An amended version of the “Big, Beautiful Bill” has just made it way out of the Senate Committee on Finance, and while there is a small bright spot for the geothermal industry, it does not appear many of the tax credits found within the Inflation Reduction Act (IRA) are going to survive.
The budget bill, which was narrowly passed by the House in late May, included language that strongly pared back three long-standing federal tax credits, 25C, 25D, and 45L, which will essentially kill the popular residential clean energy credits. The Senate opted not to provide any sort of a lifeline for the credits, and is set to terminate a big portion of the clean electricity production credit, but geothermal may escape with less damage compared to other energy forms.
According to a fact sheet released by the Senate Committee on Finance, the legislation “delivers record savings by slashing Green New Deal spending and promoting America-First energy; eliminating tax loopholes; and rooting out waste, fraud, and abuse in our spending programs.”
HVAC contractors have reported using residential clean energy credits to boost sales, but those will be eliminated under Sec. 70506. More than 2.3 million households took advantage of the 25C credit in 2023, with an average credit of nearly $900.
“Under current law, taxpayers may claim a credit for residential expenditures for solar electric property, solar water heating property, fuel cell property, small wind energy property, geothermal heat pump property, and battery storage property placed in service by December 31, 2024,” according to the Senate Committee on Finance. “The value of the credit is 30% of the expenditures through December 31, 2032, 26% of expenditures in taxable year 2033, and 22% of expenditures in taxable year 2034.”
The Senate’s version proposes to eliminate that credit for new installations made more than 180 days after the bill is enacted, meaning customers will only have six months to act before the credit disappears should this legislation be signed into law. This applies to all residential systems that previously qualified for the credit.
The amended text also includes language that would phase out and place restrictions on the clean electricity production credit. This section will hit solar and wind particularly hard, but spares geothermal.
Under the current law, taxpayers may claim a credit for electricity produced and sold by a qualifying facility, which is currently set to begin phasing out in 2032.
“For electricity produced by wind or solar technology, the provision begins phasing out in calendar year 2026, with credit values for such qualified facilities the construction of which begins in 2026 receiving only 60% of the value of the credit,” the finance committee stated. “In 2027, these facilities receive only 20% of the credit, and by 2028, there is no longer a production tax credit for these technologies.”
But, for all other qualified facilities that generate electricity, such as hydropower, nuclear, and geothermal, “the provision phases out as if the ‘later of’ rule did not apply, with these facilities receiving 100% of the credit for qualified facilities the construction of which begins in 2033, 75% in 2034, 50% in 2035, and 0% in 2036.”
This version of the bill also stipulates that no credit will be allowed if the project involves prohibited foreign entities, or receives material help from them, after 2025.
As far as geothermal goes, the bill does open a new opportunity for commercial geo systems, as publicly traded partnerships (PTPs) can now count income generated from geo energy production as qualified income under the tax code. This could open the door for larger investments in geo district energy and utility-scale projects.
The Senate has also proposed changes to the Section 179 deduction, which can currently be applied to HVAC equipment purchased for personal businesses, along with tools, service vans, and some qualifying improvements to buildings.
The current law allows deductions up to $1.25 million in equipment right away, instead of depreciating over time, but this deduction starts to phase out for the year when it exceeds $3.13 million. Under the proposed changes, the deduction would double from $1.25 million to $2.5 million, while the phase-out would increase to $4 million. These new limits will also be adjusted for inflation starting in 2026 and apply to property placed in service in 2025 and beyond.
This proposed legislation still has to pass the Senate, reconcile with the House version, and be signed into law by President Donald Trump. Republican leadership has signaled it wants to get this passed by July 4.