Alert
Transferability Survives New Tax Legislation
The recently enacted tax and spending legislation P.L. 119-21, commonly referred to the One Big Beautiful Bill Act (OBBBA), marks a significant policy shift in federal climate and energy strategy. Designed as a partial repeal of key provisions from the Inflation Reduction Act, the law dramatically curtails or accelerates the sunset of several cornerstone tax credits and incentives that had been expected to remain in place through at least 2032.
Many projects already underway will remain eligible under the compressed timelines, however the new law sends a clear message: the window of federal support for clean energy is closing fast.
While transferability provisions remain largely intact, the new legislation imposes earlier termination dates, stricter sourcing requirements, and reduced credit values across multiple programs.
Key Changes to Clean Energy Tax Credits
Sections 45Y and 48E: Clean Electricity Credits
The Inflation Reduction Act introduced technology-neutral production (45Y) and investment (48E) tax credits for clean electricity generation, effective starting in 2025 and scheduled to last through at least 2032.
For solar and wind electricity, the credit ends for any facilities placed in service after December 31, 2027. However, facilities that begin construction within 12 months of the law’s enactment are exempt from this deadline. The credits can no longer be transferred to specified foreign entities or foreign influenced entities beginning in the taxable year following the enactment of the law on July 4, 2025.
This abrupt shift accelerates the phase-out by six years, reducing long-term predictability for developers of wind, solar, geothermal, and other clean generation assets. All other qualified facilities producing electricity will receive 100% of the credit for construction beginning before 2033 and will phase out over a four-year period.
After 2025, suppliers providing false certifications may face penalties the greater of $5,000 or 10% of the credit the taxpayer claimed based on the incorrect certification.
Section 45V: Clean Hydrogen Production Credit
Under the Inflation Reduction Act, the 45V credit allowed a credit for production of clean hydrogen at qualified facilities in which construction began before January 1, 2033.
The new legislation significantly curtails the credit, and facilities must now begin construction by January 1, 2028, to remain eligible.
The stricter timeline puts pressure on project developers to finalize planning and permitting.
Section 45Z: Clean Fuel Production Credit
The credit was initially available for the production and sale of qualifying transportation fuel from 2025 through 2027. However, the OBBBA extends the credit through 2029, but caps the credit at $1.00 per gallon, eliminating enhanced incentives for certain fuels like sustainable aviation fuel (SAF).
Imported credit-eligible feedstocks are disqualified beginning in 2026, limiting eligibility to feedstock which is produced or grown in North America.
Emission rates may be rounded by the Secretary to the nearest multiple of 5 kilograms of CO₂e per MMBtu and may not be less than zero. Additionally, emission rates must be adjusted to exclude any emissions associated with indirect land use change. For fuels derived from animal manure, the Secretary must establish a distinct emission rate based on the specific type of manure used as feedstock.
Fuel made from another fuel that already qualified for the 45Z credit isn’t eligible for a separate 45Z credit. The credits are subject to foreign entity restrictions in taxable years following the enactment of the law, and foreign influenced entities in taxable years beginning after July 4, 2027.
The credits can no longer be transferred to specified foreign entities beginning in the taxable year following the enactment of the law on July 4, 2025.
Section 45W: Commercial Clean Vehicle Credit
The credit for purchasing zero-emission commercial vehicles, previously allowed through 2032, sees an early sunset. Only vehicles placed in service by September 30, 2025, will qualify.
Section 30D: Electric Vehicle Purchase Credit
The $7,500 consumer tax credit for new EV purchases was previously allowed for qualifying new vehicles purchased through 2032. The new law eliminates the credit for vehicles acquired after September 2025, seven years earlier than originally planned.
North American assembly and critical mineral sourcing requirements still apply.
Section 30C: EV Charging Infrastructure Credit
Under the Inflation Reduction Act, the alternative fuel vehicle refueling property credit allowed a credit for property in a qualifying location placed in service through 2032. The OBBBA terminates the credit for property placed in service after June 2026.
Taxpayers in high-impact communities and rural areas hoping to take advantage of the federal incentive must consider this early termination date in their project plans.
