The recent tax legislation made significant changes to green energy incentives, and the message is clear: if you've been considering taking advantage of these credits, you need to act quickly.
The Background
With the Inflation Reduction Act of 2022, there were a number of green energy incentives that were encouraging investors and taxpayers to really invest in green energy and clean technology. These incentives were designed to promote environmental responsibility while providing substantial tax benefits.
However, with the recent "one big beautiful bill," these incentives are being eliminated pretty quickly. We're looking at between two and a half months and a year for a lot of these incentives before they're going away.
Residential Energy Credits: December 31st, 2025 Deadline
Some of the residential energy credits are also going away, though you've got a little bit more time with some of those incentives. However, they're still phasing out and they're going to be eliminated soon.
For instance, residential clean energy under code section 25D - we're talking about your solar panels, your geothermal heat pumps, things of that nature - you've got to have that placed in service and paid for by December 31st of 2025. So you've got a little bit more time than with the vehicles, but there's still a clock ticking and you need to get that done before the end of the year.
Commercial Property Incentives: Section 179D
Section 179D, which is a deduction (not a credit), also has opportunity, but that's being eliminated for projects after June 30th, 2026. So if you have not started a project prior to June 30th, 2026, you're not going to get that incentive.
The way Section 179D works is that it's for investing in clean energy throughout a commercial property. There's a square footage calculation, and you get a deduction based on the square footage of the building that's using clean energy.
Look at that timeline carefully. If you have projects that are in the works or you're talking about, make sure you get those started before June 30th of next year. Now, if there are projects that are already started and you're already working on them, nothing to worry about there - those are going to be fine and will qualify for the 179D deduction.
Residential Energy Improvements: Section 45L
Section 45L is the most common one for residential improvements. You're looking at your windows, your HVAC, heat pumps, things that meet the Energy Star ratings. A lot of those incentives were increased significantly with the Inflation Reduction Act.
Make sure that if you're considering these improvements, you know that these are also ones that have to be done by June 30th, 2026. So you've got a little less than a year to have that property acquired in order to take advantage of those Inflation Reduction Act credits that are available for residential energy improvements.
What's Staying: Credit Transferability
One thing that is staying intact from the Inflation Reduction Act related to clean energy is the transferability of these credits. This essentially allows taxpayers and organizations that can't utilize the tax credits to sell those to a third party who can utilize those tax credits.
Think about a lot of nonprofit organizations - they may not be able to use these credits themselves. They may be looking at selling these credits to a taxpayer that can utilize those credits. So keep in mind the transferability is still there. If you were looking for credits, they are out there and will be available to be utilized and purchased.
Production Incentives Continue
There are other green energy items that are being eliminated, but some of the ones that are going to last a little bit longer are the ones related to production when you're actually producing clean energy - solar, wind, things of that nature. That's not going to impact many of our real estate investor listeners, so I won't dive deep into the production incentives related to energy.
The Bottom Line
While there is still a little bit of opportunity with green energy incentives, you need to jump on it if you want to take advantage of those for the 2025 or 2026 tax year, because those are going away.
The timeline is tight, and the benefits can be substantial, so if you've been on the fence about any of these green energy investments, now is the time to have those conversations with your advisors and make your decisions quickly.