Energy Tax Credits and Incentives

By: The Practical Guidance Team

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Energy Tax Credits and Incentives

This Energy Tax Credits and Incentives practice note provides a comprehensive overview of the federal tax credits and deductions available to businesses and individuals engaged in energy production, conservation, and clean technology development. It highlights the major provisions of the Internal Revenue Code (I.R.C.) that establish investment and production-based energy credits, including the general business credit, the investment tax credit, a variety of credits specific to renewable electricity, biofuels, and energy-efficient construction, and more. The article also outlines how these incentives interact with recent legislative changes, particularly those introduced under the Inflation Reduction Act of 2022 and Pub. L. No. 119-21 (July 4, 2025) (the One Big Beautiful Bill Act, or OBBBA).

General Business, Investment, and Energy Credits

The article begins by describing the structure of the general business credit under I.R.C. § 38 and how energy-related credits are reported on Form 3800. It then discusses the investment tax credit (Form 3468), explaining its key subcomponents: the energy credit, the qualifying advanced coal and gasification project credits, and the qualifying advanced energy project credit. Detailed treatment is given to the types of property that qualify, the percentage rates of the credit, and phaseout provisions for various renewable technologies such as solar, wind, geothermal, and biogas systems. The note emphasizes the importance of IRS guidance (including Notices 2013-29, 2018-59, and 2021-41) in determining when construction begins and how continuity requirements and safe harbors apply.

Production and Efficiency-Based Incentives                                               

In addition to investment-based incentives, the article analyzes production and efficiency credits under I.R.C. §§ 45, 45L, 45Q, and 45H, among others. These include the renewable electricity production credit, low sulfur diesel fuel production credit, biodiesel and renewable diesel fuels credit, and the carbon oxide sequestration credit. Each credit’s eligibility criteria, filing requirements, inflation adjustments, and recapture rules are explained with cross-references to relevant IRS forms. The article notes recent regulatory developments, including the June 25, 2024, Treasury regulations implementing prevailing wage and apprenticeship requirements, as well as 2025 statutory amendments that limit or terminate certain credits, such as the energy efficient home and alternative fuel refueling property credits, effective June 30, 2026.

Policy Context and Practitioner Considerations

The practice note positions these incentives and more within the broader policy framework of U.S. energy law. It underscores Congress’s use of tax policy to drive clean energy investment, promote domestic manufacturing, and encourage carbon reduction. However, the piece also cautions that the landscape remains highly dynamic—subject to periodic legislative renewal, IRS rulemaking, and evolving interpretations of qualifying property. Practitioners are advised to monitor statutory changes closely, consult current IRS forms and guidance, and ensure compliance with recapture and recordkeeping obligations.

The above article is a summary of the full practice note which is available to Practical Guidance subscribers by following this link.

Practical Guidance subscribers may access the full article here. Not yet a Practical Guidance subscriber? Sign up for a free trial here.