisions. Contact us today to discuss how the OBBB may affect your timelines, compliance or incentive strategy — so you can stay a step ahead.
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