What Will Happen to Commercial Solar Tax Credits Under Trump 2025?
The Inflation Reduction Act (IRA), a key highlight of the Biden administration, allowed for large growth in clean energy investments benefiting Republican-leaning states, making full repeal highly unlikely under a Trump administration. Some IRA provisions, like consumer EV credits, may face early phase-outs or amendments, while bipartisan-backed credits for carbon capture, biofuels, and hydrogen are likely to remain. Republicans are expected to push for a major tax reform bill, aiming to re-hash the 2017 Tax Cuts and Jobs Act, despite narrow congressional margins and a $5 trillion budget impact. To manage costs, IRA tax incentives, including EV credits, clean energy ITCs/PTCs, and manufacturing credits, are likely to face scrutiny. Provisions supporting domestic manufacturing and anti-China measures could also emerge. Businesses should plan strategically to address these risks.
The headline is much of this legislation and investment has benefited Republican states and local economies.
The IRA Isn’t Going Anywhere, Entirely
It’s unlikely that Republicans will repeal the IRA outright. The Act is creating jobs and investments that are benefiting many Republican-led states and communities. Some credits, like those for carbon capture, biofuels, and hydrogen production, have enough bipartisan support to stay intact. However, others—such as the consumer EV credit—could face risks, including early phase-downs. Congress might extend some of these credits later, similar to how things worked before the IRA.
Tax Reform Is Coming, But It Won’t Deploy Simply
Republicans are expected to push a major tax reform bill in 2025, likely through the budget reconciliation process, which requires only a simple majority. This move is driven by the looming expiration of key provisions in the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025. While the bill is expected to pass, the slim majorities in both chambers mean every member of Congress could effectively hold veto power, making the process tricky.
A full TCJA extension would cost around $5 trillion, creating pressure to include revenue offsets. That’s where IRA tax credits come into play as likely targets for cuts or modifications.
Key IRA Tax Credits More Likely to Get Axed
Some of the tax incentives likely to face the most scrutiny include:
- Consumer and commercial EV credits: Potential offset value over $100 billion.
- Clean electricity ITC and PTC: Possible phase-down, with a potential offset value over $120 billion.
- Clean energy manufacturing credits: Potential reductions or changes, worth over $150 billion.
- Other incentives like clean fuels and hydrogen: These may remain but could include provisions favoring U.S. manufacturing and reducing reliance on China.
Expect intense lobbying as Congress debates the 2025 tax bill. The fate of these credits is far from certain.
What’s Happening with Solar Incentives?
The Inflation Reduction Act (IRA) has been instrumental in driving adoption of commercial solar energy, offering substantial tax credits and incentives to businesses. However, as policies shift, there’s growing concern that these incentives may face some erosion.
While this might sound alarming, the key takeaway is that the incentives aren’t disappearing. As Michael Stonesifer aptly put it, the changes might be more akin to a “chiseling” down rather than a complete overhaul. This means that while the benefits may shrink slightly, they remain an attractive option for businesses looking to cut energy costs and boost sustainability.
How to Protect Your Solar Investment
If you’re a business owner, now is the time to act strategically. Here’s how you can safeguard your project’s economics and lock in today’s incentives:
- Safe Harboring Your Incentives: By putting just 5% down on your project before any new legislation takes effect, you can secure the current tax credits and avoid being impacted by future adjustments. This proactive step ensures your project remains economically viable, even as policies evolve.
- Timing is Everything: The earlier you act, the better positioned you’ll be to take full advantage of the existing tax credits. Delaying your decision could mean losing out on significant financial benefits.
The Opportunity in Change
While potential changes to solar incentives may seem like a challenge, they also present an opportunity. Businesses have a window to lock in the upwards of 50% bonus tax credit currently available, leveraging these savings to offset installation costs and accelerate ROI. For many companies, this could mean tens or even hundreds of thousands of dollars saved over the lifespan of their solar system.