Section 45X: Advanced Manufacturing Production Credit
The Inflation Reduction Act created a new credit for the domestic production and sale of qualifying solar, wind and battery components, which was originally set to be phased out for taxable years beginning after December 31, 2029, and fully eliminated for taxable years beginning after 2032.
The new law introduces several changes to the credit, as follows:
- 2.5% credit for steel-grade metallurgical coal, applicable to production between 2026 and 2029.
- No credit for wind components produced or sold after December 31, 2027.
- Eligible battery components now explicitly include voltage sense harnesses, current collectors, and other sub-components needed for full module function.
- In taxable years beginning after the July 4, 2025, eligible components will not include property which involves material assistance from a prohibited foreign entity.
- The required percentage thresholds for qualified facilities and energy storage projects depend on the year construction begins.
Transferability and Monetization
While the OBBBA significantly curtails certain credit timelines, it preserves the ability to transfer tax credits during the term of the tax credits for most clean energy technologies.
The new law includes requirements for enhanced disclosures for credit transfers and adds transfer limitations and restrictions to foreign entities of concern. Sellers of credits need to be mindful of who they are selling their credits to.
Additionally, credits tied to projects involving foreign entities are now disqualified, so credit buyers need to be mindful of sellers and confirm that the credits generated are in fact qualifying credits and not disqualified as a result of foreign entity of concern influence or assistance.
Tax credit insurance will continue to play an important role based on these new restrictions for qualification and transferability related to foreign entities of concerns.
The OBBBA has reshaped the transferable tax credit market by introducing both structural clarity and significant shifts in supply and demand dynamics. While the law maintains transferability of renewable energy tax credits, it also lowers corporate taxable income through expanded deductions and expensing provisions, which may reduce overall credit demand. However, by preserving the corporate alternative minimum tax and providing flexibility in how deductions are applied, many large corporations will continue to rely on credit purchases as part of their long-term tax planning.
With legislative certainty of the OBBBA, there’s been a surge in 2025 demand for tax credits. At the same time, emerging technologies are taking center stage as wind and solar phaseouts approach. As a result, tax credit buyers should expect ample supply, but increasingly from non-traditional technologies like energy storage, clean fuels, and advanced manufacturing.
Importantly, FEOC restrictions under the new law disqualify certain projects from credit eligibility, constraining the overall pool of transferable credits. This supply pressure, paired with a narrowing base of demand from tax advantaged corporations is shifting the market toward more strategic, value-driven transactions.
Ultimately, discount rates may expand again, creating fresh opportunities for buyers to generate meaningful cash tax savings in a market that is maturing, diversifying, and adapting to a new federal tax environment.
Credit Transferability and Termination Changes Summary
The chart below summarizes the changes related to credit transferability and early termination of Inflation Reduction Act clean energy tax credits as enacted in the OBBBA.
Evaluating the Tax Credit Provisions
The new law significantly shapes the future of US clean energy and advanced manufacturing policy by reaffirming, modifying, and tightening the tax credit programs established under the Inflation Reduction Act.
There are notable considerations that require proactive planning, such as:
- Stricter restrictions on the use of components or materials from foreign entities of concern may disqualify certain projects, pushing developers to reevaluate their supply chains.
- Compliance obligations including prevailing wage and apprenticeship (PWA) documentation, emissions certification, and potential recapture provisions introduce ongoing administrative burdens.
- Credits such as 45Q also face earlier phaseout dates than previously anticipated, tightening the window for new project deployment.
- Uncertainty around the rollout of IRS and DOE guidance may delay project approvals and create friction in execution.
To navigate these complexities, stakeholders should develop comprehensive compliance strategies, secure domestic supply commitments early, and evaluate whether to accelerate timelines for projects now impacted by revised sunset dates.
Many projects already underway will remain eligible under the compressed timelines, the new law sends a clear message: the window of federal support for clean energy is closing fast.
We’re Here to Help
To learn more about how the new tax legislation impacts clean energy initiatives and the best way to update your tax planning, contact your firm professional.