Updates to Energy Tax Credits

What the July 2025 budget reconciliation law means for clean energy projects at 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.

We have information and several resources below to help you make sense of what the July 2025 federal budget reconciliation law means for clean energy projects at schools.

Video: Budget Reconciliation and Energy Tax Credits
(July 2025)

The video and accompanying slide deck discusses in detail the changes to the energy tax credits most commonly used by schools and applies the new rules to an example project.

Video Recording

Slides

Table: Overview of H.R.1 (July 2025) Changes to Energy Tax Credits

This table summarizes the changes made to the energy tax credits most commonly used by schools by 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.

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.

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.