Political change has a way of adding uncertainty to big spending decisions. If you’re considering a big energy-related purchase, the Biden-era tax energy credits and incentives might be in danger of disappearing.
That’s because a new president will be in the White House this January. On the campaign trail, president-elect Donald Trump has not been shy about his stance on the Biden administration’s signature energy law, the Inflation Reduction Act, calling it the “Green New Scam” and promising to repeal it.
More than 1.2 million Americans took advantage of the residential clean energy tax credit in 2023, getting money back when buying things like solar panels, home batteries and solar water heaters. More than 2.3 million American taxpayers claimed the energy efficient home improvement credit that same year, for things like insulation, air conditioners, home energy audits and heat pumps.
But those credits were expanded as part of the IRA, and now that the campaign is over, the question is whether the new Trump administration can or will fulfill its promise to repeal or significantly reduce those credits — and what it will mean for the perhaps millions of Americans planning to use them.
We talked to energy policy experts to get a sense of which home energy incentives are likely to stick around, which are most likely to disappear, and whether this uncertainty should change how you think about those big financial decisions.
Can Trump eliminate home energy tax incentives?
Not with a single stroke of the pen on day one. Most of the current home energy incentives, especially the big ones for things like electric vehicles and solar panels, are credits embedded in the tax codes. Congress has to change the tax code. Republicans will control both the US Senate and House of Representatives, but with very slim majorities. Because of that, passing legislation could be difficult.
Republican leaders in Congress are eyeing a process called budget reconciliation to tackle the incoming Trump administration’s energy policies. That process has a lot of procedural restrictions, limiting what can actually be included in the resulting law, but it skirts the Senate’s filibuster rules that would require a 60-vote supermajority for a bill to pass. (Republicans will hold only 53 Senate seats in the incoming Congress.) The IRA passed in 2022 using that same budget reconciliation process.
As to what could be in that bill, it’s still up in the air. Legislative leaders have said as much, with House Speaker Mike Johnson saying they expect to take a “scalpel” to the IRA rather than a “sledgehammer.” Incoming Senate Majority Leader John Thune said in early December that he doesn’t yet know what programs will be targeted, according to E&E News.
“Congress appropriated the funds for the IRA,” said Sheila Olmstead, a Cornell University professor who served as senior economist for energy and the environment at the President’s Council of Economic Advisors in 2016 and 2017. “To wholesale undo that would require work by the Congress again. [Trump] does have both houses, but by fairly narrow margins. Whether that would be achievable I think is an open question.”
Here’s what could happen to the biggest consumer-focused incentives.
Tax credits for electric vehicles make Teslas and other electrified cars more affordable, but the incoming Trump administration has expressed interest in cutting that incentive. Even Tesla head Elon Musk, a close Trump supporter, has backed the move.
EV tax credit: Endangered
President-elect Trump’s transition team has stated they intend to eliminate the $7,500 tax credit for electric vehicles.
The president-elect’s closeness with Elon Musk, who owns EV maker Tesla, is unlikely to sway him to keep the credit. Musk said in July that taking away the subsidies would “only help Tesla.”
If the federal government does eliminate the tax credit, at least one state might make up for it. California Gov. Gavin Newsom has said the state could reinstate its rebate for EVs if the credit goes away. “We will intervene if the Trump Administration eliminates the federal tax credit, doubling down on our commitment to clean air and green jobs in California,” Newsom said in a statement in November.
Potential policy changes affecting EVs go beyond just the tax credit, Olmstead said. The administration could weaken fuel efficiency standards for vehicles, known as CAFE standards. “What’s driving a significant chunk of demand for EVs are those CAFE standards,” she said.
Solar tax credit: Uncertain
The biggest single incentive for American homeowners to get solar panels is the residential clean energy credit, which the IRA expanded and extended. It currently provides a 30% tax credit on the cost of installing solar panels (along with batteries, geothermal heat pumps and a few other clean energy products) through 2032, when it starts to phase out. It existed before the IRA as the Investment Tax Credit or ITC, which was created in the Energy Policy Act of 2005, signed by President George W. Bush.
