On May 22, 2025, the House passed an amended version of the “One, Big, Beautiful Bill,” which would make the investment tax credit (ITC) under Section 48E and production tax credit (PTC) under Section 45Y unavailable for solar, wind, battery and other technology projects that begin construction 60 days after the bill is enacted. The bill also would impose a placed-in-service deadline of Dec. 31, 2028, to receive any credit at all.
The amended bill extended the zero-emission nuclear production credit of Section 45U to provide a full credit through the end of 2031 and allows advanced nuclear facilities to claim the ITC and PTC if they begin construction prior to Dec. 31, 2028. (McGuireWoods’ previous client alert on the original bill can be read here.)
While the final provisions surrounding the ITC and PTC are uncertain, and some senators voiced opposition to the provisions, suggesting some changes will occur in the Senate as Congress navigates the reconciliation process, developers should consider whether to begin construction for tax purposes as soon as possible for planned projects that could foreseeably be placed in service on or before Dec. 31, 2028.
| May 12 Draft | May 22 Bill Passed by House | |
| Phasedowns and Restrictions | ||
| Section 45Y, Clean Energy PTC | Placed in service during calendar year 2029: 80% of credit Placed in service during calendar year 2030: 60% of credit Placed in service during calendar year 2031: 40% of credit Placed in service after Dec. 31, 2031: 0% of credit | Must begin construction prior to 60 days after enactment of the bill Placed-in-service deadline of Dec. 31, 2028, or no credit is available Carveout for advanced nuclear facilities beginning construction prior to Dec. 31, 2028, which are subject to normal placed-in-service deadlines under the continuity requirements for beginning of constructions |
| Section 48E, Clean Energy ITC | Placed in service during calendar year 2029: 80% of credit Placed in service during calendar year 2030: 60% of credit Placed in service during calendar year 2031: 40% of credit Placed in service after Dec. 31, 2031: 0% of credit | Must begin construction prior to 60 days after enactment of the bill Placed-in-service deadline of Dec. 31, 2028, or no credit is available Carveout for advanced nuclear facilities beginning construction prior to Dec. 31, 2028, which are subject to normal placed-in-service deadlines under the continuity requirements for beginning of constructions |
| Section 45U, Zero-Emission Nuclear Power PTC | Electricity produced beginning in calendar year 2029: 80% of credit Electricity produced beginning in calendar year 2030: 60% of credit Electricity produced beginning in calendar year 2031: 40% of credit Electricity produced after Dec. 31, 2031: 0% of credit | Phaseout eliminated, such that full credit is allowed until Dec. 31, 2031 |
| Section 45X, Advanced Manufacturing PTC | Eliminated beginning Dec. 31, 2031, including with respect to critical minerals Eliminated for wind energy components sold after Dec. 31, 2027 | No change |
| Section 48(a)(3)(vii), ITC for Certain Thermal Heating and Cooling Property | Begins construction before Jan. 1, 2030: 6%, 30% if the project complies with the prevailing wage and apprenticeship (PWA) requirements Begins construction during 2030: 5.2%, 26% if the project complies with the PWA requirements Begins construction during 2031: 4.4%, 22% if the project complies with the PWA requirements Begins construction in 2032: 0% | No change |
| Eliminations | ||
| Section 45V, Clean Hydrogen PTC | Eliminated for project beginning construction after Dec. 31, 2025 | No change |
| Section 30C, Alternative Fuel Vehicle Refueling Property Credit | Eliminated for projects placed in service after Dec. 31, 2025 | No change |
| Section 25E, Previously Owned Clean Vehicle Credit | Eliminated after Dec. 31, 2025 | No change |
| Section 30D, Clean Vehicle Credit | Eliminated after Dec. 31, 2025 Eliminated after Dec. 31, 2026, for certain vehicles that sold less than 200,000 units | No change |
| Section 45W, Qualified Commercial Clean Vehicles Credit | Eliminated after Dec. 31, 2025 Exception for vehicles placed in service prior to Jan. 1, 2033, that were acquired pursuant to a binding written contract before May 12, 2025 | No change |
| Section 25C, Energy Efficient Home Improvement Credit | Eliminated after Dec. 31, 2025 | No change |
| Section 25D, Residential Clean Energy Credit | Eliminated for property placed in service after Dec. 31, 2025 | No change |
| Section 45L, New Energy Efficient Home Credit | Eliminated for homes acquired after Dec. 31, 2025 Exception for homes that begin construction before May 12, 2025, and are acquired before Dec. 31, 2026 | No change |
| Extensions | ||
| Section 45Z, Clean Fuel PTC | Extended to clean fuel produced before 2031 Limited to clean fuel produced using feedstock from the United States, Canada and Mexico beginning after Dec. 31, 2025 | No change |
Under the amended bill, the restrictions on the ITC and PTC would require taxpayers to begin construction on most energy projects prior to 60 days after the enactment of the bill and place in service on or before Dec. 31, 2028. The placed-in-service deadline would be a critical piece in securing financing for projects. Unforeseen construction delays for projects projected to be placed in service on or before Dec. 31, 2028, could cause projects not to qualify for the credits if delays result in a Jan. 1, 2029, or later placed-in-service date. Additionally, any projects that developers could foreseeably place in service on or before Dec. 31, 2028, should begin construction as soon as possible, and projects that developers could not foreseeably place in service by Dec. 31, 2028, would not qualify for the credits.
