IRS FAQs Clarify Early Terminations of Clean Energy Credits

(Parker Tax Publishing September 2025)

The IRS issued frequently asked questions (FAQs) relating to the modification of the energy credits and deductions under Code Secs. 25C, 25D, 25E, 30C, 30D, 45L, 45W, and Code Sec. 179D under the One Big Beautiful Bill Act. The FAQs provide guidance on the expiration of these credits and deductions and provide clarification on the availability of the new clean vehicle credit, the energy efficient home improvement credit, and the residential clean energy credit, among others. FS-2025-05.

Background

On July 4, 2025, Congress enacted the One Big Beautiful Bill Act (OBBBA) (Pub. L. 119-21). Among other provisions, the OBBBA accelerated the termination of several energy credit and deductions provisions. The following provisions expire the soonest:

(1) The energy efficient home improvement credit under Code Sec. 25C is not allowed for any property placed in service after December 31, 2025;

(2) The residential clean energy credit under Code Sec. 25D is not allowed for any expenditures made after December 31, 2025;

(3) The previously-owned clean vehicles credit under Code Sec. 25E is not allowed with respect to any vehicle "acquired" after September 30, 2025;

(4) The alternative fuel refueling property credit under Code Sec. 30C is not allowed for any property placed in service after June 30, 2026;

(5) The new clean vehicle credit under Code Sec. 30D is not allowed for any vehicle acquired after September 30, 2025;

(6) The new energy efficient home credit under Code Sec. 45L is not allowed for any qualified new energy efficient home acquired after June 30, 2026;

(7) The qualified commercial clean vehicle credit under Code Sec. 45W is not allowed for any vehicle acquired after September 30, 2025; and

(8) The energy efficient commercial buildings deduction is not allowed with respect to any property the construction of which begins after June 30, 2026.

FS-2025-05

In FS-2025-05, the IRS issued frequently asked questions (FAQs) to provide guidance regarding the accelerated termination of the above energy credits and deductions under the OBBBA. The IRS states that a taxpayer who reasonably and in good faith relies on these FAQs will not be subject to a penalty that provides a reasonable cause standard for relief, including a negligence penalty or other accuracy-related penalty, to the extent that reliance results in an underpayment of tax.

Definition of "Acquired" for Purposes of Clean Vehicle Credits

According to the IRS, for purposes of the credits for previously-owned, new, and qualified commercial clean vehicles under Code Secs. 25E, 30D, and Code Sec. 45W, respectively, a vehicle is "acquired" as of the date a written binding contract is entered into and a payment has been made. A payment includes a nominal down payment or a vehicle trade-in.

The IRS notes that a acquiring a vehicle prior to the termination date is an "initial step" toward claiming a credit under Code Sec. 25E, 30D, and Code Sec. 45W, but acquisition alone does not immediately entitle a taxpayer to a credit. Under Code Secs. 25E(a), 30D(a), and Code Sec. 45W(a), a vehicle must be "placed in service" to claim the respective credit. If a taxpayer acquires a vehicle by having a written binding contract in place and a payment made on or before September 30, 2025, then the taxpayer will be entitled to claim the credit when they place the vehicle in service (namely, when they take possession of the vehicle), even if the vehicle is placed in service after September 30, 2025.

Observation: The IRS advises that taxpayers should receive a time of sale report from the dealer at the time they take possession or within three days of taking possession of the vehicle.

Clean Vehicle Credit Transfer Elections

A taxpayer purchasing a new or previously-owned clean vehicle may elect to transfer the entire amount of the allowable credit to a registered dealer to reduce the amount due from the taxpayer for the purchase of the vehicle. The IRS clarifies that acquisition alone does not immediately entitle a taxpayer to a credit and that taxpayers should wait until the time of sale to make the credit transfer election. The election to transfer the credit generally occurs at the time of sale, which is when the taxpayer takes possession under Reg. Sec. 1.25E-1(b)(19), Reg. Sec. 1.25E-3(b)(7), Reg. Sec. 1.30D-2(b)(47), and Rev. Proc. 2023-33.

The IRS notes in the FAQs that the Energy Credits Online portal, which is used by clean vehicle dealers and sellers to register with the IRS in order to submit time of sale reports and receive advance payments, will close for new user registration on September 30, 2025. However, the portal will remain open beyond that date for limited usage by previously registered users to submit time of sale reports and updates to such reports, such as when a vehicle has been returned.

Timing of Residential Clean Energy Credit Under Sec. 25D

The IRS states that the Code Sec. 25D residential clean energy credit cannot be claimed for property installed after December 31, 2025, or constructed after that date, even if the taxpayer pays for the property on or before December 31, 2025. Under Code Sec. 25D(e)(8)(A), an expenditure with respect to an item is treated as made when the original installation of the item is completed. If installation is completed after December 31, 2025, the expenditure will be treated as made after December 31, 2025, which will prevent the taxpayer from claiming the Code Sec. 25D credit.

In the case of an expenditure made in connection with the construction or reconstruction of a structure, Code Sec. 25D(e)(8)(B) provides that such expenditure will be treated as made when the original use of the constructed or reconstructed structure by the taxpayer begins. If such construction or reconstruction is completed and taxpayer's original use of the structure begins after December 31, 2025, the expenditure will be treated as made after December 31, 2025, which will prevent the taxpayer from claiming the Code Sec. 25D credit.

Periodic Written Reports Are No Longer Required for Sec. 25C Credit

In order to produce specified property that was eligible for the energy efficient home improvement credit under Code Sec. 25C, manufacturers of specified property were required to make periodic written reports to provide the IRS with unique product identification numbers assigned to each item of specified property produced by such manufacturer. The IRS states that, due to the accelerated termination of the Code Sec. 25C credit, periodic written reports (including reporting for property placed in service before January 1, 2026) are no longer required. However, a manufacturer is still required to register with the IRS to become a qualified manufacturer for its specified property to be eligible for the credit.

For a discussion of the residential energy credits, see Parker Tax ¶101,500. For a discussion of clean vehicle credits, see Parker Tax ¶101,700.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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