House Ways and Means Committee Approves Markup of Reconciliation Bill

As highlighted further below, the Reconciliation Bill, as currently drafted, would make sweeping changes to many individual and residential credits (including for electric vehicles, residential solar property, and energy efficiency property) and accelerate the termination of credits for clean hydrogen production and nuclear facilities. The manufacturing production tax credit (Section 45X) would also phase down on a faster timeline beginning in 2031, with wind components targeted for phase out after December 31, 2027. On the flip side, the clean fuel production credit (Section 45Z) would actually be extended through December 31, 2031, albeit with certain modifications.

Also proposed in the Reconciliation Bill are earlier phaseout dates for technology neutral credits under Sections 45Y and 48E and, generally, a complete repeal of transferability under Section 6418 for facilities that begin construction more than two years after the date the Reconciliation Bill is ultimately enacted. These proposed changes to the technology neutral credits, in particular, are not as bad as originally feared by the industry and at least give time for taxpayers to digest and plan for reduced credits, and importantly, do not impact facilities currently under construction. There are several different effective dates for the provisions in the Reconciliation Bill, and careful consideration should be made to determine applicability. However, in a not so surprising development across the IRA tax credit changes are prohibitions related to “prohibited foreign entities.” Of all the proposed changes in the Reconciliation Bill, these may be the most far-reaching and challenging for taxpayers to understand and manage. Given the geopolitical stance of the current administration, some version of the restrictions with respect to prohibited foreign entities seem likely to be included in the final legislation, but with any luck, as the Reconciliation Bill moves through the Senate, these rules will be made more administratively achievable, the scope of such restriction will be limited in application, and a more reasonable transition period of relief will be provided.

Despite the passage of this markup, the Reconciliation Bill is still far from final and may change significantly in the coming weeks. Now that the markup is out of the Ways and Means Committee, the House has begun broader negotiations, and House Republicans are significantly divided over many of the Reconciliation Bill’s key provisions (e.g., the SALT deduction cap and the proposed cuts to Medicaid (which are both beyond the scope of this alert)). And, even if the Reconciliation Bill ultimately passes through the House unchanged, several Republican Senators have already made statements to the press signaling their intention to modify or eliminate the proposed changes to IRA-related provisions.

We are continuing to digest this proposed Reconciliation Bill and will be closely monitoring its progress and the changes that are sure to come. If you have any questions or would like to discuss, please reach out to your V&E contacts.

In the meantime, below is a brief summary of certain of the proposed IRA changes as of May 14, 2025, in the draft Reconciliation Bill:

Tax Credits to Expire on 12/31/2025

• Section 25C (Energy Efficient Home Improvement Credit)
• Section 25D (Residential Clean Energy Credit)
• Section 25E (Previously-Owned Clean Vehicle Credit)
• Section 30C (Alternative Fuel Vehicle Refueling Property Credit)
• Section 30D (Clean Vehicle Credit)²
• Section 45L (Energy Efficient Home Credit)³
• Section 45W (Qualified Commercial Clean Vehicles Credit)⁴

Other Changes to Tax Credits / Updated Phase Outs

• Section 45V (Clean Hydrogen Production) – credit is terminated for facilities that begin construction after 12/31/2025
• Section 45U (Zero-Emission Nuclear Power Production Credit) – new phase out beginning after 12/31/2028, and terminated after 12/31/2031
• Section 45X (Advanced Manufacturing Credit) – most eligible components sold after 12/31/2031 will have credit phase out, except with respect to wind energy components, which will phase out after 12/31/2027
• Section 45Y (Tech-Neutral PTC) – new phase out beginning for projects placed in service after 12/31/2028 and terminated for projects placed in service after 12/31/2031
• Section 48E (Tech-Neutral ITC) – new phase out beginning for projects placed in service after 12/31/2028 and terminated for projects placed in service after 12/31/2031; terminates low-income community bonus at end of 2031
• Section 45Z (Clean Fuels Production Credit) – credit extended through 12/31/2031; requires that feedstock must be produced or grown in the U.S., Mexico, and Canada for fuel sold after 12/31/2025, and directs lifecycle greenhouse gas emissions to exclude indirect land use changes
• Section 48 (Energy Property ITC) – accelerated phase out for geothermal heat pump property requiring construction to begin before 2032
• Section 168(k) (Bonus Depreciation) – extended at 100% level for property acquired and placed in service after 01/19/2025, and placed in service before 01/01/2030 (2031 for property having longer production periods)

Transferability Repeal

• Section 45Q (Carbon Capture Credit) – transferability unavailable with respect to carbon capture equipment that “begins construction” after the date that is two years after the date of enactment
• Section 45U (Zero-Emission Nuclear Power Production Credit) – transferability unavailable with respect to electricity produced and sold after 12/31/2027
• Section 45X (Advanced Manufacturing Credit) – transferability unavailable for all components sold after 12/31/2027
• Section 45Y (Tech-Neutral PTC) – transferability unavailable for facilities that begin construction after the date that is two years following enactment of the Act
• Section 48E (Tech-Neutral ITC) – transferability unavailable for facilities that begin construction after the date that is two years following enactment of the Act
• Section 45Z (Clean Fuels Production Credit) – transferability unavailable with respect to fuels produced after 12/31/2027
• Section 48 (Energy Property ITC) – transferability unavailable for geothermal heat pump property that begins construction after the date that is two years following enactment of the Act

Prohibited Foreign Entity Considerations

The Reconciliation Bill introduces various prohibitions throughout related to “prohibited foreign entities,” “specified foreign entities,” and “foreign-influenced entities.” These limitations include disallowance of certain credits if the taxpayer is one of these entities, controlled by one of these entities, makes certain payments to one of these entities, or receives “material assistance” from one of these entities. There would also be a potential 100% recapture of the clean electricity credit under Section 48E if a taxpayer makes an “applicable payment” to one of these entities within ten years after originally claiming the credit (essentially creating a 10-year period of recapture risk for the tech neutral ITC).

As currently drafted, there is some transition relief, but it is fairly limited. For example, the prohibition on credits for taxpayers which are “specified foreign entities” would apply to any taxable year beginning after the date of enactment (i.e., for calendar year taxpayers as early as January 1, 2026) and the provisions which disallow credits where there has been “material assistance” from a prohibited foreign entity appear to apply for any taxable year beginning after the date which is two years after the date of enactment of the Reconciliation Bill.

¹ This alert is not a fulsome summary of all of the provisions of the draft Reconciliation Bill and only discusses limited proposed changes as they would relate to energy and renewable tax credits under the IRA.

² Note that it appears there is limited transition relief provided for this terminated credit.

³ Note that it appears there is limited transition relief provided for this terminated credit.

⁴ Note that it appears there is limited transition relief provided for this terminated credit.