OBBBA Effective Dates Caution

Often, the effective date for tax legislation is for tax years beginning after 12/31/xx with xx being the year the legislation was enacted. So, provisions often start the year after the law is enacted. That doesn't give much time for planning or for the IRS to issue needed guidance. For example, the Tax Cuts & Jobs Act was signed into law on December 22, 2017 with most provisions effective 1/1/18.

The House's 5/22/25 and Senate's 6/28/25 versions of the One Big Beautiful Bill (H.R. 1) have varying effective dates both within the bill and between these versions for similar provisions. Also, some provisions in the House are temporary and most in the Senate are permanent.

But I want to highlight a few changes that would repeal provisions for individuals this year that were supposed to be in the law through 2032! 

These provisions were set to expire after 2032 per changes made by the Inflation Reduction Act of 2022.

Residential energy credits of Sections 25C and 25D (§25D was to phase out for 2033 and 2034):

  House and Senate bills - these credits end for property placed in service after 12/31/25.

Used clean vehicle credit of Section 25E:

  House bill - must acquire (take possession) by 12/31/25

  Senate bill - must acquire by 9/30/25

New clean vehicle credit of Section 30D:

  House bill - ends after 2025 but for 2026, limited to vehicles for which manufacturer produced no more than 200,000 vehicles.

   Senate bill - must acquire by 9/30/25

So, it's important to watch for the effective date in the final bill. But, if someone is eligible and really wants the clean vehicle credit, best to assume it ends 9/30/25. And if you really want the solar panel credit of §25D (or other items it covers) or energy efficient doors, windows and other items of §25C, best to act now to be sure it is all installed by 12/31/25. While it is unlikely the new termination date will be later than 2025 for the residential energy credits given current versions of OBBB, you never know.

What do you think?

Earth Day and Taxes

Happy Earth Day!

Earth Day started in 1970 and one of the co-founders was Gaylord Nelson, who served as a senator from and governor of Wisconsin. He was also an alum of San Jose State University.

How about some individual tax credits to help reduce fossil fuel use? The Inflation Reduction Act of 2022 added a used clean vehicle tax credit and modified credits for new clean vehicles and residential improvements. See this 8/21/22 post for some information on the IRA and track changes to IRC Sections 25C, 25D, 25E, and 30D to learn more about these changes.

A helpful item I'll share here are some IRS publications on these credits that are difficult to find (they are not listed at the main IRS websites for each of these credits, which I have linked below).

Section 25C, Energy Efficient Home Improvement Credit AND Section 25D, Residential Clean Energy - Publication 5797.  This has a brief summary of each credit and a QR code to get more information. Also see main IRS website on these credits.

Section 30D, Clean Vehicle Credit - Publication 5866, which is a helpful checklist of qualifications. 

Section 25E, Previously-Owned Clean Vehicles - Publication 5866-A, also a helpful checklist of qualifications.

Also see the main IRS website on clean vehicle credits (new and used).

And a publication on each of the energy credits for individuals - Publication 5886-A.

Finally, an Earth Day reminder from the Social Security Administration - Opt Out of Paper Notices.

What tax suggestions do you have for Earth Day (or any day as we need to care about the Earth every day)?

Residential Energy Credit Observations & Cautions

First, a policy query: How long should tax incentives be in the law. For example, with the Inflation Reduction Act of 2022, Congress extended the residential energy credits of §25C and §25D through 2032 and 2034, respectively. The §25C credit was first added to the law in 1978 (as §44C by the Energy Tax Act of 1978, P.L. 95-618 (11/9/78)).

Section 25C (originally §44C and then §23) lasted through 1985 and lapsed until reinstated and revised in 2005 by the Energy Policy Act of 2005 (P.L.109-58 (8/8/05)), with §25D added, effective for 2006 and 2007. Subsequent legislation generally continued to extend these provisions (and sometimes modify them) for one to two years at a time.

So, a residential energy credit existed for 1977 through 1985 and for 2006 through 2032 (2034 for §25D). For more on the history, see Congressional Research Service (CRS), Residential Energy Tax Credits: Overview and Analysis, 4/9/18.

How long should these incentives be in the law? Shouldn't law changes have required new homes to be built with building envelope that is energy efficient and with solar panels? Should a time limit have been given for making older homes energy efficient? Perhaps. Are tax incentives the best way to go forever or should utility companies be incentivized to help customers make improvements?

These credits, particularly §25C, are a bit complex. For example, §25C covers three types of expenditures with details and qualifications for each category. Also, while subtle in the language, you have to read it carefully to know if the expenditure is only for a principal residence you own and use or if it is ok for it to be owned OR used (true for home energy audits), or just has to be a residence (principal or vacation) owned or used (if only has to be used, tenant may claim the credit).

Homeowners should be cautious in using these credits because there are annual limits on, for example, how much you can claim for qualified doors and windows. Spreading the improvements out over a few years can maximize the credit. 

Also, there are both ill-informed and unscrupulous sellers and installers who might mislead taxpayers as to how much credit they will get. Some will encourage those with equity in their home to borrow to pay for the energy efficient items and perhaps a lot more that doesn't generate a credit and might not even be needed. Be cautious and encourage your clients and older family members to be cautious.

For more on these credits, see my 8/21/22 post that also has links to the track changes versions of these credits. These documents also have links to IRS information on the current versions of these credits.

What do you think?