The recent tax and spending megabill rings in a new era for clean energy tax incentives. Namely, the legislation significantly accelerates the repeal of the Biden-era clean energy tax credits created under the 2022 Inflation Reduction Act.
The changes are certain to affect investors, developers and manufacturers — and any clients with an ongoing clean energy goal or project. The recent changes contain a few carveouts, and the Internal Revenue Service has already released a set of frequently asked questions to help taxpayers digest the adjustments.
For clients interested in clean energy incentives for home improvements and vehicle purchases, the time to take advantage of the Biden-era tax credits is running out. While state-level incentives may continue to exist, understanding the set of federal changes will be key to avoiding unpleasant surprises at tax time.
Clean Energy Home Incentives
The 2022 law renamed the IRC Section 25C nonbusiness energy property tax credit the "Energy Efficient Home Improvement Credit” and extended it through 2032. The credit equals up to 30% of the costs of eligible home improvements made during the year, such as doors, air conditioners, windows, water heaters, furnaces, electric panels and equipment, biomass stoves and home-energy auditing.
The legislation also renamed the Section 25D residential energy efficient property credit the “Residential Clean Energy Credit” and extended it through 2034. Section 25D provides a tax credit for installing certain qualifying home systems that use solar, wind, biomass, geothermal or fuel cell power to create electricity, heat water or control the home’s temperature.
The 2025 bill accelerated the repeal of these credits so that the Section 25C credit will not be available unless the relevant property is placed in service by Dec. 31, 2025, and the Section 25D credit is not available for any expenditures made after that date.
According to the IRS FAQ, paying for the energy-efficient property before the technical expiration date is insufficient. The relevant property must be installed or constructed by Dec. 31 to qualify. If the construction or installation occurs after that date, credits will not be available even if the taxpayer has already paid for the project.
The Section 45L credit will not be available for any new energy efficient home acquired after June 30, 2026. The IRS has yet to provide significant guidance around the repeal of this credit.
Expiring Vehicle Tax Credits
The 2022 legislation expanded the electric vehicle tax credit so that qualifying taxpayers who buy qualifying vehicles can claim a tax credit of up to $7,500 for new vehicles. The bill also created a $4,000 tax credit for buyers of qualified pre-owned clean vehicles. The credits were initially set to be available for green energy vehicles placed into service after Dec. 31, 2022, through 2032.
Under the recent tax and spending bill, neither of these credits will be available for any vehicle acquired after Sept. 30, 2025.
The IRS has clarified that a vehicle is “acquired” on the date the taxpayer enters a written binding contract and makes a payment. Payments, for this purpose, include nominal down payments or vehicle trade-ins.
However, the vehicle must also be “placed in service” to qualify for the tax credit. A vehicle is placed in service when the taxpayer takes possession of the vehicle. Once the vehicle is “acquired,” the taxpayer can still claim the credit even if possession is taken after Sept. 30 The dealer should provide a time of sale report within three days of taking possession.
Pursuant to IRS FAQ, taxpayers electing to transfer the credit should wait until taking possession to make a credit transfer election.
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