Solar Energy: U.S. Tax Policy Shift - 5 Things You Should Know

The One Big Beautiful Bill Act (the “Bill”) signed into law on July 4, 2025 dramatically reshaped the landscape for energy tax credits in the U.S.

Here’s what’s driving these changes—and how businesses in clean energy, manufacturing, and related sectors can adapt their supply chains to unlock new opportunities.

The five key things you should know:

1. Why Are Energy Credits Being Phased Out?

The accelerated phase out of energy credits is rooted in a shift in federal tax policy. The Act’s primary goal is to offset the cost of making the 2017 Tax Cuts and Jobs Act (TCJA) tax cuts permanent and to provide additional tax relief, all while managing the federal deficit.

Lawmakers targeted clean energy credits for repeal or early phase out because they represent some of the largest federal tax expenditures—especially for wind and solar, which are now considered mature, market-competitive technologies.

The policy rationale is to move away from subsidizing these established sectors and instead encourage a more market-driven, reliable energy mix, with a renewed focus on dispatchable sources like nuclear and hydropower.

2. What Alternative Incentives Are Now Available?

While many green energy credits are ending, the Act introduces or enhances several incentives for businesses that realign their operations and supply chains:

• Permanent Full R&D Deduction and Capital Investments: Businesses can now permanently deduct research, development, and capital investments, making it more attractive to invest in new technologies and facilities in the U.S. 

  
  

• Qualified Production Property for certain domestic manufacturing or production facilities and placed in service in the U.S. before January 31, 2031.

  
  

• Advanced Manufacturing Investment Credit: A 25% credit is available for investments in advanced manufacturing facilities, such as those producing semiconductors or clean energy components.

  
  

• Advanced Manufacturing Production Credit (IRC Sec. 45X): This credit rewards the domestic production and sale of eligible clean energy components, including solar modules, battery cells, and wind energy parts.

  
  

• Enhanced Opportunity Zone Incentives: Businesses that expand or relocate to designated low-income areas can benefit from improved Opportunity Zone tax breaks.

  
  

• Permanent Qualified Business Income Deduction: The 20% deduction for S corporations, partnerships, and sole proprietors is now permanent, supporting small and mid-sized manufacturers and clean energy businesses.

Solar Energy

3. How Can Businesses Realign Their Supply Chains?

To take advantage of these new or enhanced incentives, businesses may need to consider the following options, among others, taking into considerations various aspects of their business and any limitations in their supply chain:

• Domestic Sourcing and Manufacturing: Many incentives now require or reward the use of U.S.-produced materials and components. Prioritize domestic suppliers and consider reshoring manufacturing operations to qualify for bonus rates and eligibility under credits like 45X and 48E. Alternatively, evaluate the current U.S. incentives vs other jurisdiction subsidies.

  
  

• Advanced Manufacturing Facilities: Upgrading or building new facilities for advanced manufacturing, especially in semiconductors or clean energy tech, can unlock significant credits and deductions.

  
  

• Workforce Development: Credits often provide bonus rates for projects that meet prevailing wage and apprenticeship requirements. Investing in workforce training and community engagement can boost eligibility and optimize benefits.

  
  

• Supply Chain Resilience: Focus on securing critical materials and components domestically to strengthen supply chain resilience and meet the requirements for new credits.

Solar Panels

4. Planning Is Critical—Act Before Credits Disappear

With credits expiring sooner, timing is everything. Businesses should plan projects carefully to ensure they qualify before deadlines. This includes:

• Monitoring legislative changes

• Coordinating with contractors and suppliers

• Ensuring all documentation and compliance requirements are met

It's important to continue to monitory legislative changes. Note that on July 7, 2025 the President issued an executive order directing the Treasury Secretary to issue guidance about how wind and solar projects can qualify for a tax credit based on what it means to "begin construction."

Additionally, the loss of credit transferability may require exploring alternative financing structures, among other options.

Business Planning Meeting

5. What’s the Bottom Line for the Industry?

The phase out of legacy energy credits is a deliberate policy move to shift federal support from mature renewables to broader economic and supply chain priorities.

Instead of relying on federal subsidies, solar businesses may now prioritize domestic sourcing, reshore manufacturing operations, and invest in advanced manufacturing facilities to qualify for new or enhanced tax incentives—such as the Advanced Manufacturing Production Credit (IRC Sec. 45X), which rewards the domestic production and sale of solar modules and components.

Companies may also focus on workforce development and supply chain resilience, ensuring they meet new compliance requirements and secure critical materials domestically.

The key is to evaluate options quickly, realign supply chains where needed, and stay informed about evolving eligibility and compliance requirements.

How We Can Help

The new incentives can be powerful tools for businesses investing in domestic sourcing, production, and manufacturing—but they come with important rules and planning considerations.

A thorough review of eligibility, compliance requirements, and long-term tax impact is essential to manage costs and optimize benefits.

We support businesses in evaluating strategies, optimizing planning outcomes, streamlining transitions, and meeting reporting and compliance obligations for this year and beyond.

For more information, contact us. 

Disclaimer

The contents of this insight are intended for general information only. illumina CPA Group, Inc. is not, by means of this communication, rendering professional advice or services. Before making any decisions or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.

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