Credit and Transferability Issues After the One Big Beautiful Bill Act

Interviewer: For casual observers, there is a belief—or a myth―that the environmental or green tax credits enacted under the previous administration have been totally repealed by OBBBA. Can you elaborate on what really happened?

Boccaccio: Sure. While there are now more restrictions and earlier sunset dates of certain renewable energy credits under OBBBA, few credits were subject to near-immediate repeal. For instance, credits related to electric vehicles will be repealed for acquisitions after September 2025, and residential energy credits will generally be terminated at the end of 2025. However, credit volume is actually increasing, not decreasing, as many components of the renewable energy credit regime have been sustained or even extended.

Interviewer: You mentioned more restrictions and earlier sunsets of certain other credits; can you please elaborate?

Ware: Of course, for example, credits for wind or solar facilities pre-OBBBA were not subject to phaseouts until 2033. Now, credits for those technologies must begin construction before July 4 of next year to avoid a December 31, 2027 placed-in-service deadline. With revised beginning of construction rules eliminating the 5% spend safe harbor, developers are under pressure to begin physical work on projects as soon as possible to lock in beginning construction dates before July 4 of next year.

Boccaccio: And there are so many other changes in this area―related to foreign entity restrictions, calculation and qualification of the clean fuel production credit, and more―all of which require a careful detailed look at the OBBBA provisions. What’s key is that there has been no wholesale elimination of the credits adopted by Biden’s Inflation Reduction Act, just some “pruning” as well as some extending. Net net, we have more credits in the market than ever before.

Note that not all the changes are restrictive―for example, the termination period of the clean fuel production tax credit is actually extended for two years through December 31, 2029, and energy storage technology and renewable gas projects remain eligible for the Investment Tax Credit through 2037.

Interviewer: Let’s shift the discussion to advanced manufacturing credits under Code Section 45X. As some of our readers know, Section 45X provides a credit for the domestic production and sale of certain eligible components, including solar and wind energy components, inverters, qualifying battery components, and applicable critical minerals. What’s changed under OBBBA?

Ware: Well, the credit will now terminate for wind components produced and sold after December 31, 2027. But as you noted, the credit also applies to deemed critical mineral production that will now be phased out by 2034 under OBBBA. Interestingly enough, the legislation did not touch the existing phaseout schedule for other renewable energy components―solar and battery components will retain their pre-OBBBA eligibility through 2033.

Interviewer: One of the more significant changes―and maybe that’s to be expected―is the restriction on the availability of energy credits for projects owned or controlled―or those that have been given material assistance―by deemed prohibited foreign entities. Can you expand on that?

Boccaccio: Under OBBBA, credits are disallowed to any company that is a deemed prohibited foreign entity, which can be either what OBBBA defines as a specified foreign entity or a foreign influenced entity. The legislation also restricts certain projects from credit qualification if they receive “material assistance” from a prohibited foreign entity. Effective dates vary based on the credit and how the entity is classified.

Interviewer: Before we go into which credits are affected, can you briefly attempt to describe these entities?

Ware: These are entities with ties to China, Russia, Iran, and North Korea by ways of debt, equity, or substantial business relationships, with China seemingly the most impactful. These new restrictions are quite punitive and underscore the importance of examination by developers and credit purchasers, as OBBBA generally prohibits the transfer of energy credits to some prohibited foreign entities.

Some of the affected credits include the traditional 45Y PTC and 48E ITC, the 45X advanced manufacturing production credit, the 45Z clean fuel production credit, and more.

Interviewer: Can you briefly explain or provide an example of restrictions for taxpayers that received “material assistance” from a prohibited foreign entity?

Ware: Sure. Essentially, if materials sourced from prohibited foreign entities exceed certain thresholds for the construction of a project or production of eligible components, the whole project or specific components are ineligible for credit qualification. The material assistance provisions only apply to the clean energy production credit, the clean electricity investment credit, and the advanced manufacturing production credit.

These threshold amounts vary by the credit and increase annually, but these rules will begin next year.

Interviewer: So it looks like a key takeaway is that any recipient of these green credits needs to carefully examine the changes.

Boccaccio: That’s right. The changes are not sweeping but in many cases very nuanced. Developers should perform a detailed analysis to ensure their current supply chain does not violate the material assistance provisions. They should also examine the profile of their investors to see if they could potentially run afoul of some of the restrictions imposed on foreign entities.

Interviewer: Let’s shift the focus to another key area: transferability. The Inflation Reduction Act of 2022 made investment tax credits and production tax credits for renewable energy transferable. And to our surprise this did not go away.

Boccaccio: That’s right―through OBBBA’s legislative process, there were worries transferability would vanish. It did not. The House considered phasing out transferability, but the Senate removed that. Transferability is now a permanent tax-planning strategy. In effect, transferability of a credit is tied to the expiration of that credit.

Interviewer: We have seen that wind and solar technologies are facing accelerated phaseouts, which naturally impact transferability, but there are other credits out there that can be transferred, correct?

Ware: Right. We have the clean fuel production credit with its first year of eligibility in 2025, and OBBBA extended the credit until 2029. So this credit is ripe for transferability, especially as companies get more familiar with it.

Interviewer: Also, while wind and solar seem to be prime targets, not all deemed renewable technology credits are subject to early termination, correct?

Ware: Correct. Things like battery storage, renewable gas, nuclear, and other facilities survived OBBBA and were already increasing in popularity within the transferability market. Also, let’s remember that the manufacturing credits, which we discussed earlier, are still around. Transferability of these credits will also survive.

Interviewer: We have covered a lot of topics today. Do we have some key takeaways?

Boccaccio: Start physical construction for solar and wind projects immediately to avoid upcoming termination dates. Examine carefully ownership and debt structures to avoid prohibited foreign entity concerns. Remember transferability of credits is here to stay and is tied to the expiration of credits, which is important should Congress extended any credits that are set to expire.

Interviewer: Thank you for your time today.

Please see the following links for on-demand access to Ryan’s OBBBA webinars:

• Decoding the “One, Big, Beautiful Bill”: What Businesses Need to Know Now
• Best Practices in Optimizing Income Tax Deductions in the One, Big, Beautiful Bill
• Best Practices in Optimizing Credits and Incentives in the One, Big, Beautiful Bill

Contact Ryan’s tax experts below to navigate energy credit restrictions, transferability opportunities, and ensure compliance with the latest OBBBA provisions.

Contacts:

Ian Boccaccio
Principal, Practice Leader
Ryan
ian.boccaccio@ryan.com

Dane Ware
Manager
Ryan
dane.ware@ryan.com