The credit could be scaled back, experts said, especially as Republicans in Congress look for ways to offset the budget impacts of the extension of broad tax cuts passed during the first Trump administration. “They’ll be looking for places to solve that problem,” Olmstead said.
Gilbert Michaud, assistant professor of environmental policy at Loyola University Chicago, said he didn’t expect the credit would be eliminated wholesale.
“Though the Trump Administration may attempt to scale them back, these programs have received significant support from Congress, the private sector and even rural communities in which energy projects are being built,” Michaud said. “More broadly, it’d be difficult to chop all of the IRA, and while I do think that they will try, some of these programs and incentives will remain intact.”
A scaling back of the solar tax credit could include an earlier phase-out or stricter requirements, said Zoe Gaston, principal analyst for US distributed solar at the energy consulting firm Wood Mackenzie. “However, it is too early to predict.”
Changes to the solar tax credit would change the calculus for consumers, who currently bank on getting a significant portion of their investment in solar panels back when they file their taxes. It could also affect the availability of solar leases and power purchase agreements, in which a third-party company owns the solar panels on your rooftop and charges you either a lease payment or a per-kilowatt-hour charge. The tax credit, which goes to the company, makes that business model more affordable.
State solar incentives: Largely safe
While Congress might take a scalpel or some cutting object to the federal solar tax credit, it likely won’t have any impact on state programs like net metering, in which you get paid for surplus electricity you sell back to the grid.
“It’s also important to remember that state and local programs for renewable energy are largely shielded from federal intervention or overriding,” Michaud said. “Efforts such as state net metering programs, renewable portfolio standards and rebates and loan programs will stick around even with the change in DC, especially in bluer states.”
If the federal government does restrict incentives for renewable energy and energy efficiency, states might pick up some of the slack, Olmstead said. Especially larger, more Democratic states such as California and New York.
Read more: How solar friendly is your state?
Home energy efficiency tax credits: Uncertain
Another component of the IRA was a set of tax credits aimed at home energy efficiency. Under the residential clean energy credit, this includes uncapped 30% tax credits for geothermal heat pumps and solar water heaters. Under the separate energy efficient home improvement credit, it includes tax credits for things like efficient air conditioners, furnaces, water heaters, heat pumps, insulation, electrical system upgrades and more, all of which have caps on how much money you can get back for each.
Any changes to these credits would face the same hurdles as changes to the solar tax credit: Congress would have to do it.
A more likely outcome is that the Trump administration will roll back efficiency standards for appliances and lighting, Michaud said.
The situation is also different for state-administered home energy efficiency rebate programs, which provide additional financial help on top of the federal tax credits. Those programs are run by states using money distributed by the federal government, and the incoming administration could decide not to distribute any money that hasn’t already gone out the door.
“If the money’s already out the door, I think those programs will continue spending,” Olmstead said. “If it’s not, anything could happen.”
Current tax credits and rebates reduce the cost of installing energy-efficient devices like a heat pump water heater.
Should you rush to buy home energy products in case tax credits disappear?
The practical effect of tax credits worth potentially thousands of dollars having an uncertain future is that people may be tempted to rush a purchase to take advantage while they can.
Keep in mind that anything that would qualify for a tax credit is a pretty big purchase, whether it’s solar panels, a new HVAC system, a new water heater or a new electric vehicle. Those decisions aren’t to be made lightly.
“Regardless of politics, I always suggest that folks make such energy investments if they feel the time is right for them,” Michaud said.
If Congress does act in 2025 on these tax credits, that change could affect the 2025 tax year, meaning you should be careful assuming you’ll get money back in the form of a tax credit for a purchase made starting in January. Factor that into your budget considerations.
“While it’s important to pay attention to potential policy changes, I wouldn’t necessarily recommend that folks solely make energy investment decisions for fear of tax credits disappearing,” Michaud said. “Folks should consider electricity costs, budget and other traditional factors when considering solar, storage, EVs and the like.”
Source: CNET
