Republicans recently passed a landmark reconciliation bill (P.L. 119-21), often referred to as the “One Big Beautiful Bill Act.” The legislation, which was signed into law on July 4, 2025, introduces sweeping reforms to federal energy-related tax incentives. These changes substantially alter many of the incentives established by the Inflation Reduction Act (IRA) of 2022.
While the IRA dramatically expanded clean energy credits to accelerate the transition to a low-carbon economy, the 2025 legislation narrows the scope, shortens eligibility timelines and introduces new compliance requirements for these benefits, most notably, with restrictions tied to foreign entities of concern (FEOCs).
The result is a more targeted and enforcement-driven framework that affects a broad spectrum of stakeholders. Developers, manufacturers, investors, utilities and service providers must now navigate a compressed window to capitalize on remaining incentives, while also adapting to heightened scrutiny around supply chains and project eligibility. These changes not only impact project feasibility and capital planning but also signal a broader policy shift away from expansive federal subsidies toward more selective, domestically focused energy investment strategies.
Explore our detailed analysis to dive deeper into the provisions of the 2025 Final Budget Reconciliation Bill.
Section 179D Repeal: What It Means for Energy-efficient Commercial Building Projects
The Section 179D deduction has long served as a cornerstone incentive for promoting energy efficiency in commercial buildings. The provision allows building owners and designers to claim a tax deduction for implementing qualifying energy-saving systems, such as high-performance HVAC, lighting and building envelope improvements. However, under the 2025 Final Budget Reconciliation Bill, this deduction has been repealed for projects that begin construction after June 30, 2026.
This change introduces a critical planning window for stakeholders to act before the deduction sunsets. Projects that commence construction before the deadline will still be eligible to claim the deduction under current rules, making timing a key factor in project feasibility and tax strategy.
Key Considerations for Section 179D Planning
Preserve Eligibility Through Timing
Projects that begin construction before the June 30, 2026, deadline can still benefit from the deduction. Additionally, when paired with cost segregation studies and bonus depreciation, 179D can significantly enhance after-tax project returns.
Anticipate a Short-term Demand Surge
Firms involved in architecture, engineering and construction may experience a temporary increase in demand for energy-efficient retrofits, certifications and design services as building owners rush to qualify before the cutoff.
Reevaluate Project Pipelines
Stakeholders should assess their current and upcoming project timelines to determine which initiatives can be accelerated to meet the eligibility window. This includes both new construction and major renovation projects that could qualify under the existing 179D framework.
Coordinate With Tax and Design Professionals
Because 179D benefits can be allocated to designers of government and nonprofit buildings, collaboration between owners, contractors and tax advisors is essential to maximize the deduction’s value before it expires.
Organizations should act swiftly to capture remaining Section 179D benefits and align their capital planning with the evolving tax landscape.
IRA Clean Energy Tax Credits: Terminations, Phaseouts and New Restrictions
The 2025 tax reform introduced sweeping changes to the IRA’s clean energy tax incentives, including accelerated phaseouts and tighter eligibility rules for wind and solar projects. These provisions were finalized just before the bill’s passage, followed by executive action directing the Treasury to revise construction start guidance.
Subsequent IRS guidance clarified how these changes apply in practice, including updates to how taxpayers must demonstrate when construction begins.
In addition to new termination and phaseout timelines, several IRA credits are now subject to FEOC restrictions. These rules are designed to limit the eligibility of projects that rely on supply chains or components sourced from countries deemed adversarial to U.S. interests.
Key Changes to the IRA Business Credits
|
Code Section |
Incentive |
New Treatment |
FEOC Restrictions |
|
48E |
Clean Energy Investment Credit | Terminated for solar and wind facilities placed in service after December 31, 2027, if construction begins more than 12 months after enactment. Full credit amount remains available for other technologies through 2033. |
Yes |
|
45Y |
Clean Energy Production Credit | Terminated for solar and wind facilities placed in service after December 31, 2027, if construction begins more than 12 months after enactment. Full credit amount remains available for other technologies through 2033. |
Yes |
|
45U |
Zero-Emission Nuclear Power Production Credit | Unchanged. Available through December 31, 2032. | Yes |
|
45Q |
Carbon Sequestration Credit | Credit amount for carbon utilization increased to match that for sequestration. | Yes |
|
45X |
Advanced Manufacturing Production Credit | Terminated for wind components sold after December 31, 2027. Phaseout for critical minerals (excluding metallurgical coal) begins in 2031. | Yes |
|
45Z |
Clean Fuel Production Credit | Extended for fuel sold prior to 2030. | Yes |
|
45W |
Commercial Clean Vehicles Credit | Terminated for vehicles acquired after September 30, 2025. | No |
|
45V |
Clean Hydrogen Credit | Terminated for facilities beginning construction after December 31, 2027. | No |
|
45L |
New Energy Efficient Homes Credit | Terminated for homes acquired after June 30, 2026. | No |
|
30C |
Alternative Fuel Vehicle Refueling Property Credit | Terminated for property placed in service after June 30, 2026. | No |
|
179D |
Energy Efficient Commercial Buildings Deduction | Terminated for projects beginning construction after June 30, 2026. | No |
In addition to these changes, the bill increases the Advanced Manufacturing Investment Credit (Section 48D) from 25% to 35% beginning in 2026, offering enhanced support for domestic production of clean energy components.
The legislation also makes significant changes to individual energy-related tax credits, terminating the following provisions:
|
Code Section |
Credit |
Termination Date |
|
25E |
Previously Owned Clean Vehicle Credit | Vehicles acquired after September 30, 2025 |
|
30D |
Clean Vehicle Credit | Vehicles acquired after September 30, 2025 |
|
25C |
Energy Efficient Home Improvement Credit | Property placed in service after December 31, 2025 |
|
25D |
Residential Clean Energy Credit | Expenditures made after December 31, 2025 |
Strategic Implications and Next Steps for Energy Tax Planning
The 2025 Final Budget Reconciliation Bill marks a significant shift in renewable energy policy. The repeal of Section 179D and the accelerated phaseouts of numerous IRA credits, many now subject to FEOC restrictions, signal a new era of tax planning complexity and urgency.
Organizations across sectors must now navigate a compressed timeline for eligibility, heightened supply chain scrutiny and evolving credit structures. Key strategic considerations include:
- Time-sensitive Planning: Many credits now have earlier termination dates, requiring accelerated project timelines to preserve eligibility.
- Supply Chain Compliance: FEOC restrictions introduce new diligence requirements, particularly for projects involving solar, wind or critical minerals.
- Capital Strategy: Businesses should reassess investment plans and explore alternative incentives, including state-level programs and utility rebates.
- Cross-sector Impact: These changes affect a wide range of industries — from real estate and construction to manufacturing, transportation and energy — underscoring the need for proactive, cross-functional planning.
Need Help Navigating the New Energy Tax Landscape?
With so many provisions subject to phaseouts and new restrictions in the coming months, now is the time to act. To understand how these changes affect your organization and to develop a tailored strategy, contact your Cherry Bekaert professional. Our Energy Tax Credits & Incentives team is ready to help you navigate the new energy tax landscape with clarity and confidence.
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