What the 2025 Tax Law Changed for Nonprofit Solar

The reconciliation law enacted July 4, 2025, the One Big Beautiful Bill Act (P.L. 119-21), changed the clean energy credits without touching the mechanism tax-exempt owners rely on. Direct pay under Section 6417 is intact. The law added no new phase-out of elective pay, the list of applicable entities is unchanged, and the registration and filing architecture is the same. The domestic content phase-down that has applied to elective pay since 2022 is still there, and it’s covered below.

What changed is the credit sitting underneath it, and the changes run on construction start dates rather than placed in service dates. For an organization planning a project, the construction start date now drives everything else.

What the July 4, 2026 construction start date decides

Section 48E now terminates for wind and solar property placed in service after December 31, 2027, and that termination applies to facilities whose construction begins more than 12 months after enactment, which is after July 4, 2026.

The two dates work together, and the order gets reversed constantly:

If construction begins	Then
On or before July 4, 2026	The 2027 deadline doesn’t apply to your project at all
After July 4, 2026	The system has to be placed in service by December 31, 2027

The credit doesn’t end on July 4, 2026. That date decides whether a hard placed in service deadline attaches to your project.

Energy storage is carved out of this termination entirely, including storage placed in service at a wind or solar facility. A campus adding batteries is not on this clock.

Geothermal heat pumps came through untouched

Ground-source heat pump property stays under Section 48, so long as construction begins before January 1, 2035. The 6% tier, which reaches 30% with prevailing wage and apprenticeship compliance, holds for construction beginning before January 1, 2033. It steps down to 5.2% for 2033 starts and 4.4% for 2034 starts, or 26% and 22% with prevailing wage and apprenticeship. The new law didn’t amend any of that.

For a school, church, hospital, or municipal building on a long planning horizon, geothermal heat pump property now has the longest runway of anything on this list, and it’s the only one with no 2027 backstop.

Section 48 is effectively closed to new solar

The law reduced the residual Section 48 energy percentage for certain property to zero and blocked bonus increases from applying to it, for construction beginning on or after June 16, 2025. Combined with the earlier rule ending the 6% tier for solar whose construction begins after 2024, new solar belongs under Section 48E.

Domestic content thresholds went up

The adjusted percentage for Section 48E moved on a schedule keyed to when construction begins:

These key to beginning of construction, not to the placed in service date, and the trigger is on or after June 16, 2025, not after. A project starting exactly on June 16, 2025 is at 45%.

For an applicable entity with a project of 1 MW (AC) or more, domestic content isn’t only a bonus question. The elective payment itself is reduced for projects that size that don’t meet the requirement, and for construction beginning after December 31, 2025 that reduction takes the payment to zero. A project with maximum net output under 1 MW (AC) is exempt from that rule entirely. So is a project covered by a statutory exception, which Treasury must provide where using domestic steel, iron or manufactured products would raise overall construction cost by more than 25%, or where the relevant products aren’t produced in the United States in sufficient and reasonably available quantities or of satisfactory quality. Where an exception applies, the payment goes back to 100%.

New foreign sourcing rules, and a new penalty that lands on you

For facilities and storage whose construction begins after December 31, 2025, the credit is denied if the project includes material assistance from a prohibited foreign entity, measured by a cost ratio test with thresholds that rise each year. There are also entity-level rules that deny the credit to certain foreign-influenced owners.

The change tax-exempt owners should note is procedural. The law extended the excessive payment rules to one specific foreign entity disallowance, for tax years beginning after July 4, 2025. New Section 6417(d)(6)(D) reaches a disallowance described in Section 6662(m)(2), which is the disallowance of a Section 45X, 45Y or 48E credit by reason of overstating the material assistance cost ratio. It doesn’t reach a disallowance based on the entity-level rules. An excessive payment carries the amount back plus 20%, and it’s imposed whether or not the entity is otherwise subject to income tax. An organization with no tax liability has nothing to absorb it with, which makes supplier documentation a financial control rather than a paperwork exercise.

The questions that decide where your project stands

Three questions decide where a project stands.

Did construction begin by July 4, 2026? If yes, the 2027 placed in service backstop doesn’t apply and the project has its ordinary runway. Document the start date contemporaneously, with the test you relied on.

Is the project 1 MW (AC) or larger? If yes, domestic content moves from an upside question to a payment question, and it’s decided at procurement.

Did construction begin after December 31, 2025? If yes, the foreign entity rules apply and the answers have to come from your supply chain in writing.

What to do next

Pull the construction start documentation for any project already underway and confirm which side of July 4, 2026 it lands on. For projects still in planning, size the system in AC and decide the domestic content question before equipment is ordered.

This article is general information, not tax advice, and it reflects IRS guidance as of July 10, 2025. Deadlines and eligibility depend on your organization's tax year and entity type. Please confirm your own facts with a qualified tax professional before relying on anything here.