Updates to Energy Tax Credits
What the July 2025 budget reconciliation law means for clean energy projects at schools
The July 2025 federal budget reconciliation law made changes to clean energy tax credits.
See information and resources below to understand these changes and what they mean for clean energy projects at schools.
What School Leaders Need to Know
Video: Updates on Energy Tax Credits (Dec 2025)
Watch this video for an overview of the changes to the energy tax credits most commonly used by schools.
On July 4, the President signed H.R. 1, a federal budget reconciliation law which makes significant changes to some—but not all—of the energy tax credits available to schools.
Elective Pay (or Direct Pay) remains intact as a mechanism for schools to access the full value of tax credits through cash reimbursement.
School districts continue to receive elective payments from the IRS.
Elective payments are considered mandatory government spending and are not subject to appropriations.
Video: Solar and Storage Projects (Dec 2025)
Watch this video to understand the Prohibited Foreign Entity (PFE) rules that apply to solar and storage projects and what steps you can take to navigate this new landscape.
Please note this video was recorded before the IRS released interim guidance on PFE rules (Notice 2026-15) on Feb 12, 2026. While it remains accurate, it does not cover the details in this guidance. For more information, visit this page.
Energy Tax Credits for Schools: What Education Leaders Need to Know
Understand the changes to federal energy tax credits and why ground-source heat pumps remain a valuable opportunity for schools.
Table: Changes to Federal Energy Tax Credits Post-H.R.1 (July 2025)
This table summarizes the changes made to the energy tax credits most commonly used by schools by and after the July 2025 federal budget reconciliation law. For more information, visit NYU Tax Law Center.
Additional Resources To Understand Updates to Energy Tax Credits
Blog: Navigating OBBBA: phaseouts, prohibited foreign entity rules, and other new rules
(NYU Tax Law Center)
This blog post provides a detailed analysis of provisions related to energy tax credits in the July 2025 budget reconciliation law.
Guidance Brief: Beginning of Construction for the 48E and 45Y Tax Credits (Lawyers for Good Government)
This guidance defines and details the "beginning of construction” date that now impacts Sec. 48E and Sec. 48Y tax credit eligibility.
Manage Projects in Changing Environment
If your district is pursuing projects that may be eligible for energy tax credits through Elective Pay, we recommend taking the following actions:
For the specific credits that your school district is pursuing, understand the effective dates for any policy changes.
Understand how your current construction timeline relates to those key dates.
Explore opportunities to meet the “commence construction” milestone for your projects with both your construction partners as well as your tax/accounting support. There is both a work test and an expenditure of funds test that is available to filers to establish that they have commenced construction on an eligible project.
Additional Resources for Tax-Filing Support
We Build Progress & Lawyers for Good Government (L4GG) Monthly Elective Pay Office Hours
Thursday, March 12 at 1pm ET
We Build Progress and L4GG host monthly office hours on Elective Pay. Share your clean energy project project plans, talk through roadblocks, and ask your questions.
Internal Revenue Service (IRS) Monthly Elective Pay Office Hours
Wednesday, March 18 at 1pm ET
The IRS hosts monthly office hours dedicated to Elective Pay and energy tax credits. Attend to ask your questions. See dates scheduled through 2026.
L4GG has launched the Elective Pay Sprint Hub to help entities maximize energy tax credits while they are still available. Complete the intake form and receive assistance for your project.
Understand Changes to Specific Tax Credits by Technology Type
Schools have been taking advantage of tax credits and taken action to defend them.
Read more here.
Tell us about your Elective Pay projects that have received IRS reimbursements—your district could be featured here!
Questions? Reach out to us at: info@undauntedk12.org.
The information on this page represents our best understanding of certain tax provisions for general informational purposes only and is not itself tax guidance. Please consult qualified tax professionals about your specific circumstances and refer to guidance issued by the IRS for detailed information on the rules associated with energy tax credits, elective pay, and other relevant tax provisions.