In 2022, the Inflation Reduction Act (IRA) was the most significant climate legislation in U.S. history. It introduced 26 federal energy tax incentives designed to spur clean energy adoption, manufacturing, and innovation. But the One Big Beautiful Bill Act (OBBBA), passed in July of 2025, materially altered that landscape. The OBBBA restricts, limits, or phases out several green energy-related business tax credits, recalibrating the scope and timing of incentives available to corporate taxpayers and narrowing eligibility in certain areas.
As a result, businesses can no longer evaluate energy tax credits solely through the lens of the IRA. They must now account for revised credit lifespans, modified qualification requirements, and tighter compliance rules when incorporating energy incentives into their federal tax planning strategies.
This article explores the current state of energy tax credits under the OBBBA, outlines how recent legislative changes affect availability and corporate tax planning opportunities, and provides practical guidance for navigating energy-related tax incentives under existing law.
Inflation Reduction Act energy incentives after the OBBBA
The IRA expanded federal clean energy incentives, introducing new credits and updating several existing provisions to encourage investment in low-emissions energy, clean manufacturing, and energy efficiency. However, the OBBBA materially revised that framework. Under current law, several IRA-era business energy tax credits are now restricted, accelerated toward phaseout, or subject to tighter eligibility and compliance requirements. As a result, the IRA’s original 10-year incentive horizon no longer applies uniformly across all credits.
While certain clean energy incentives remain available, businesses must evaluate each credit individually, considering shortened credit lifespans and changed credit values. The OBBBA also preserved but narrowed the monetization mechanisms introduced under the IRA, including credit transferability and direct pay, so careful structuring and documentation are essential.
Eligible activities under the remaining federal clean energy incentives may include:
- Investments in zero emission electricity generation (such as solar and wind)
- Advanced nuclear power
- Hydrogen production
- Carbon capture and sequestration
- Clean transportation fuels
- Sustainable aviation fuel
- Qualified energy-efficient improvements to commercial buildings
However, availability and benefit levels now depend on credit-specific statutory limitations, prevailing wage and apprenticeship requirements, domestic content rules, applicable phaseout limitations, and foreign entity of concern limitations.
Given these limitations, tax planning must reflect the post-OBBBA Internal Revenue Code (IRC) provisions, Treasury regulations, and IRS guidance governing each credit.
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Key business energy tax credits after the OBBBA
The IRA implemented these green energy tax incentives to promote more environmentally friendly business practices. The following are the most common tax credits available to businesses. Unless otherwise noted, the credit or deduction applies to taxable years beginning after 2022, as modified by the OBBBA.
Clean energy tax credits for renewable energy investments
- What is it and who is eligible? The “energy credit” provided a tax credit for investment in renewable energy (fuel cell, solar, geothermal, small wind, energy storage, biogas, microgrid controllers, and combined heat and power) properties, clean hydrogen production facilities (if elected), energy storage (e.g., batteries), and qualified interconnection properties. The credit expired for property the construction of which begins after December 31, 2024, except for geothermal heat pump equipment, which can qualify for the energy credit if construction begins before January 1, 2035.
- Base credit: This is 6% of a taxpayer’s qualifying investment, 30% credit for projects with a maximum net output of less than 1 megawatt of electrical or thermal energy, or projects that meet wage and apprenticeship requirements.
- Increases: The credit percentage increased if certain requirements were met relating to domestic content, location on a brownfield site or in a community facing closures of coal mines or fossil fuel plants, location in a low-income community or on Indian land, and other factors.
- Maximum credit: This is 70% of investment.
- OBBBA impact: None. Although the OBBBA purported to eliminate the credit for qualified microturbine energy property the construction of which begins on or after June 16, 2025, the OBBBA amendment has no effect, because the energy credit had already expired for property the construction of which begins after December 31, 2024.
Advanced energy project credits for clean energy manufacturing facilities
- What is it and who is eligible? This credit is a competitively awarded tax credit for investment in clean energy manufacturing projects. It provides for up to $10 billion of new credit allocations for businesses that invest in manufacturing facilities that produce or recycle clean-energy equipment or vehicles, or invest in facilities that process, refine, or recycle critical materials.
- Base credit: This is 6% of a taxpayer’s qualifying investment.
- Maximum credit: This is 30% of the qualifying investment amount for projects that meet wage and apprenticeship requirements.
- OBBBA impact: The original program allowed for the possibility of reallocating unused or withdrawn credits in future rounds, but the OBBBA eliminated that opportunity. Under current law, any project that fails to meet certification milestones or is not placed in service within two years of receiving an allocation letter will forfeit the award, which cannot be redistributed.
Biodiesel, renewable diesel, and alternative fuel credits
- What is it and who is eligible? Producers of biodiesel, renewable diesel, or biodiesel mixtures were eligible for these credits. These credits expired December 31, 2024, with the exception of the small agri-biodiesel producer credit.
- Base credit: This was $1 per gallon of biodiesel, renewable diesel, or biodiesel mixture, except that the credit amount was $0.10 per gallon for qualified agri-biodiesel production by small agri-biodiesel producers.
