Draft budget kills residential ITC, preserves large-scale and manufacturing credits

In a section titled “Working Families Over Elites,” the House Ways and Means Committee has eliminated the residential investment tax credit in its draft budget bill. Working-class households would be unable to receive the 30% tax credit for installing rooftop solar if the bill’s language is passed as-is.

It’s just one update to clean energy credits in the Committee’s draft budget bill, which will go through markups today. The bill does not scrap the Inflation Reduction Act (IRA) entirely, but does eliminate certain credits and phases out others.

The draft bill removes clean energy credits for individuals, while preserving most of them for large-scale solar developers. It would eliminate the 30% residential ITC (25D) as well as the EV credit (30D) on December 31, 2025.

For large-scale solar, the full value of the ITC (48E) and PTC (45Y) remain intact through 2028 before a phase-down of the total credit to 80% in 2029, 60% in 2030, 40% in 2031 and zero in 2032. ITC adders like the low-income bonus credit and domestic content credit are not mentioned in the bill, so investment banking company Roth Capital Partners said those credits appear to be safe and to follow the same phase-down as the general ITC/PTC. However, transferability of the ITC and PTC would be eliminated two years after bill enactment. The bill also removes the “start of construction” provision and requires projects to be “placed in service” to begin collecting the ITC or PTC.

The advanced manufacturing tax credit (45X) is preserved at full value in the draft bill through 2031 before ending without a phase-down in 2032. Wind products are excluded from the credit starting in 2028.

The bill also adds restrictions to 45X, 48E and 45Y for any involvement with “prohibited foreign entities,” formally known as a “Foreign Entity of Concern,” classified under a 2021 defense bill. For the ITC and PTC, credits can’t be claimed if the facility includes “any material assistance from a prohibited foreign entity.” The bill further defines “material assistance” as “Any component, subcomponent, or critical mineral included in such property is extracted, processed, recycled, manufactured or assembled by a prohibited foreign entity, or any design of such property was based on any copyright or patent held by a prohibited foreign entity or any know-how or trade secret provided by a prohibited foreign entity.”

Solar industry trade organization SEIA said the bill will “effectively dismantle the most successful industrial onshoring effort in U.S. history.”

“This legislation will cause hundreds of American factories to close, eliminate tens of thousands of jobs, force electric bills to skyrocket for everyone, weaken the reliability of our electric grid, and eliminate our capacity to compete with China. This disruption would devastate local, red-state economies, with more than 75% of at-risk factories and investments concentrated in these communities,” said SEIA president and CEO Abigail Ross Hopper in a press statement.

“The solar and storage industry appreciates the many competing interests faced by this Congress and stands ready to work together with our elected officials to ensure that American energy dominance prevails. The current proposals do not achieve that. Our nation’s energy security and national security are on the line,” she continued.

The House Ways and Means Committee will now mark up the bill before voting on it and sending it to the full House of Representatives.