Energy Credits on the Clock: What Taxpayers Need to Know About Accelerated Expiration Dates

At a glance:

• The main takeaway: Now that the One Big Beautiful Bill has been enacted, taxpayers who leverage energy credits will now face accelerated expiration dates.
• Impact on your business: Some of the significant changes to energy credits include modifications to how some credits are applied, depreciation adjustments on energy properties, and foreign restrictions on electricity production and nuclear power.
• Next steps: A tax advisors can proactively monitoring tax legislation developments and are prepared to help you navigate the potential changes.

The enactment of the One Big Beautiful Bill (OBBB), also referred to as H.R. 1, makes significant alterations to energy credits available to taxpayers. Many credits that did not have expiration dates or that had expiration dates as far out as 2032 are now set to expire at an accelerated rate.

The list below provides all energy credits and the new expedited expiration dates:

Altered Method to Applying the Clean Vehicle and Residential Clean Energy Credits

Previously, to benefit from this credit a taxpayer was required to place a vehicle in service before the credit expiration date. Now under the new law, in order for a taxpayer to claim the Clean Vehicle Credit, the vehicle must be acquired before the expiration date. This change suggests that vehicles that meet the criteria of the credit are eligible if bought before the new expiration date even if the individual or business were unable to put the vehicle in service until a later date.

Similar wording can be found in the Residential Clean Energy credit, which has changed from the previous requirement that the clean energy property be placed in service to the new requirement that expenditures be made. These alterations provide opportunities for taxpayers intending to take advantage of the credit during the current tax year and before the expiration date.

Depreciation Adjustments for Energy Properties

Taxpayers looking to put energy properties into service in their trade or business will also have to deal with a new depreciation adjustment. Properties that fall under section 48(a)(3) of the Internal Revenue Code (IRC), which generally includes green energy producing assets, recycling, and storage, will now no longer be considered five-year properties for depreciation purposes. This means those assets will now be subject to depreciation using the general class lifetime rules.

In general, it is anticipated that many of these properties will be required to depreciate over longer periods than in previous years. The changes in depreciation will only affect the applicable assets that began construction after December 31, 2024. Any property placed in service prior to this date can still be depreciated over a five-year period. In addition, this change will heavily reduce the applicable depreciation deductions available for the affected properties and result in less depreciation expenses in earlier years for properties put in service after December 31, 2024.

As a result, there will be higher taxable incomes for entities looking to put energy property assets into service. Notably, unlike many of the other related changes for energy credits, this has the potential to affect entities that have put assets in service before the bill was passed. The affected individuals and entities will see lower depreciation expenses than originally projected.

Foreign Restrictions on Electricity Production and Nuclear Power

HR-1 imposes strict restrictions on credits related to energy production from certain foreign entities. Both general clean electricity production credits and credits related to nuclear power now include specific language which can completely remove eligibility should the company engage in certain prohibited actions with certain foreign entities. Essentially, any entity is restricted from obtaining material assistance from an entity that is controlled by or heavily influenced by a prohibited entity. Notable examples of such control include influence by the Chinese government in a variety of forms. Control is broadly defined and can include engagement with entities that are only partially controlled by the specified restricted foreign class. These rules became effective immediately with the enactment of the bill on July 4, 2025.

The new restrictions will require entities in the business of producing energy to carefully consider relationships, contracts, and dealings with any foreign entity including domestic entities that happen to have significant control by foreign individuals and entities. For entities engaged in producing energy, the risk of losing eligibility for credit can be substantial. These credits are applied to each kilowatt produced by an eligible entity and as such have a material impact on every business engaged in the production of energy. Additional guidance on these restricted foreign entities will be released in the future, and the list of restricted foreign entities is subject to change.

The bottom line

The new expedited expiration dates will impact both individuals and businesses that rely on energy credits to offset the costs associated with purchasing new equipment or vehicles. The most affected credits are those related to personal and commercial vehicles, as well as the construction of energy efficient homes and commercial buildings. These credits primarily benefit consumers, allowing them to reduce the overall burden associated with the purchase and installation of the applicable items.

Taxpayers wishing to leverage these credits before they expire will have a very limited window of opportunity.

Please connect with your advisor if you have any questions about this article.