IRS releases updates to energy community bonus credit rules

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.