Beginning Construction
Generally, the IRS recognizes two tests for a project to begin construction for tax purposes, the physical work test and the 5% safe harbor. Only one test must be satisfied to establish the beginning of construction. Once construction has begun, a taxpayer must make continuous efforts towards completion. The IRS generally recognizes a safe harbor of four full calendar years for continuous efforts for tax purposes, which would mean that projects claiming the ITC or PTC that began construction in 2024 or 2025 and are placed in service on or before Dec. 31, 2028, would meet that safe harbor. Projects claiming the clean hydrogen production credit under Section 45V and begin construction in 2025 would be safe harbored through a placed-in-service date of Dec. 31, 2029.
Under the physical work test, a taxpayer must perform physical work of a substantial nature on equipment that is an integral part of the facility. Off-site work must be performed pursuant to a binding written contract on components not normally held in the supplier’s inventory of the supplier that are critical to the project’s production of energy. For on-site work, work such as foundations uniquely designed to support electricity-generating equipment or other physical work of a substantial nature can establish the beginning of construction. For many projects, on-site work may prove to be a more attractive option, as suppliers of transformers and other bespoke components would likely be strained due to a “run” on beginning-of-construction components.
Under the 5% safe harbor, a taxpayer must, pursuant to a binding written contract, pay or incur at least 5% of the total cost of the facility and, for accrual-based taxpayers, take delivery of such components or expect to take delivery within 3.5 months of the execution of the binding written contract. Similar to the off-site physical work test, the supply chain could face challenges with fulfilling all orders needed for projects to begin construction pursuant to the 5% safe harbor prior to 60 days after the enactment of the bill.
Transferability
The original bill would have repealed transferability for projects that “begin construction” two years after the date that the bill is enacted. The affected credits would have been those generated under Sections 45Y, 48E, 45Q, 45U and 48(a)(3)(vii). For Section 45U, 45Z and 45X, the effective date would have been after Dec. 31, 2027, for electricity generated or fuels or components made after that date.
The bill does not limit or restrict direct pay eligibility for nonapplicable entities generating credits under Section 45Q and 45X. Additionally, traditional tax equity structures and transferability would remain available to taxpayers desiring to monetize PTCs and ITCs.
Prohibited Foreign Entities’ Control or Influence
The amended bill would adopt a regime designed to stop certain credits, including 45Y, 48E, 45Z, 45Q, 45U and 48(a)(3)(vii), from being generated when a project is “controlled” or “influenced” by certain prohibited foreign entities. No credit would be allowed for taxable years for projects beginning construction after Dec. 31, 2025, if the taxpayer receives material assistance from a prohibited foreign entity and no credit will be allowed for projects beginning construction in taxable years that begin one year after enactment if the taxpayer is a foreign-influenced entity.
With the early elimination of Section 45Y and 48E, this would only apply to advanced nuclear facilities claiming the credit under those sections.
Specified Foreign Entity: Foreign entities of concern, as described in the William M. (Mac) Thornberry National Defense Authorization Act of FY 2021, include Chinese military companies operating in the United States, any entity on a list required by the strategy to enforce prohibition on imported goods made through forced labor in the Xinjiang Uyghur autonomous region, an entity listed as ineligible for Department of Defense battery acquisition in the National Defense Authorization Act of FY 2024 or a foreign-controlled entity.
Foreign-Controlled Entity: Foreign-controlled entities include the government of a covered nation (the Democratic People’s Republic of North Korea, the Republic of China, the Russian Federation and the Islamic Republic of Iran); a person who is a citizen, national or resident of a covered nation, provided the person is not a U.S. citizen or lawful permanent resident; an entity or qualified business unit incorporated or organized under the laws of or having its principal place of business in a covered nation; or an entity controlled by any of the listed foreign-controlled entities.
Foreign-Influenced Entity: Foreign-influenced entities are entities that, during the taxable year, a specified foreign entity has the direct or indirect authority to appoint a covered officer; a single foreign entity owns at least 10% of such entity; one or more specified foreign entities own in the aggregate at least 25% of such entity; at least 25% of the debt of such entity is held in the aggregate by one or more specified foreign entities; or the entity knowingly makes fixed, determinable, annual and periodic (FDAP) payments to a specified foreign entity an amount equal to 10% of the annual gross receipts of the entity for the previous taxable year or makes aggregate FDAP payments to one or more of 33 specified foreign entities of at least 25% of the annual FDAP payments of the entity for such previous tax year.
Material Assistance From a Prohibited Foreign Entity: Material assistance from a prohibited foreign entity includes a component, subcomponent or critical mineral included in such property that is extracted, processed, recycled, manufactured or assembled by a prohibited foreign entity, or a design of such property that was based on a copyright or patent held by a prohibited foreign entity or know-how or trade secret provided by a prohibited foreign entity. This definition does not include assembly parts or constituent materials that are not uniquely designed for the use in construction of a facility and not exclusively or predominantly produced by prohibited foreign entities.