Unlocking Energy Savings: Maximize Your Investment Before the Federal ITC Expires
Energy has been front-page news over the past few months, and you may be wondering if it still makes sense to invest in solar and battery energy storage systems (BESS) given the recent changes in federal policy. With the passage of the One Big Beautiful Bill Act (OBBBA), the answer is yes, more than ever. Acting now, while the Investment Tax Credit (ITC) remains available, can unlock significant financial benefits for those pursuing clean energy solutions.
The New Rules
On July 4, 2025, OBBBA was signed into law, introducing major updates to how solar and energy storage projects qualify for the ITC. The ITC is a long-standing incentive that allows eligible projects to reduce a portion of their qualified costs through a credit applied directly to their federal tax liability, typically equal to 30% of the project’s value. In addition, some solar and storage projects may also qualify for bonus credits based on factors like location, labor standards, or domestic content. However, under the new rules, timing will play a larger role in determining eligibility and how much credit a project may receive, making the next 12 months critical for locking in the maximum financial benefits.
Commercial Solar and Energy Storage ITC (Section 25E – Energy Credit)
- Construction Starts by July 4, 2026: You will have up to 4 years to complete your solar project to qualify for the ITC.
- Construction Starts After July 4, 2026: Your solar project must be finished and operational by December 31, 2027, to qualify for the ITC.
- Battery Projects: Energy storage projects (batteries) will follow the original Inflation Reduction Act (IRA) phase-out schedule and are eligible for the ITC until 2032.
Residential Solar ITC (Section 25D – Residential Clean Energy Credit)
- Homeowner Deadline: The ITC for homeowners on residential solar systems now expires on December 31, 2025.
- Third-Party Eligibility: Solar leasing and PPA financing companies can still qualify for a tax credit on residential solar under 25E.
How to Monetize Tax Credits
- Offset Tax Liability: Utilize the ITC to directly reduce your federal tax liability. If your business has sufficient taxable income, this is the most straightforward way to benefit from the credits.
- Sell the Credits: If your tax liability is lower than the credits earned, consider selling the credits to other businesses or investors who can take advantage of them. This is referred to as “transferability” and can provide immediate cash flow. It’s important to plan ahead, as credit transfers may require legal agreements, market outreach, and IRS reporting.
- Use Direct Pay: Not-for-profit organizations qualify for “direct pay” or “refundability.” Direct pay enables organizations to receive cash payments directly from the government for the value of their tax credits, rather than offsetting tax liability.
By leveraging these strategies, virtually anyone can effectively monetize the tax credits, enhancing their financial resources to support energy-efficient projects and initiatives. Engaging with experienced professionals can help ensure eligibility, optimize timing, and maintain compliance, which are critical steps for maximizing the full benefits of these incentives.
