Energy incentives that survived the OBBB

What鈥檚 not going away: Energy incentives that survived the OBBB

Brian Coddington

Aug 14, 2025

6 min read

With the passage of the One Big Beautiful Bill (OBBB) Act, many energy-related tax incentives are being reduced or phased out entirely. That’s led to understandable confusion — and in some cases, hesitation — among schools, tribal governments, construction and real estate firms, and nonprofit entities that were considering energy efficiency projects.

But here’s the good news: Not all incentives are going away.

Several key programs remain in place, such as credits for geothermal and battery storage systems. Other credits have a significant off-ramp before they go away. Public and nonprofit entities can still leverage these programs to substantially lower their energy costs, improve their infrastructure and save money.

The key now is to understand what incentives are still available — and how to pursue them. Here’s what you need to know:

Energy tax incentives that are still available in the OBBB

Geothermal credits

Geothermal energy systems remain fully eligible for clean energy tax credits under the Investment Tax Credit (ITC) or the Production Tax Credit (PTC), depending on the project size and structure.

What’s the same:

Projects can qualify for a 6% base credit through 2032, plus bonus credits for meeting prevailing wage, apprenticeship and other requirements. For most organizations, the maximum available credit is 50%-60%.
Public and tax-exempt entities can claim the credit via direct pay, meaning they receive the full value as a cash payment from the IRS.
The credit applies to both new construction and retrofits that install ground-source geothermal systems for heating and cooling.

What’s changed:

The 6% ITC will phase down after 2032. Filers will be able to claim a base credit of 5.2% in 2033 and 4.4% in 2034. The credit will sunset after 2034 (unless extended).

Battery storage

Standalone battery storage systems continue to qualify for the technology-neutral ITC. Battery storage systems can be installed on their own or in conjunction with renewable generation systems such as solar or geothermal.

What’s the same:

Battery storage qualifies for a 6% base credit through 2032, with bonus credits available for meeting prevailing wage, apprenticeship and other requirements. For most organizations, the max rate is around 50%, although it could be as high as 70%.
For tax-exempt entities, the credit can be claimed via direct pay.
Storage systems are eligible whether they’re installed with or without renewable generation, as long as they meet technical and operational requirements (e.g., at least 5 kWh of capacity for commercial installations).

What changed:

Material assistance restrictions start to apply in 2026, disqualifying projects that use battery components or receive support from designated foreign entities of concern (FEOCs).
Because many battery components are currently manufactured overseas, it’s critical to work with vendors or contractors who can source U.S.-made systems — especially if projects start in or after 2026.
The ITC for battery storage will phase down after 2032. Filers will be able to claim 75% of the full value in 2033 and 50% in 2034. The credit will sunset after 2034 (unless extended).
Bonus credits for domestic content may be available, but eligibility depends on sourcing and manufacturing.

Energy tax incentives that are still available — but phasing out

Section 179D: Energy-Efficient Commercial Buildings Tax Deduction

Section 179D allows a tax deduction for qualifying energy-efficient improvements to commercial buildings, such as interior lighting, HVAC systems and the building envelope. To claim the deduction, the building or system must be placed in service during the tax year in which the deduction is claimed.

The OBBB sunsets 179D for construction that starts after June 30, 2026.

Until then:

The deduction is up to $5.65 per square foot (as of 2025).
Public and nonprofit entities cannot claim the deduction directly, but they can allocate it to the design firm or contractor responsible for the qualifying systems.
To receive the full deduction, projects must meet prevailing wage and apprenticeship requirements.
Domestic content rules do not apply to 179D.

Section 45L: New Energy Efficient Home Credit

Section 45L offers a per-unit tax credit for the construction of new energy-efficient homes, including single-family and multifamily dwellings. The credit applies to homes that are sold or leased as residences during the tax year in which the credit is claimed.

The OBBB eliminates 45L for homes acquired after June 30, 2026, including leased apartment units. Under the law, “acquisition” requires not just construction but also possession by the end user, so residential owners or tenants must move in by this date.

Until then:

The credit remains available — up to $5,000 per unit for homes that meet Zero Energy Ready Home standards, and $2,500 per unit for Energy Star–qualified homes.
The builder (or developer) claims the credit directly. Public entities typically partner with eligible developers to leverage the incentive.
IRA eligibility restrictions still apply.

What we’re waiting to learn

FEOCs were a major change introduced by the OBB, but the full details aren’t out yet.

The new restrictions go into effect in 2026, but exactly how they’ll be applied remains uncertain. The current statute bars credits for projects that receive material assistance from prohibited entities — but it’s unclear how far up the supply chain the rule goes.

That uncertainty makes it difficult to evaluate risk for long-lead-time components, like batteries and inverters. Treasury guidance is expected, likely before the end of the calendar year.

In the meantime, organizations should keep detailed records of procurement discussions and vendor sourcing decisions and flag high-risk components during early planning. Your legal counsel may suggest adding FEOC clauses to new contracts with vendors or subcontractors.

How to move forward — and make the most of what’s left

Claiming these incentives requires more than simply checking boxes. Organizations need to plan carefully, collaborate early and evaluate the broader value of energy investments.

As you assess your next steps, remember: “Old” rules may apply, depending on when construction began.

Don’t assume new rules automatically disqualify you

Some incentives are still governed by pre-OBBB rules, as long as construction begins before July 5, 2026. Even if the system is placed in service years from now (e.g., in 2028), it may still qualify under the older, more generous provisions.

Don’t assume you’re ineligible

Schools and nonprofits often assume energy tax credits aren’t for them — especially now that incentives for solar projects are phasing out. But updates to the law have made direct pay, deduction allocation and public-sector eligibility more accessible. If you’re installing high-efficiency HVAC, building affordable housing or adding energy storage, you may still qualify.

Energy savings still matter, even without full credits

In some cases, equipment sourcing or FEOC restrictions could make it harder to qualify for the full credit. That doesn’t mean the investment isn’t worthwhile.

Take battery storage as an example. Even if a system doesn’t earn credits, it could generate enough electricity to store, which could help save on utility costs or meet peak demand. Energy-efficient systems could pay off in energy savings or resilience, even when credits don’t apply.

Act before phaseouts accelerate

Geothermal and battery storage credits remain fully available through 2032 — but begin to phase down after that. Your best bet is to evaluate and prioritize energy projects now, before incentives diminish or disappear.

Start early, with the right team

Incentives come with complex eligibility rules, labor requirements and technical thresholds. Engaging a team early in the process helps ensure everything is properly certified and documented — and filed and allocated in a timely manner. (Many incentives must be claimed on the original tax return.) To get it right, energy advisors, engineers, legal counsel and tax professionals should all be involved in early planning.

How Wipfli can help

Our energy and tax professionals can help you understand what’s changed — and what hasn’t — so you can move forward with confidence. Whether you’re evaluating geothermal, battery storage or other efficiency upgrades, we can help you make informed, tax-advantaged decisions and capture every opportunity. Contact us today to discuss how the OBBB may affect your project timelines, eligibility or incentive strategy.

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