Revised Tax Law Alters Individual Retirement Account Credits

Revised Tax Law Alters Individual Retirement Account Credits

The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, has brought about significant changes to the tax credits under the Inflation Reduction Act of 2022 (IRA), particularly affecting wind and solar energy credits, foreign entity of concern (FEOC) rules, and foreign ownership restrictions.

Key changes to wind and solar energy tax credits:

The Act sets a deadline for wind and solar projects to be placed in service by December 31, 2027, to remain eligible for production tax credit (PTC) under IRC Section 45Y and investment tax credit (ITC) under IRC Section 48E. A safe harbor allows projects that begin construction on or before July 4, 2026, to retain eligibility. The Act accelerates the phase-out of credits for wind and solar, while extending longer credit periods for other technologies like storage, hydropower, geothermal, and nuclear.

Changes to Foreign Entity of Concern (FEOC) and foreign ownership rules:

The OBBBA introduces FEOC restrictions that impose foreign supply chain and ownership limitations on taxpayers seeking various clean energy tax credits (including 45Y, 48E, nuclear 45U, clean fuel 45Z, carbon sequestration 45Q, and advanced manufacturing 45X credits). These FEOC rules aim to prevent foreign entities classified as concerns (due to ownership, control, or supply chain issues) from benefiting from these federal tax credits, likely motivated by national security and supply chain concerns.

Additional details:

• The Act curtails eligibility for wind components specifically in advanced manufacturing production credits (45X).
• It extends and revises clean fuel production credits (45Z) through 2029 with modified values and computation methods.
• Tax credits for commercial and residential electric vehicles end after 2025, along with individual credits for residential solar and EV charging stations.

In summary, the OBBBA tightens the timeline and eligibility criteria for wind and solar credits, imposes new foreign entity restrictions on clean energy tax benefits, and restructures related credits to favor continuous power sources and domestic interests over intermittent renewables and foreign involvement.

Other notable changes:

• For critical minerals other than metallurgical coal, the credit rate phases out based on the date the critical minerals are produced, with a full credit before Jan. 1, 2031, and a 0% credit after Dec. 31, 2033.
• Battery modules must be comprised of all other essential equipment needed for battery functionality to be credit-eligible.
• A special ITC recapture rule has been introduced, which states that 100% of ITCs claimed under section 48E with respect to a property will be recaptured if a "specified taxpayer" makes an "applicable payment" within 10 years after the property is placed in service.
• Clean hydrogen production facilities beginning construction before Jan. 1, 2028, remain eligible for credits under section 45V, with no applicable FEOC requirements.
• Enhanced foreign entity of concern (FEOC) restrictions have been implemented, including the application of the "material assistance" rules to wind and solar facilities beginning construction after Dec. 31, 2025.
• The Act codifies the beginning of construction rules in IRS Notices 2013-29 and 2018-59 for purposes of the FEOC requirements.
• A new proposed penalty that targets suppliers or manufacturers who issue false certifications regarding domestic content or foreign sourcing has been proposed, applicable to certifications provided after Dec. 31, 2025.
• For tax years beginning after Dec. 31, 2026, sales of integrated components are credit-eligible only if the "primary component" is integrated, incorporated, or assembled into a "secondary component" that is produced within the same manufacturing facility as the primary component, sold to an unrelated person, and for which not less than 65% of the total direct material costs are attributable to primary components which are mined, produced, or manufactured in the United States.
• Fuel produced after December 31, 2025, for the Clean Fuel Production Credit (section 45Z) must be exclusively derived from feedstock produced or grown in the United States, Mexico, or Canada.
• The credit rate for the Advanced Manufacturing Production Credit (section 45X) phases out based on the date eligible components are sold, with a full credit before Jan. 1, 2030, and a 0% credit after Dec. 31, 2032.
• "Metallurgical coal" is eligible for the advanced manufacturing production credit under section 45X in tax years beginning after July 4, 2025, and until Dec. 31, 2029.
• Lifecycle greenhouse gas emissions exclude any emissions attributed to indirect land use charge for the Clean Fuel Production Credit (section 45Z). Treasury will provide distinct emissions rates for transportation fuels derived from animal manure, including dairy, swine, and poultry.
• The Act includes a fixed 30% ITC rate for fuel cell property, and the zero GHG emissions requirement and recapture rule for GHG emissions greater than 10 grams of C02e per KWh do not apply.
• The Act includes a placed in service deadline for wind and solar facilities that begin construction after July 4, 2026, and are not placed in service before Jan. 1, 2028, while all technology other than wind and solar will phase out after 2032.
• Transportation fuel emissions rates published after Dec. 31, 2025, can not be less than zero for the Clean Fuel Production Credit (section 45Z).
• Metallurgical coal that is suitable for use in the production of steel is credit-eligible at a rate of 2.5% of the costs incurred by the taxpayer with respect to production, regardless of whether such production occurs inside or outside of the United States, but production after Dec. 31, 2029, is not credit-eligible.
• Section 45Y and 48E property continues to be listed as 5-year MACRS property under section 168, while "energy property" as defined in section 48 is no longer listed as 5-year MACRS property under section 168.
• The base credit amount for facilities placed in service after July 4, 2025, under §45Q is the same regardless of whether the taxpayer merely disposes of the captured carbon oxide or undertakes use or utilization of the captured carbon oxide.

