Article
IRS releases updates to energy community bonus credit rules
What Notice 2025-31 means for eligibility in 2025
Jul 08, 2025 · Authored by Gideon Gradman, Jowan Abouhosah, Jiyoon Choi, Selene Cullen, Shristhi Negi
On June 23, 2025, the IRS issued Notice 2025-31, which offers the latest guidance on eligibility for the energy community bonus credit as defined in section 45(b)(11) and related IRS guidance. The energy community bonus credit can be applied to IRC sections 48 investment tax credit (ITC), 48E ITC, 45 production tax credit (PTC) and 45Y PTC. For taxpayers claiming an ITC or PTC in an eligible energy community, the applicable ITC or PTC base credit percentage is increased by 2%, or 10% (a 5x multiplier) if the prevailing wage and apprenticeship (PW&A) requirements are met.
There are three ways for a location to qualify as an energy community: the brownfield category, the statistical area category and the coal closure category. Notice 2025-31 includes updates to the statistical area and coal closure categories but does not address changes to the brownfield category. IRS Notice 2025-31 includes five new appendices, which are effective from June 23, 2025, until the next annual update.
Statistical area category
The statistical area category uses metropolitan statistical areas (MSAs) and non-MSAs as its geographical boundary units when determining the eligibility of a site for the energy community bonus credit. An MSA is a U.S. geographic designation defined by the Office of Management and Budget (OMB) to represent a region with a relatively high population density at its core and strong economic connections across the surrounding area. A non-MSA refers to a geographic area that does not meet the criteria to be classified as an MSA or a micropolitan statistical area by the OMB. These areas are typically characterized by lower population densities and less intense economic activity compared to MSAs.
IRS Notice 2025-31 continues the use of MSAs and non-MSAs but introduces a new list of MSAs and non-MSAs, which are defined using data generally based on the 2020 census, that will be evaluated for energy community eligibility. These new MSAs and non-MSAs are called ‘Vintage 2’ MSAs and non-MSAs, while the previous MSA and non-MSA definitions follow guidance issued in Notice 2023-29, Notice 2023-45, Notice 2023-47, Notice 2024-30 and Notice 2024-48, collectively referred to as ‘Vintage 1’ MSAs and non-MSAs.
Appendix 1 to IRS Notice 2025-31 lists counties and county equivalents along with their corresponding Vintage 1 and Vintage 2 MSAs or non-MSAs. Appendix 2 shows the counties that meet the fossil fuel employment threshold in either Vintage 1 or Vintage 2. Note that this list is not the final list of qualifying energy communities. Instead, it is a list of all counties that only meet the fossil fuel employment threshold.
To qualify as a county or county equivalent for the energy community bonus under the statistical area category starting after June 23, 2025, the location must be listed in Appendix 3 of IRS Notice 2025-31 as being in either a Vintage 1 or Vintage 2 MSA, or a non-MSA that meets both the fossil fuel employment and unemployment rate thresholds, specifically, being in an MSA with an unemployment rate at or above the national average for the previous year.
Coal closure category
IRS Notice 2025-31 provides an updated list of census tracts that qualify for the coal closure category. This means a coal mine has closed since 1999, or a coal-fired power plant has shut down since 2009, within that census tract or an adjacent tract it.
Appendix 4 of IRS Notice 2025-31 lists newly eligible census tracts and should be used together with Appendix C to Notice 2023-29, Appendix 3 to Notice 2023-47 and Appendix 2 to Notice 2024-48 to provide a complete list of census tracts qualified for the energy community bonus credit under the coal closure category.
IRS Notice 2025-31 also lists newly identified eligible census tracts due to updates in location data. These tracts are included in Appendix 5. The list is a subset of the census tracts in Appendix 4 that qualify as the coal closure category. Any project placed in service after Dec. 31, 2022, located in a census tract added in Appendix 5, is eligible to claim the energy community bonus credit.
Get started with our mapping tool
The updated guidance on energy community eligibility introduced in IRS Notice 2025-31 brings important changes to the statistical area and coal closure categories. Understanding these updates is essential for project owners and stakeholders to maximize eligibility and benefit from these federal tax credit incentives. Use our mapping tool to check if your project’s location could qualify for the energy community bonus. Connect with Baker Tilly’s IRA specialists to understand these changes thoroughly and to see if your project might qualify for the energy community bonus credit.
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Energy Community Mapping Tool
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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
