What’s new with IRA tax credits in 2025?

It is important to understand the changes in structure of Inflation Reduction Act (IRA) tax credits in 2025 to maximize incentives and ensure compliance. Until recently, IRA tax credits under the section 48 investment tax credit (ITC) and section 45 production tax credit (PTC) have been the prevailing credit regime, as they apply to eligible projects that began construction by Dec. 31, 2024. Now that we are several months into 2025, section 48 and 45 tax credits have primarily been phased out. New tax credit structures under sections 48E and 45Y now govern projects beginning construction in 2025 and beyond. Understanding these changes is crucial for property owners, developers and investors looking to maximize available incentives while ensuring compliance with evolving regulations. 

What are the new final rules? 

The Treasury Department and IRS determined that quickly implementing final regulations was necessary to provide clarity for taxpayers placing energy property into service before the provisions expire and planning construction before Jan. 1, 2025. The final rules were published in the Federal Register on Dec. 12, 2024, and provide further clarification on several critical topics. Learn more about the final regulations for section 45Y and 48E tax credits.  

Section 48 vs. section 48E 

For projects placed in service on or after Jan. 1, 2025, tax credits are available under section 48E and section 45Y, instead of section 48 and section 45, respectively. However, taxpayers cannot claim both credits for the same facility. Section 48E and section 45Y tax credits will remain the prevailing regime until the credits begin phase-outs starting during the latter of (a) 2032 or (b) when US greenhouse gas (GHG) emissions from electricity are 25% of 2022 emissions or lower.  

For clients investing in clean energy projects, understanding the evolving credit structure is essential to mitigating financial risk and ensuring compliance. While section 48 covered a broad range of eligible technologies, including biogas and combined heat and power (CHP), section 48E is specifically focused on clean electricity generation. This means that certain technologies previously eligible for ITC under section 48 no longer qualify under the new framework. There are still ways certain biogas properties can be eligible for ITC under 48E. However, property owners planning to invest in energy systems must carefully evaluate their projects against the updated eligibility criteria. Review the changes to biogas tax credits for more details on potentially eligible biogas projects. The potential recapture of clean electricity ITCs is another key consideration. While the standard recapture rules under section 48 still apply, section 48E introduced an additional provision tied to GHG emissions of eligible property. Specifically, under section 48E, previously granted credits can be recaptured if the qualified facility exceeds a GHG emissions rate of 10 grams of CO2 per kWh within the first five years after being placed in service. This added requirement underscores the importance of implementing emissions monitoring and control strategies to safeguard tax incentives and maintain long-term financial viability. 

Final regulations confirmed that a facility that fails to satisfy the requirements (including the beginning of construction requirements) for the section 48 credit is not disqualified from claiming a section 48E credit as long as the facility meets all applicable requirements stated in section 48E. It is key to note that section 48E applies the increased credit amounts at the level of a qualified facility rather than an energy project. As a result, taxpayers can only determine section 48E credits on the facility-by-facility approach described in the statute and regulations.  

The final regulations also clarified the relationship between the prevailing wage and apprenticeship requirements and the "1MW exception”, which has a special aggregation rule (integrated operations) for eligibility purposes under section 48E. More specifically, the final regulations clarify that the 1 MW exception applies on a per-project basis (qualified facility or energy storage technology) rather than the a per-facility basis. This makes it easier to claim the full credit amount for small projects without the administration burden related to meeting the prevailing wage and apprenticeship requirements. However, the 1MW exception differs when claiming increased bonus credits (domestic content, energy community and prevailing wage and apprenticeship). Section 48E determined that each qualified facility or energy storage technology must independently meet the increased credit rate requirement. In contrast, section 48 allowed them to be aggregated to qualify for the increased credit rates.   

Contact our IRA tax credit professionals for questions related to these final rules. Our team is here to help you navigate these regulations effectively.

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.