On May 12, 2025, the House Ways and Means Committee released a draft of the Republican-sponsored 2025 tax bill, which addresses a number of renewable and clean energy tax credit matters previously extended in the Inflation Reduction Act passed in 2022. While the bill’s fate is uncertain given the Republican’s narrow majority in the House and a looming dispute over the state and local tax deduction and other cuts to fund the bill (including reductions to the renewable energy tax credits), the bill sheds a light on what the renewable energy industry may see in the final bill that the House votes on next week.
In addition to renewable energy tax credit matters, the bill makes permanent the tax cuts in the 2017 Tax Cuts and Jobs Act, eliminates tax on tips and overtime through 2028, and allows for tax breaks for auto loan interest payments for vehicles that are finally assembled in the United States.
Phasedowns, Eliminations and Extensions of Tax Credits
| Phasedowns | |
| Section 45Y, Clean Energy Production Tax Credit (PTC) | Placed in service during calendar year 2029: 80% of credit Placed in service during calendar year 2030: 60% of credit Placed in service during calendar year 2031: 40% of credit Placed in service after Dec. 31, 2031: 0% of credit |
| Section 48E, Clean Energy Investment Tax Credit (ITC) | Placed in service during calendar year 2029: 80% of credit Placed in service during calendar year 2030: 60% of credit Placed in service during calendar year 2031: 40% of credit Placed in service after Dec. 31, 2031: 0% of credit |
| Section 45U, Zero-Emission Nuclear Power PTC | Electricity produced beginning in calendar year 2029: 80% of credit Electricity produced beginning in calendar year 2030: 60% of credit Electricity produced beginning in calendar year 2031: 40% of credit Electricity produced after Dec. 31, 2031: 0% of credit |
| Section 45X, Advanced Manufacturing PTC | Eliminated beginning Dec. 31, 2031, including with respect to critical minerals Eliminated for wind energy components sold after Dec. 31, 2027 |
| Section 48(a)(3)(vii), ITC for Certain Thermal Heating and Cooling Property | Begins construction before Jan. 1, 2030: 6%, 30% if the project complies with the prevailing wage and apprenticeship (PWA) requirements Begins construction during 2030: 5.2%, 26% if the project complies with the PWA requirements Begins construction during 2031: 4.4%, 22% if the project complies with the PWA requirements Begins construction in 2032: 0% |
| Eliminations | |
| Section 45V, Clean Hydrogen PTC | Eliminated for project beginning construction after Dec. 31, 2025 |
| Section 30C, Alternative Fuel Vehicle Refueling Property Credit | Eliminated for projects placed in service after Dec. 31, 2025 |
| Section 25E(g), Previously Owned Clean Vehicle Credit | Eliminated after Dec. 31, 2025 |
| Section 30D, Clean Vehicle Credit | Eliminated after Dec. 31, 2025 Eliminated after Dec. 31, 2026, for certain vehicles that sold less than 200,000 units |
| Section 45W(g), Qualified Commercial Clean Vehicles Credit | Eliminated after Dec. 31, 2025 Exception for vehicles placed in service prior to Jan. 1, 2033, that were acquired pursuant to a binding written contract before May 12, 2025 |
| Section 25(C)(i), Energy Efficient Home Improvement Credit | Eliminated after Dec. 31, 2025 |
| Section 45D(h), Residential Clean Energy Credit | Eliminated for property placed in service after Dec. 31, 2025 |
| Section 45L(h), New Energy Efficient Home Credit | Eliminated for homes acquired after Dec. 31, 2025 Exception for homes that begin construction before May 12, 2025, and are acquired before Dec. 31, 2026 |
| Extensions | |
| Section 45Z, Clean Fuel PTC | Extended to clean fuel produced before 2031 Limited to clean fuel produced using feedstock from the United States, Canada and Mexico beginning after Dec. 31, 2025 |
The phaseouts of the ITC and PTC are based on a “placed in service” standard, which policymakers have recently avoided in favor of a “beginning of construction” standard because of the renewable energy industry’s need for predictability and financing in the construction of projects. This would cause timing of the construction of renewable energy projects to become critical, losing 20% of their credits if projects that aim to be placed in service 2029 or later slip into the next calendar year. The permanent ITC for solar is still available under Section 48(a) after the 48E phase-out at a 10% level with PWA compliance, which can be increased up to a 30% ITC if both the energy community and domestic content adders are applicable.
