Final Call for Clean Energy Tax Incentives

The following article was provided by Whittlesey. It is reposted here with permission. 

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The recently passed One Big Beautiful Bill Act represents a significant shift in U.S. energy and tax policy.

It dramatically cuts many clean energy tax incentives introduced under the Inflation Reduction Act of 2022.

Individuals and businesses must act quickly to take advantage of valuable federal tax credits that are now being phased out or scaled back years ahead of schedule.

This article outlines the key clean energy tax incentives affected by the OBBBA and what you can do to benefit before they disappear.

Clean Vehicle Tax Credits (Individuals)

Ends Sept. 30, 2025.

New Clean Vehicle Credit (Up to $7,500): This federal credit for new electric and hydrogen fuel cell vehicles was originally scheduled to run through 2032. The OBBBA now ends it on Sept. 30, 2025.

The full $7,500 credit requires vehicles to meet specific battery and mineral sourcing standards. A partial credit of $3,750 may still apply to vehicles that meet only one of those criteria.

Eligibility limits:

• MSRP: $55,000 for sedans; $80,000 for SUVs, trucks, and vans
• Adjusted gross income: $150,000 (single), $225,000 (head of household), $300,000 (married filing jointly)

Used Clean Vehicle Credit (Up to $4,000): A separate credit remains available for used electric or hydrogen vehicles purchased from licensed dealers. It provides up to $4,000 or 30% of the vehicle’s sale price, whichever is lower.

Requirements:

• Vehicle price cap: $25,000
• Vehicle must be at least two years old and not previously claimed for this credit
• AGI: $75,000 (single), $112,500 (head of household), $150,000 (married filing jointly)

With the expiration approaching, consumer demand is expected to rise sharply, potentially driving up prices and limiting availability. Acting now ensures both access to vehicles and eligibility for the credit.

Home Energy Tax Credits (Individuals)

Energy Efficient Home Improvement Credit: Expires Dec. 31, 2025. This nonrefundable credit covers 30% of the cost of various home energy upgrades, up to $1,200 annually, with item-specific sub-limits.

Annual limits include:

• $250 per exterior door (maximum $500 total)
• $600 for windows, electrical panels, and central air conditioning
• $150 for home energy audits
• $2,000 for heat pumps, biomass stoves, and energy-efficient water heaters

There are no income limits, and homeowners may benefit by spreading improvements across two tax years to maximize credits.

Residential Clean Energy Credit (30%): Expires Dec. 31, 2025. This credit allows individuals to claim 30% of the cost for eligible renewable energy systems, including:

• Solar panels
• Geothermal heat pumps
• Solar water heaters
• Wind turbines
• Biomass fuel systems

Previously scheduled to last until 2034, this credit now ends in 2025. There is no income cap or dollar limit, making it one of the most valuable incentives for homeowners installing rooftop solar or geothermal systems.

Planning consideration: These installations often require permitting, inspections, and utility approvals. Initiating projects early in 2025 is critical to ensure eligibility.

Alternative Fuel Refueling Property Credit (Individuals and Businesses)

Expires June 30, 2026. This credit provides 30% of the cost (up to $1,000 per item) for installing clean fuel infrastructure, such as:

• EV charging stations (Level 1 or 2)
• Hydrogen fuel cell dispensers
• On-site fuel storage systems

Important note: To qualify, equipment must be professionally installed and meet certification standards. Early planning is advised to avoid shortages and installation delays.

Business-Specific Clean Energy Credits

Commercial Clean Vehicle Credit (Up to $40,000 per vehicle): Ends Sept. 30, 2025. Businesses can claim:

• Up to $7,500 for light-duty clean vehicles
• Up to $40,000 for medium- or heavy-duty electric or hydrogen fuel cell vehicles

Action required: Due to production lead times and vehicle backlogs, businesses considering fleet upgrades must act now to secure orders and take delivery before the deadline.

Investment Tax Credit

Full 30% credit ends Dec. 31, 2025. The ITC allows businesses to claim a percentage of the cost for qualifying energy systems, including solar, storage, geothermal, fuel cells, and wind.

Under OBBBA:

• 30% credit ends after 2025
• Reduced base credit (6%) begins in 2026
• Phased out entirely by 2028
• Bonus credits (for domestic content, energy communities, etc.) are eliminated

Production Tax Credit: Projects must begin construction by Dec. 31, 2025.

The PTC offers a per-kilowatt-hour tax credit for clean electricity generation. Eligible technologies include:

• Wind
• Geothermal
• Biomass
• Hydropower

Under OBBBA, new projects beginning construction after 2025 will no longer be eligible. Existing rules still allow a four-year window for completion if started by the end of 2025.

Section 179D Commercial Building Deduction: Reduced starting Jan. 1, 2026 and phased out after 2027.

This deduction allows up to $5.00 per square foot for energy-efficient commercial building improvements. Starting in 2026, the maximum deduction will be reduced to $1.80 per square foot, and it will sunset fully after 2027.

This incentive is especially relevant to:

• Real estate developers
• Design-build contractors
• Architectural and engineering firms working on government or nonprofit buildings

Direct Pay and Transferability Provisions

Direct pay ends after 2025 and transferability ends: After 2026. The IRA introduced two mechanisms to increase accessibility:

• Direct pay: Allows tax-exempt entities to receive credit refunds in cash
• Transferability: Allows for-profit entities to sell unused tax credits

These options are being eliminated, dramatically limiting flexibility for both public sector entities and private companies.

What You Should Do Now

For individuals:

• Secure an eligible EV purchase before Q4 2025
• Schedule home energy upgrades and renewable installations early
• Maintain documentation for purchases and installations
• Consult a tax advisor to optimize credit claims across tax years

For businesses:

• Accelerate clean energy projects and fleet conversions
• Document project start dates for ITC/PTC eligibility
• Engage tax and legal professionals to utilize transferability and direct pay before they expire
• Coordinate with vendors early to avoid capacity or supply issues

Need Help Navigating the Changes?

These policy changes require fast, informed decision-making.

If you are considering investments in clean vehicles, renewable energy systems, or energy-efficient infrastructure, work with a qualified tax advisor, project manager, or energy consultant to ensure timely execution and full compliance.

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About the author: Brenden Healy is partner-in-charge of tax services in Whittlesey’s Hartford office. Healy has over 25 years of experience in public accounting. He is a tax expert who consults with businesses and individuals and focuses his practice on manufacturing and distribution, retail industries, real estate, and nonprofit organizations.