- Bonus: None
- OBBBA impact: The OBBBA extended the small agri-biodiesel producer credit through 2026, doubled the credit rate from $0.10 to $0.20 per gallon, and made the credit transferable for fuel sold or used after June 30, 2025.
Clean transportation fuel credits
- What is it and who is eligible? Under Section 45Z, this credit is available to taxpayers who produce transportation fuel at a qualified facility in the U.S., including U.S. territories, and sell it to an unrelated person in a qualifying manner during the taxable year. For Sustainable Aviation Fuel (SAF), taxpayers must provide certification from an unrelated party demonstrating compliance with general requirements and supply chain traceability requirements.
- Base credit: For fuel produced and sold after December 31, 2025, the base amount is $0.20 per gallon (plus an inflation adjustment) for both non-SAF and SAF transportation fuels.
- Maximum credit: For fuel produced and sold after December 31, 2025, the maximum amount is $1.00 per gallon (plus an inflation adjustment) for both non-SAF and SAF transportation fuels.
- OBBBA impact: For clean transportation fuels, the clean fuel production credit is extended through 2029, but fuel produced after December 31, 2025, must be exclusively derived from feedstocks produced or grown in the United States, Mexico, or Canada. In addition, the emissions rate for a transportation fuel cannot be less than zero. The OBBBA also eliminated the increase in the credit amount for sustainable aviation fuel and introduced restrictions on foreign entities of concern.
Carbon oxide sequestration credits for carbon capture investments
- What is it and who is eligible? The IRA extended and enhanced the credit, available to qualified industrial facilities and direct air capture facilities, for carbon oxide sequestration coupled with permitted end uses within the United States.
- Base credit: For qualified facilities placed in service or carbon capture equipment placed in service after July 4, 2025, the base credit ranges from $17-$36 per metric ton of qualified carbon oxide captured by the taxpayer.
- Maximum credit: This ranges from $85-$180 if the facility meets wage and apprenticeship requirements.
- OBBBA impact: New foreign entities of concern restrictions, including prohibiting credit transfers to specified foreign entities.
Clean electricity investment tax credit
- What is it and who is eligible? This provision, applicable to qualified property placed in service in 2025 or later, is designed to replace the energy investment tax credit. The clean electricity investment tax credit is a credit for investment in facilities that generate clean electricity with a zero greenhouse-gas emissions rate, as well as qualified energy storage technologies.
- Base credit: This is 6% of the taxpayer’s qualifying investment, or 30% of qualifying investment for (i) projects with a maximum net output of less than 1 megawatt of electrical or thermal energy; (ii) qualified facility that began construction before January 29, 2023; or (iii) projects that meet prevailing wage and apprenticeship requirements.
- Increases: The credit percentage will increase if certain requirements are met relating to domestic content, location on a brownfield site or in a community facing closures of coal mines or fossil fuel plants, location in a low-income community or on Indian land, and other factors.
- Maximum credit: This is 70% of investment.
- OBBBA impact: The credit is repealed for wind and solar facilities either placed in service after 2027 or that begin construction more than 12 months after the OBBBA’s passage. It’s also terminated for third-party leasing arrangements. The phaseout for the credit begins in 2033, rather than being contingent on power-sector emissions reductions. The OBBBA also introduced foreign entities of concern restrictions.
Advanced manufacturing production credit
- What is it and who is eligible? This credit is available to manufacturers of solar, wind, or battery components, inverters, and critical minerals produced in the U.S. and sold by the manufacturer to an unrelated person. It is not available for property produced at facilities that received the advanced energy project credit.
- Base credit: This varies by component type.
- OBBBA impact: The OBBBA introduced new foreign entities of concern restrictions and repealed the credit for wind energy components sold after December 31, 2027. A phaseout of the critical minerals tax credit (previously permanent) begins in 2031. The OBBBA also created a new 2.5 percent tax credit for metallurgical coal.
Advanced manufacturing investment credit
- What is it and who is eligible? This credit is available to domestic manufacturers of semiconductors and of equipment used to manufacture semiconductors, but only for qualified property beginning construction on or before December 31, 2026.
- Base credit: This is 25% of the taxpayer’s investment in a qualified manufacturing facility.
- OBBBA impact: Under the OBBBA, this credit was raised from 25% to 35% for all properties placed into service after December 31, 2025.
Energy-efficient commercial buildings deduction
- What is it and who is eligible? Owners and long-term lessees of commercial buildings in the U.S., as well as designers of energy-efficient building property and tax-exempt owners of commercial properties, can receive this tax deduction for funding improvements to the energy efficiency of commercial buildings. This could include changes to the heating, ventilation, or lighting systems, among other elements.
- Base credit: This is $0.50-$1 per square foot. Alternatively, taxpayers may deduct 100% of their adjusted basis in “qualified retrofit plans” that reduce the building’s energy use intensity by at least 25%.
- Maximum credit: This is $2.50-$5 per square foot if prevailing wage and apprenticeship requirements are met. There is no maximum if the taxpayer deducts basis in a qualified retrofit plan.
