House Bill Accelerates Phaseout of Clean Energy Tax Credits and Restricts Leasing and Transferability

On May 22, 2025, the U.S. House of Representatives passed House Bill 1, officially titled the “One Big Beautiful Bill Act” (OBBBA). This budget reconciliation bill includes significant energy-related provisions that would accelerate the phaseout of clean energy tax credits and impose new limitations on certain renewable energy project financing arrangements. In particular, the OBBBA shortens the window for new wind, solar and other clean electricity projects to qualify for federal tax incentives, and it denies tax credits for certain residential and community projects structured as wind or solar leasing arrangements. Below is a summary of the key energy provisions included in the OBBBA.

Sixty-Day Window and 2028 Placed-in-Service Deadline for Clean Energy Projects

The OBBBA dramatically tightens the timelines for developers to begin and complete clean energy projects in order to receive federal tax credits. Under the bill, the new technology-neutral clean electricity Production Tax Credit (PTC) (45Y) and Investment Tax Credit (ITC) (48E) established by the Inflation Reduction Act (IRA) would only remain available to projects completed within a very short timeline. Specifically, to qualify for these credits, a project’s construction must begin within 60 days of the bill’s enactment, and the project must be placed in service (operational) by December 31, 2028. Projects that miss either of these deadlines would no longer be eligible for either the clean electricity PTC or ITC under the House proposal. This compressed timeframe represents a drastically accelerated phaseout of the clean energy PTC and ITC. The IRA had originally authorized these tech-neutral credits through 2032 with a gradual step-down period, but the OBBBA would eliminate the previously planned 2029-2031 credit phasedown entirely.

Nuclear projects carve-out: On a more positive note, the OBBBA provides a narrow exception for advanced nuclear energy facilities. The OBBBA would allow qualifying nuclear projects to remain eligible for the tech-neutral credits without meeting the 60-day beginning-of-construction rule, so long as the nuclear facility’s construction begins by December 31, 2028. In effect, nuclear power projects are exempted from the extremely short 60-day window requirement. The OBBBA also provides for an earlier phaseout of the credit by requiring projects to be placed in service by December 31, 2031. Aside from this nuclear carve-out, however, most other clean energy technologies (e.g., wind, solar, storage, etc.) would be subject to the 60-day beginning-of-construction requirement and 2028 placed-in-service deadline under the OBBBA’s provisions.

Expansion of Foreign Entity of Concern Restrictions

The OBBBA also includes expanded restrictions on projects with ties to “foreign entities of concern” (FEOCs), intended to reduce foreign influence over U.S. clean energy infrastructure and supply chains. The concept of a FEOC, originally defined under the CHIPS and Science Act and referenced in the Department of Energy’s implementation of Section 30D and Section 45X, generally includes entities owned or controlled by countries such as China, Russia, North Korea and Iran. The OBBBA would prohibit any project with ownership, control or critical components linked to a FEOC from claiming energy tax credits, including the PTC and ITC. Notably, the restriction is not limited to ownership interests; the OBBBA would also disqualify projects that procure key equipment or services from a FEOC, potentially sweeping in a wide range of project participants. These FEOC restrictions would apply to all taxable years beginning after the date of enactment, and without a grandfathering provision for existing contracts or partnerships.

This change could introduce significant diligence and supply chain compliance obligations for developers, investors and tax equity partners alike and require more transparency. Sponsors may need to reevaluate vendor relationships, ownership structures and procurement practices to avoid unintentionally triggering FEOC-related disqualification.

No Tax Credits for Residential Wind and Solar Leasing Arrangements

Another notable energy provision in the OBBBA is a new restriction on tax credits for certain project ownership structures, targeting the prevalent model of third-party-owned renewable installations for residential and community solar. The OBBBA would deny tax credit eligibility for wind and solar projects that are financed through leasing arrangements in the residential sector. In practical terms, this means no federal credit could be claimed for a solar or small wind system that is owned by a company and leased to a homeowner or business user, a structure that often allows the lessor company to claim or monetize the ITC while providing the customer the benefits of a leased system. The OBBBA specifies that any leasing arrangements where the Residential Clean Energy Credit (25D) would be available to the lessee will no longer qualify for credits for any taxable year beginning after the bill’s enactment. This leasing restriction will significantly impact the common third-party ownership model for rooftop solar installations (and similarly structured small wind projects). By eliminating credits for leased residential solar systems going forward, the OBBBA would effectively remove the tax incentive for many solar leasing and power purchase agreement deals. If enacted, this change could result in forcing the residential solar industry to reevaluate its entire business model.

Narrowing of Transferability Under Section 6418

The OBBBA also proposes changes to the transferability of energy tax credits under Section 6418, which was added by the IRA. As enacted, Section 6418 allows eligible entities to elect to transfer all or a portion of certain energy tax credits to unrelated parties in a sale transaction. The intent behind the provision was to create liquidity and expanded access to tax equity financing for clean energy projects. Under the OBBBA, transferability would continue to be permitted, but with restrictions tied to the new eligibility timelines. Transferability of Section 48 ITC for geothermal projects would be repealed for projects that begin construction two years after the date of the bill’s enactment. For the Section 45X Advanced Manufacturing Production Credit, transferability is repealed for components sold after December 31, 2027. For the Section 45Z Clean Fuel Production Credit, transferability is repealed for fuel produced after December 31, 2027. By coupling the availability of transferability with the significantly compressed construction and placed-in-service timeline, the proposed revisions would substantially limit the application of Section 6418. This would particularly impact developers who had planned to rely on monetizing credits over a longer horizon under the original IRA structure.

Additional Energy Tax Credit Changes and Outlook

The OBBBA contains a broader rollback of clean energy tax incentives enacted in recent years. The OBBBA would terminate the Clean Hydrogen Production Tax Credit (45V) after a shortened window (allowing a safe harbor only for projects that begin construction by the end of 2025). It also calls for the expiration at the end of 2025 of various residential energy efficiency and clean energy credits (such as the energy-efficient home improvement credit Section 25C, the residential clean energy credit Section 25D and the new energy-efficient home credit Section 45L) that were otherwise available through 2032 under the IRA. The OBBBA leaves the Section 45X Advanced Manufacturing Production Credit in place (with a phaseout after 2028) and maintains the full Section 45U Zero-Emission Nuclear Production Credit through 2031.

The OBBBA’s provisions are not yet law. The bill passed the House by a slim margin and will next move to the Senate, where substantial revisions to the proposed bill are expected. For now, the OBBBA sets the House priority of accelerating the phaseout and sunset of IRA-related renewable energy tax benefits. Energy project developers and investors should closely monitor the bill’s progress and any revisions in the Senate, as the final form of the OBBBA (if enacted) will determine the available tax credit landscape for energy projects moving forward.