The U.S. House of Representatives passed the “One, Big Beautiful Bill” on May 22, 2025, outlining proposed revisions to the existing structure of clean energy tax credits under the Inflation Reduction Act (IRA). The proposed bill was narrowly approved by a 215-214 vote and is currently in front of the U.S. Senate.
While still subject to change in the Senate, the proposed bill provides for major changes to the Section 48 Investment Tax Credit and the Section 48E Clean Electricity Investment Tax Credit. The bill intends to limit the credits by expediting the phase-outs, restricting the types of investors in credit-eligible projects, and implementing other credit-specific limitations outlined below.
Section 48E – Clean Electricity Investment Tax Credit
Expedited Phase Out. The existing phase-out period under Section 48E is over a four-year span and set to begin when greenhouse gas emissions from electricity production had decreased to 25% of emissions in 2022, but no later than 2032. This phase-out will continue to apply to qualified renewable energy projects the construction of which begins within 60 days of the enactment of the bill. For projects that begin construction after 60 days but before 120 days after the enactment of the bill, the proposed bill eliminates the phase-out period and requires projects to be placed-in-service by December 31, 2028, in order to be eligible for tax credits. If a project begins construction more than 120 days after the enactment of the bill, then the project no longer qualifies and will not be eligible for tax credits. There is an exception for “advanced nuclear facilities” that instead requires construction to begin by December 31, 2028, for any project that begins construction after 60 days of the enactment of the bill. “Advanced nuclear facilities” that begin construction prior to 60 days after the enactment of the bill are subject to the existing phase-out.
Investor Restrictions. The proposed bill also introduced a carve-out that excludes otherwise qualified facilities. For projects that start construction after December 31, 2025, if the project received material assistance from a “prohibited foreign entity”, then the entire project is ineligible for tax credits (“project-level exclusion”). The bill also does not allow for “specified foreign entities” nor “foreign-influenced entities” to utilize the tax credits allowable under Section 48E (“taxpayer-level exclusion”). Further, the proposed bill does not allow any taxpayer to claim the Section 48E tax credits who either:
- Makes a payment of dividends, interest, compensation for services, rentals or royalties, guarantees or any other fixed, determinable, annual or periodic amount to a “prohibited foreign entity” in an amount which is equal to or greater than 5% of the total of such payments made by such taxpayer during such taxable year which are related to the production of electricity or storage of energy, or
- Makes payments described above to more than one “prohibited foreign entity” in an amount which, in the aggregate is equal to or greater than 15% of the total of such payments made by such taxpayer during such taxable year which are related to the production of electricity or storage of energy.
If a taxpayer makes payments which satisfies either of the above criteria within ten years after already claiming the underlying credits, then such credits will be subject to recapture.
Section 25D Property. Section 48E tax credits are no longer available to taxpayers with respect to certain clean energy property that qualifies for the Residential Clean Energy Credit under Section 25D if: (1) the taxpayer rents or leases such property to a third party during such taxable year, and (2) the lessee would qualify for a credit under Section 25D if the lessee owned such property.
Transferability. An earlier version of the bill introduced in the House contained a restriction on transferability of the tax credits under Section 6418. Notably, the version passed by the House no longer contains such a restriction.
Section 48 – Investment Tax Credit
Expedited Phase Out. Similar changes were made to Section 48 but specifically aimed at geothermal property. Previously under the IRA, geothermal heat pump property was eligible for tax credits under Section 48 as long as construction began prior to January 1, 2035. The proposed bill reduced the timeline by three years, and requires construction to begin before January 1, 2032, in order to be eligible for tax credits under Section 48. Accordingly, an earlier phase-out period applies as follows:
- Base percentage is decreased from 6% to 5.2% if construction begins after December 31, 2029, but before January 1, 2031;
- Base percentage is further decreased to 4.4% if construction begins after December 31, 2030, but before January 1, 2032.
Investor Restrictions. The same investor restrictions (the “project-level exclusion” and the “taxpayer-level exclusion”) outlined above for Section 48E will also apply to Section 48 tax credits with respect to geothermal property. Prohibited foreign entities, specified foreign entities, and foreign-influenced entities involved in the structure of a geothermal project may prevent the allowance of the tax credits or cause a recapture if applicable payments are made after the property is placed into service.
Transferability. The proposed bill also looks to limit the use of the tax credits by ending the transferability of the investment tax credit for geothermal property that begins construction more than two years after the enactment of the bill (anticipated to be 2027).
Other Notable Tax Changes
- SALT deduction cap. The proposed bill increases the current Section 164(b) SALT deduction cap to $20,000 for married filing separately taxpayers and to $40,000 for all other taxpayers. The new increased SALT deduction cap phases down at a rate of 30% starting at modified adjusted gross income of $250,000 for married filing separately taxpayers and $400,000 for all other taxpayers.
- PTET SALT cap loophole. The bill eliminates the ability to use pass-throughs to avoid application of the SALT deduction cap for businesses that do not derive their income from Section 199A-eligible sectors.
- Residential green energy tax credits. The residential clean energy tax credits, such as the Section 25D tax credits for energy property like residential solar or geothermal, are to be repealed after calendar year 2025.
- Production tax credits. Like the clean energy investment tax credits discussed above, the clean electricity production tax credit under Section 45Y is subject to the same beginning of construction (60 days) and placed-in-service requirements (December 31, 2028) as the investment tax credits. A similar carve out for nuclear energy was created for the Section 45U Nuclear Power Production Credit, which will instead be subject to a deadline of December 31, 2031. Facilities seeking to use the Section 45V Hydrogen Production Credit will be unable to do so if construction begins after 2025. The Section 45X Advanced Manufacturing Production Credit phases out starting after 2027 for wind energy components and starting after 2031 for other components. However, the Section 45Z Clean Fuel Production Credit is expanded by the proposed bill and is allowable for transportation fuel sold through December 31, 2031.
The proposed bill does not impose any restrictions on the elective pay option (sometimes referred to as “direct pay”) available to not-for-profits, municipalities, and other applicable entities under Section 6417.
Summary
The Trump Administration has clearly expressed its intent to try to repeal or otherwise phase out the renewable energy incentives established by the Biden Administration's Inflation Reduction Act. While it is unlikely that the bill will be passed through the Senate as currently drafted, projects and taxpayers should be aware of the proposed changes to the Section 48 and 48E investment tax credits to ensure that their projects avoid being impacted adversely by the changes that do become the law.
We will continue to monitor the status of the proposed tax bill and provide updates as the process moves forward. Please do not hesitate to contact us if you would like to discuss the above or if you have any questions regarding the potential effect of the proposed changes on your projects.
Last updates made May 30, 2025.