- OBBBA impact: This credit will expire for projects beginning construction after June 30, 2026.
Commercial clean vehicle credit
- What is it and who is eligible? Businesses or organizations that purchase qualified commercial clean vehicles are eligible for this tax credit.
- Base credit: This is either 15% of the vehicle cost (30% of vehicle cost if not powered by a gasoline or diesel engine) or the vehicle’s purchase price minus the price of a comparable internal combustion vehicle, whichever is less.
- Maximum credit: This is $7,500 for vehicles weighing less than 14,000 pounds and $40,000 for all other commercial clean vehicles.
- OBBBA impact: The credit will not be allowed for any vehicle acquired after September 30, 2025.
These credits may continue to influence business investment decisions, but their role in corporate tax planning must now be assessed in light of the OBBBA’s limitations and accelerated phase-outs.
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Post-OBBBA outlook: Energy tax policy in 2026 and beyond
Before the enactment of the OBBBA, uncertainty surrounding the scheduled expiration of several Tax Cuts and Jobs Act (TCJA) provisions at the end of 2025 raised questions about whether energy tax credits would be curtailed to offset revenue losses.
The OBBBA largely resolved that uncertainty, so the remaining business energy tax credits now operate within a more predictable statutory structure, reducing the likelihood of broad retroactive repeals tied to TCJA extensions. Credits that survived the OBBBA generally receive bipartisan support because they align with domestic manufacturing, energy security, and regional economic development goals.
Looking ahead, further tax legislation in 2026 and beyond is possible. However, current outlooks suggest that any future changes are more likely to focus on technical corrections or targeted refinements rather than wholesale restructuring of energy incentives.
For tax professionals, tax planning need no longer be driven by speculative repeal scenarios. Instead, it can be grounded in the current statutory framework established by the OBBBA, with close monitoring of 2026 legislative developments that may affect corporate tax fundamentals rather than the existence of emergency credits themselves.
How to claim clean energy tax credits and rebates
The process for claiming clean energy tax credits and incentives depends on the type of credit you’re seeking, as some credits require a thorough application that details the qualifying investment, while others simply require filing a tax form.
For example, to claim the advanced energy project credit, applicants typically go through a four-step review process that the U.S. Department of Energy must approve. But for the qualified commercial clean vehicle credit, just one taxpayer from the business needs to fill out Form 8936, per the IRS.
In addition, the IRA created options for businesses to monetize tax credits generated by their projects: direct pay and transferability. To the extent credits are otherwise available, the OBBBA preserved the option for energy project owners and sponsors to use both.
Direct pay
The direct pay election, sometimes referred to as the elective payment election, effectively makes certain clean energy tax credits refundable to qualifying entities, which include:
- Tax-exempt organizations
- State and local governments and their political subdivisions, agencies, and instrumentalities
- Indian tribal governments
- Alaska native corporations
- The Tennessee Valley Authority
- Rural electric cooperatives
These entities can elect to be treated as making a payment against tax in lieu of claiming the credit. The electing entity receives a refund of the credit amount to the extent it exceeds the entity’s income tax liability.
Additionally, all taxpayers may make a direct pay election for three credits: the clean hydrogen production credit, carbon oxide sequestration credit, and the advanced manufacturing production credit. But this can only be done for the first five taxable years beginning with the year the qualifying project is placed in service.
Transferability
Transferability allows persons who qualify for a tax credit but are ineligible for direct pay to elect to sell a portion of the credit (up to the entire credit amount) to an unrelated buyer in exchange for cash in a tax-free transaction. To be eligible to sell a tax credit, the seller must be subject to a U.S. internal revenue tax. This includes entities that have a U.S. employment tax or excise tax obligation, even if they don’t have a U.S. income tax obligation.
Under the OBBBA, for tax years beginning after amendment, transfers to a specified foreign entity (SFE) are prohibited for most clean energy credits.
If the credit-qualifying facility or property is held directly by a partnership or S corporation, then the partnership or S corporation – not a partner or shareholder – can make the transfer election.
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The One Big Beautiful Bill Act replaced the IRA’s expansive incentive framework with a more limited, tightly structured regime. While select energy-related credits remain available, their value, duration, and eligibility criteria may have changed. As a result, tax professionals must carefully evaluate energy tax incentives to understand how each credit operates under current law. Download our 2026 Tax Policy Outlook report for more insights.
For corporate tax professionals, effective corporate tax planning now depends less on anticipating broad legislative reversals and more on accurately interpreting statutory changes, Treasury regulations, and IRS guidance as they apply to specific investments and transactions. It’s important to continue monitoring potential tax legislation in 2026 and beyond. By staying proactive and leveraging strategic insights, corporate tax professionals can implement federal tax strategies that position their organizations to thrive.
Bloomberg Tax Research is an essential resource for tax professionals who need to stay up to date with changing tax policy. Our expert analysis, timesaving tools, and comprehensive coverage of legislative and regulatory changes that may impact business tax credits can help you understand your eligibility and maximize potential tax benefits while ensuring you stay in compliance. See how 293 tax professionals maximized their ROI after implementing Bloomberg Tax Research into their workflows.
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