At Inter CPA, we understand that many of our nonprofit and social enterprise clients are deeply committed to sustainability, community development, and innovative solutions, often incorporating clean energy initiatives into your missions. The recently proposed “One, Big, Beautiful Bill” (Title XI – Committee on Ways and Means) introduces substantial tax policy changes that could reshape the landscape of clean energy incentives, and it’s crucial to understand how these might impact your organization.
While this bill contains provisions that directly impact nonprofits (which we’ve covered in previous updates, e.g., on investment income and UBTI), it also includes significant shifts in federal clean energy policy that could indirectly or directly affect your projects, funding, and strategic partnerships.
This bill signals a move away from the current broad, long-term incentives for clean energy to a more constrained, shorter-term, and domestically focused approach. Here’s a summary of the key changes and their potential implications for your work:
1. Accelerated Expirations and Phase-Outs of Key Clean Energy Credits: Many familiar clean energy tax credits are facing a significantly shortened lifespan. If your organization is planning or has invested in projects that rely on these federal incentives (e.g., for facility upgrades, community solar, or green affordable housing), the timeline has drastically changed:
- Vehicle-Related Credits: Credits for previously-owned, new, and commercial clean vehicles, as well as alternative fuel vehicle refueling property, are now set to expire much sooner, by December 31, 2025. This could impact social enterprises focused on sustainable transportation or nonprofits upgrading their vehicle fleets.
- Residential & Home Energy Credits: Tax credits for energy-efficient home improvements, residential clean energy (like solar), and new energy-efficient homes are largely slated to expire by December 31, 2025. This is critical for affordable housing developers or community groups promoting energy efficiency.
- Larger-Scale Production & Investment Credits: The crucial Clean Electricity Production Credit and Clean Electricity Investment Credit will see a phased reduction starting in 2029, leading to zero credit after December 31, 2031. This impacts nonprofits developing larger renewable energy projects or social enterprises in the power generation sector.
- Other Key Credits: Credits for Clean Hydrogen Production, Advanced Manufacturing Production, and Zero-Emission Nuclear Power Production also face accelerated expirations or phase-outs.
2. Restrictions on Transferability: The ability to transfer clean energy tax credits to unrelated taxpayers, which many nonprofits and social enterprises have utilized to monetize incentives, is largely being repealed or limited:
- Transferability is repealed for the Clean Electricity Production Credit and Investment Credit for facilities where construction begins two years after the date of enactment.
- The Clean Fuel Production Credit’s transferability is eliminated for fuel produced after December 31, 2027.
- Similar eliminations of transferability apply to the Carbon Oxide Sequestration Credit, Zero-Emission Nuclear Power Production Credit, and Advanced Manufacturing Production Credit, with varying effective dates. This means organizations might need to find new ways to access or benefit from these incentives, or adjust their project financing models.
3. “Prohibited Foreign Entity” Restrictions: A significant new compliance layer is introduced through stringent restrictions on involvement with “prohibited foreign entities”. This aims to bolster domestic supply chains but adds a new layer of compliance and risk:
- Many clean energy credits will be disallowed if they involve “material assistance from a prohibited foreign entity”, or if the taxpayer themselves is a “specified foreign entity” or “foreign-influenced entity”.
- These “prohibited entities” are broadly defined to include those with significant ties to governments like China, North Korea, Russia, and Iran. For nonprofits and social enterprises, this means heightened diligence in supply chains and partnerships, especially if sourcing components or engaging with international partners for clean energy projects.
4. Other Notable Modifications:
- Clean Fuel Production Credit Changes: This credit will now require fuel to be produced from U.S.-grown or produced feedstocks, and it modifies greenhouse gas emission calculations.
- Publicly Traded Partnerships: Income from hydrogen storage, carbon capture, and electricity generation/carbon capture facilities will now count as qualifying income for certain publicly traded partnerships. While directly for corporations, this could signal new investment opportunities or changes in the funding landscape for related social enterprises.
What This Means for Your Nonprofit or Social Enterprise:
These policy changes will necessitate a careful re-evaluation of your clean energy strategies. The accelerated sunsets and new restrictions mean that projects previously considered viable with federal tax credit support may need re-assessment.
At Inter CPA, we recommend proactive steps to mitigate risk and maximize opportunity:
- Re-evaluate Project Feasibility: Understand how the altered credit landscape impacts the financial viability of your current and planned clean energy initiatives.
- Assess Compliance Risks: Ensure your supply chains and partnerships comply with the new “prohibited foreign entity” rules.
- Update Financial Models: Adjust forecasts and funding strategies for earlier sunsets and transferability changes. Explore alternative funding models and financing.
- Engage in Policy Advocacy: Join coalitions and networks pushing for equitable energy transition policies.
- Optimize Remaining Incentives: Identify and maximize any remaining applicable tax incentives before their expiration.
Proactive planning is paramount to sustaining your mission and maximizing your impact in the evolving clean energy sector.
Ready to discuss how these changes affect your organization? Contact Inter CPA today at info@inter.cpa
Sincerely,
The Inter CPA Team
