Current battery and renewable energy project tax credits would remain until 2028 followed by a three-year phase down
The House Budget Committee, by a 21-16 vote on May 16, 2025, blocked a massive tax bill that would roll back portions of the federal energy tax credit provisions of the Inflation Reduction Act of 2022 (IRA). Budget Committee approval is necessary for the bill to advance to the House Rules Committee and a House floor vote before the bill could be taken up by the Senate. However, several key members of the Senate, including Josh Hawley (R-Mo.), have already stated their opposition to the House bill as currently constituted.
The opposition to the bill does not appear to stem from the proposed rollbacks and elimination of the energy tax credits contained in the bill but, rather, from Republican hardliners who seek deeper spending cuts in the bill to reduce the federal deficit. The hardliners were joined by the Democratic minority on the Committee that voted in opposition to the bill. The Republicans reportedly plan to work through the weekend to achieve a compromise that will also placate more moderate Republicans that are seeking an increase in state and local tax deductions from federal taxes. It is unclear whether a compromise would impact the proposed changes to the energy tax provisions in the bill.
Takeaways From the House Bill's Energy Provisions
As the energy provisions of the House bill are presently constituted, the bill keeps the current tax credits for renewable energy projects and batteries largely in place through 2028, to be followed by a three-year phase-down of certain tax credits. The bill introduces new limitations for projects involving prohibited foreign entities, including a "foreign entity of concern," that would deny tax credits to affected projects or trigger recapture of previously claimed credits.
Here are some of the key changes proposed in the current package:
- Energy Investment Tax Credits and Production Tax Credits. The historic renewable energy investment tax credit (ITC) (Section 48) and production tax credit (PTC) (Section 45) for projects already in operation or that began construction by year-end 2024 would not be affected, with the exception of geothermal heat pump properties. The successor technology-neutral clean electricity ITC (Section 48E) and PTC (Section 45Y) (which expands the prior tax credits to include all clean electricity technologies) would be phased down for three years beginning with projects placed in service in 2029, with complete elimination of these credits for projects placed in service after 2031.
- Geothermal Heat Pump Property. The energy investment tax credit for geothermal heat pump property (Section 48) would be phased out for facilities beginning construction after 2029, with complete elimination of this credit for facilities beginning construction after 2031. Like other provisions, the credit would be subject to the mid-2027 sunset on transferability and be disallowed for any project involving impermissible foreign entity involvement.
- Transferability of ITC and PTC. The ability of a project owner to transfer or sell tax credits to third parties for cash (Section 6418) would end for projects beginning construction more than two years after the reconciliation legislation is enacted. However, projects that begin construction within this two-year period will still need to satisfy the placed-in-service deadlines described above to avoid the phase-down and elimination of the ITC or PTC. Projects failing to begin construction during this two-year period would still be able to qualify for the full ITC and PTC if they are placed in service prior to 2029, after which the ITC and PTC would begin to phase down.
- Direct Pay. While the bill modifies the transferability provisions of the Code, the bill does not disturb the so-called "direct pay" or "elective pay" provisions that allow certain organizations to treat certain tax credit amounts, including the ITC, PTC, and clean hydrogen credits, as payments of tax and then receive a refund of that tax that is deemed paid. Entities eligible for this option include tax-exempt organizations, state and local governments, Indian tribal governments, the Tennessee Valley Authority, and Alaska Native Corporations.
- Foreign Entity Involvement. As noted, the bill contains new restrictions on foreign entity ownership, influence, or material assistance. The new restrictions would disqualify projects from eligibility for the clean electricity ITC and PTC. In the case of the ITC, violation of the new restrictions during the 10-year period after the facility is placed in service could result in recapture of the entire ITC claimed for the project.
- Low-Income Communities Bonus Credit. The low-income communities bonus credit allocations would end in 2031. Facilities receiving an allocation before then would have to be placed in service by the earlier of (i) four years after receipt of the allocation, or (ii) December 31, 2031.
- Other Bonus Credits. Other bonus credits under the IRA for satisfying the prevailing wage and apprenticeship requirements, domestic content, and energy communities will generally remain intact, but are subject to the same phase-out and elimination of the ITC and PTC described above.
- Advanced Manufacturing Production Credit. The advanced manufacturing production credit (Section 45X) would no longer be available for wind energy components sold after 2027 and for other eligible components (including applicable critical minerals) sold after 2031. Transferability would terminate for credits attributable to components sold after 2027. The credit would be disallowed for projects with impermissible foreign-entity involvement, including for components that include material assistance from a prohibited foreign entity or are produced subject to a licensing agreement (valued in excess of $1 million) with a prohibited foreign entity.
- Clean Hydrogen Production Credit. The tax credit for producing clean hydrogen (Section 45V) would be repealed for any hydrogen facility that has not begun construction by the end of 2025, and project owners would no longer be able to elect to treat these facilities as energy property for the ITC.
- Commercial Clean Vehicles and Charging Stations. Tax credits for qualified commercial clean vehicles (Section 45W) and alternative fuel vehicle refueling property (Section 30C) would generally be eliminated for tax years after 2025, with limited exceptions for clean vehicles acquired pursuant to a written binding contract that is in place as of May 12, 2025.
This legislation is likely to undergo substantial changes as it makes its way through the House and then the Senate. We will be updating this summary periodically as that process unfolds.
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