On July 4, following multiple rounds of negotiations, President Trump signed the reconciliation bill into law. Among its multiple provisions, the bill significantly revises the Inflation Reduction Act (“IRA”) of 2022, which amended and established tax credits and incentives for clean energy projects. These changes are expected to prompt a surge in construction as developers race to meet the new, compressed deadlines.
The bill retains several favorable provisions for clean energy projects. Municipal utilities, electric cooperatives, and other non-profit entities may still claim eligible tax credits through elective pay (i.e., how entities traditionally ineligible to claim clean energy tax credits may claim such credits and receive a cash payment from the IRS for the credit amount). The bill also maintains transferability, allowing taxable, for-profit entities to transfer their tax credit through a one-time sale of all or a portion of their credit to a third party for cash, though not to specified Foreign Entities of Concern (FEOC).
However, despite these preserved benefits, the practical effect of the as-enacted bill is a substantial rollback of the IRA’s incentives for wind and solar. The bill introduces accelerated termination dates for Investment Tax Credits (ITCs) and Production Tax Credits (PTCs) and complicated FEOC restrictions. Wind and solar projects must be placed in service by December 31, 2027, to qualify for the credit, with an exception for projects that begin construction within one year of the bill’s enactment, i.e. July 4, 2026. All other energy projects eligible for the ITC and PTC have until the end of 2033 to claim the full tax credits, after which credits will phase out entirely by 2036.
Further complicating a developer’s ability to claim ITCs and PTCs is the Trump Administration’s recent Executive Order regarding what qualifies as “beginning of construction.” Currently, the IRS provides two methods for establishing the beginning of construction: (1) the physical work test (i.e., requiring the taxpayer to begin physical work of a significant nature), and (2) the 5% safe harbor (i.e., if the taxpayer pays or incurs 5% or more of the total cost of the project and makes continuous efforts towards completion of the project). The Executive Order directs the Treasury Department to issue new guidance by August 18, 2025 to strictly enforce the termination of the ITCs and PTCs and issue revised guidance on policies concerning “beginning of construction.” The forthcoming guidance is expected to tighten the beginning of construction rules and further narrow the scope of projects aiming to claim the tax credits.
Additionally, the bill further restricts entities’ ability to claim the credits by introducing complex FEOC rules. Projects beginning construction after December 31, 2025, will be ineligible to receive ITCs or PTCs if they receive “material assistance” from prohibited foreign entities. Further, no “specified foreign entity” or “foreign-influenced entity” will be able to receive the tax credits. Prohibited foreign entities are generally those with ties to China, Russia, North Korea, or Iran. The FEOC provisions aim to prevent Chinese entities from claiming the tax credits and reduce reliance on Chinese supply chains. China currently exports $65 billion in lithium batteries and $40 billion in solar panels and modules. So, while meant to boost American manufacturing, the overly restrictive nature of the FEOC rules will likely suspend investment in domestic manufacturing and force developers to look elsewhere for supplies.
The bottom line is the reconciliation bill marks a stark policy shift away from clean energy sources and from promoting domestic manufacturing. While clean energy incentives remain, timelines are tight, and developers will need to act quickly to take full advantage of what's left of the clean energy tax credits under the IRA.
For further information or to discuss how DWGP may be of assistance with regards to navigating the clean energy tax credits, please reach out to Jeff Genzer, Pete Scanlon, Keith Gordon, and Gelane Diamond.
Article By DWGP Summer Associate Anne Vicari – The George Washington University School of Law, May 2026