Transferability
The bill would repeal transferability for projects that “begin construction” two years after the date that the bill is enacted, which is likely to be in August or September of 2025. The affected credits are those generated under Sections 45Y, 48E, 45Q, 45U and Section 48(a)(3)(vii). For Section 45U, 45Z and 45X, the effective date is after Dec. 31, 2027, for electricity generated or fuels or components made after that date.
This provision would be a significant issue for projects that have not already begun construction for which the taxpayers are looking to monetize production or investment tax credits through transferability. Those projects should prioritize a begin construction strategy before Q3 2027 to help lock in their ability to transfer ITCs and PTCs to third parties.
The bill does not limit or restrict direct pay eligibility for non-applicable entities generating credits under Section 45Q and 45X. Additionally, traditional tax equity structures would remain available to taxpayers desiring to monetize PTCs and ITCs from eligible projects.
Prohibited Foreign Entities’ Control or Influence of the Taxpayer
The bill adopts a regime designed to stop certain credits, including 45Y, 48E, 45Z, 45Q, 45U and 48(a)(3)(vii), from being generated when a project is “controlled” or “influenced” by certain prohibited foreign entities. No credit will be allowed for taxable years beginning after enactment if the taxpayer is a specified foreign entity, and no credit will be allowed for taxable years that begin two years after enactment if the taxpayer is a foreign-influenced entity.
Specified Foreign Entity: Foreign entities of concern, as described in the William M. (Mac) Thornberry National Defense Authorization Act of FY 2021, include Chinese military companies operating in the U.S., any entity on a list required by the strategy to enforce prohibition on imported goods made through forced labor in the Xinjiang Uyghur autonomous region, an entity listed as ineligible for Department of Defense battery acquisition in the National Defense Authorization Act of FY 2024 or a foreign-controlled entity.
Foreign-Controlled Entity: Foreign-controlled entities include the government of a covered nation (the Democratic People’s Republic of North Korea; the Republic of China; the Russian Federation; and the Islamic Republic of Iran), a person who is a citizen, national or resident of a covered nation provided the person is not a U.S. citizen or lawful permanent resident, an entity or qualified business unit incorporated or organized under the laws of or having its principal place of business in a covered nation, or an entity controlled by any of the listed foreign controlled entities.
Foreign-Influenced Entity: Foreign-influenced entities are entities that, during the taxable year, a specified foreign entity has the direct or indirect authority to appoint a covered officer, a single foreign entity owns at least 10% of such entity, one or more specified foreign entities own in the aggregate at least 25% of such entity, at least 25% of the debt of such entity is held in the aggregate by one or more specified foreign entities, the entity knowingly makes fixed, determinable, annual and periodic (FDAP) payments to a specified foreign entity an amount equal to 10% of the annual gross receipts of the entity for the previous taxable year, or makes aggregate FDAP payments to one or more of 33 specified foreign entities of at least 25% of the annual FDAP payments of the entity for such previous tax year.
Material Assistance from a Prohibited Foreign Entity: Material assistance from a prohibited foreign entity includes any component, subcomponent or critical mineral included in such property is extracted, processed, recycled, manufactured or assembled by a prohibited foreign entity, or any design of such property was based on any copyright or patent held by a prohibited foreign entity or any know-how or trade secret provided by a prohibited foreign entity. This definition does not include assembly parts or constituent materials that are not uniquely designed for the use in construction of a facility and not exclusively or predominantly produced by prohibited foreign entities.