The 2025 tax year is approaching, and with it, uncertainty about the future of the Inflation Reduction Act (IRA) renewable energy tax incentives. This Tax Alert is the second in a series of monthly alerts that will discuss tax legislation in 2025 and the outlook for the IRA renewable energy tax incentives. In this article, we will discuss the legislative and regulatory changes that may affect the ITC/PTC Tax Credits, the Clean Electricity Production and Investment Credits (ITC/PTC Tax Credits), and the new technology-neutral tax credits that will be effective from 2025 to 2028.
Legislative Changes
The IRA energy tax incentives are likely targets in a tax bill both on policy grounds and as potential revenue offsets for other tax changes. Certain technologies may be targeted by Congress because they are less favored than others. The IRA energy tax incentives are subject to changes, which could include repeal of the credits, an early sunset of the credits, or changes that would make it harder to qualify for the credits.
Prospective vs. Retroactive Changes
Repeal of or changes to any of the IRA tax incentives will likely be on a prospective basis, since historically, retroactive repeal of tax laws has been rare (except in cases of perceived tax abuse) due to the economic uncertainty that would result. This means that any changes included in tax legislation enacted in 2025 would likely not take effect until 2026 (although that outcome is not guaranteed at this point).
Regulatory Changes
It is also possible that regulatory changes could be made that would affect the ITC/PTC Tax Credits, including new rules that would make it harder to qualify for the credits. Regulatory changes could be a result of the Congressional Review Act (“CRA”) process or actions that are taken because of the Executive Order on Deregulation.
| Event | Effect |
|---|---|
| CRA Joint Resolution of Disapproval | Rule cannot go into effect or continue in effect |
| Executive Order on Deregulation | Regulations must be withdrawn or delayed |
5 Ways to Mitigate Challenges to the IRA Energy Tax Credits in 2025
1.
- Be vigilant about monitoring news, agency guidance, and communications from the Administration and the Congress
- Follow the rules: documentation, recordkeeping, and IRS audits
- Contracts and indemnification
- Legal opinions and tax insurance
- Tariff strategy and tax planning
2.
- Documentation and recordkeeping is key and must be performed both by the taxpayer claiming the tax credit and any parties supporting the taxpayer’s claim
- Comply with all the rules that are currently in place for the projects you intend to file claims for
- Ensure that you understand the current rules for any tax credits you are planning to claim
- Be aware of the potential impact of the use of the Congressional Review Act or the Executive Order on Deregulation to repeal or modify guidance that has already been issued
- Keep detailed records about your compliance with the current rules for the tax credits in the event your claims are challenged in the future
3. Contracts and Indemnification
Make sure that your contracts with other parties that involve tax credit claims include strong “change in tax law” provisions covering the possibility of both retroactive changes and prospective changes. Negotiate strong indemnification provisions in your contracts with other parties involved in your tax credit claims if they fail to comply with the rules. 4. Legal Opinions and Tax Insurance
If you are currently involved in projects or marketing to customers who are developing projects, and you are uncertain about whether the project will qualify for the energy tax credits, consider engaging a law firm to issue a legal opinion or a legal memorandum based on the facts of your project. This will give you and your customers assurance that your interpretation of the statute and the regulatory guidance as applied to your facts is accurate and will be upheld if reviewed by the IRS. Tax insurance has become more common for renewable energy tax credits, including with respect to credit transfer transactions. Involved parties may require a legal opinion to proceed with a tax insurance transaction. 5. Tariff Strategy and Tax Planning
Due to the Administration’s evolving tariff landscape and the resulting uncertainty, businesses should be considering strategies to reduce the impact of tariffs, but direct and indirect tax consequences must be considered especially regarding supply chain modifications. There may be opportunities that arise when the consequences of the tax impacts are considered but there also may be serious tax risks that result.
What Should Your Company Be Doing Now?
Monitor legislative, regulatory, and judicial developments in 2025. Ensure that you understand the current rules for any tax credits you are planning to claim based on the statute and any applicable guidance that was issued by the Biden Administration prior to January 20, 2025. Be aware of the potential impact of the use of the Congressional Review Act or the Executive Order on Deregulation to repeal or modify guidance that has already been issued. Make sure that you comply with all the rules that are currently in place for the projects you intend to file claims for.
Risks for ITC/PTC Credits and the Clean Electricity Credits
A key question is what the fate will be of the new “technology-neutral tax credits” in Sections 48E (ITC) and 45Y (PTC). These new credits are effective from 2025 to 2032, replacing the current law Section 48 ITC and the Section 45 PTC, which terminated at the end of 2024. The new credits benefit facilities/projects that achieve net zero greenhouse gas (GHG) emissions regardless of the technology used, with taxpayers generally required to track emissions to be eligible for the credits.
Begin Construction Safe Harbor
The expiring ITC (Section 48) and PTC (Section 45) credits are only available to projects that “begin construction” before 2025 (even if placed in service after 2024), while those that begin construction and are placed in service after 2024 are transitioned to the new credits, Section 48E and Section 45Y.
Risks to Projects
Projects that meet the Safe Harbor are less at risk due to legislative changes in 2025, as the Section 48 and Section 45 credits are less likely to be repealed or modified. However, projects that claim the new credits are higher at risk, as there is a greater risk of legislative changes and regulatory changes.