These changes aim to promote domestic manufacturing, encourage the use of cleaner and more efficient energy sources, and ensure the security of the United States' energy supply chain.

1. The One Big Beautiful Bill Act has prompted an attorney to review the changes in tax credits under the Inflation Reduction Act of 2022, particularly affecting wind and solar energy credits, foreign entity of concern (FEOC) rules, and foreign ownership restrictions.
2. Partners in a law firm are discussing the impact of the OBBBA on production tax credit (PTC) under IRC Section 45Y and investment tax credit (ITC) under IRC Section 48E for wind and solar projects.
3. An associate is seeking advice on the new safe harbor that allows wind and solar projects to retain eligibility if they begin construction on or before July 4, 2026.
4. International clients are inquiring about the accelerated phase-out of credits for wind and solar energy under the Act, while extensions are granted for other technologies.
5. The compliance department is working to understand the FEOC restrictions and the new clean energy tax credit eligibility criteria imposed by the OBBBA.
6. corporate entities are interested in the changes to wind components in advanced manufacturing production credits (45X) under the Act.
7. Finance professionals are reviewing the extension and revision of clean fuel production credits (45Z) through 2029 under the Act.
8. LLPs are analyzing the end of tax credits for commercial and residential electric vehicles and individual credits for residential solar and EV charging stations after 2025.
9. The legal practice is assessing how the OBBBA favors continuous power sources and domestic interests over intermittent renewables and foreign involvement.
10. The international division is studying the new foreign entity of concern (FEOC) restrictions introduced by the OBBBA, aiming to prevent foreign entities from benefiting from federal tax credits.
11. Mergers and acquisitions teams are researching the implications of the Act on cybersecurity, data-and-cloud-computing, and artificial-intelligence sectors.
12. A partner in the finance department is interested in the new ITC recapture rule introduced by the Act.
13. The office is receiving inquiries from clients in the fashion-and-beauty, food-and-drink, investing, wealth-management, home-and-garden, and personal-finance sectors regarding the changes in tax credits and their potential impact on their industries.
14. The lifestyle division is exploring the changes to clean hydrogen production facilities' eligibility under section 45V.
15. The technology practice is studying the enhanced foreign entity of concern (FEOC) restrictions and the proposed penalty for suppliers or manufacturers who issue false certifications.
16. In the context of education-and-self-development, the Act is being studied to understand its effects on the continued eligibility of wind and solar facilities that begin construction after July 4, 2026, and are not placed in service before Jan. 1, 2028.
17. Clients in the sports, travel, cars, and gadgets sectors are looking for insights on transportation fuel emissions rates published after Dec. 31, 2025, for the Clean Fuel Production Credit (section 45Z).
18. The Act's provision on metallurgical coal eligibility under section 45X and the base credit amount for facilities placed in service after July 4, 2025, under §45Q is a topic of discussion among clients in various industries.
19. The Act's impact on lifecycle greenhouse gas emissions, specifically for transportation fuels derived from animal manure, is being analyzed by clients in farming and agriculture sectors.

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