Understanding the Tax Credit Market in 2025
Tax credits remain one of the most powerful financial tools for incentivizing investment in key areas such as renewable energy, historic preservation, and clean manufacturing. More than just financial incentives, they play a crucial role in accelerating clean energy adoption, revitalizing communities, and supporting domestic industries. The Inflation Reduction Act (IRA) has transformed the tax credit landscape, providing long-term stability and introducing new mechanisms such as credit transferability and direct pay.
Currently, the market continues to experience significant growth, fueled by increased demand for clean energy projects and historic building revitalization. The IRA has strengthened the Investment Tax Credit (ITC) and Production Tax Credit (PTC), while also implementing technology-neutral tax credits, such as the Clean Electricity Production Tax Credit (45Y) and the Clean Energy Investment Tax Credit (48E), which became effective in 2025. These developments have attracted a broader range of investors, including new corporate buyers looking to offset their tax liabilities.
Additionally, the transferability market has matured, allowing tax credits to be sold for cash, reducing reliance on traditional tax equity financing and enabling more participants to benefit. The final regulations released by the IRS in 2024 have provided clear guidance on credit transfer procedures, pre-registration requirements, and compliance considerations, leading to a rapidly expanding tax credit marketplace.
What Does the Future Hold for the Tax Credit Market?
The future of the tax credit market continues to be shaped by regulatory developments, economic conditions, and policy shifts. Several key factors are influencing its trajectory:
- Implementation of IRA Tax Provisions: With the IRS finalizing regulations for direct pay and credit transfers, investors now have clear pathways to efficiently utilize tax credits. Energy storage projects, previously ineligible, now qualify for the ITC, opening new opportunities for financing.
- Political and Legislative Risks: While the IRA has provided long-term certainty, future budget negotiations, tax policy reforms, or shifts in federal leadership could impact certain provisions. However, many tax credits continue to enjoy bipartisan support, particularly for clean energy manufacturing and domestic job creation.
- Growth in Transferable Tax Credits: The ability to sell tax credits has transformed the market. With credits trading at 90–95 cents on the dollar, the marketplace continues to expand, with corporations and smaller firms that previously lacked access now participating.
- Macroeconomic and Market Trends: Inflationary pressures and high interest rates have continued to affect project financing, making tax credits even more critical in maintaining project viability. Additionally, domestic manufacturing incentives are helping mitigate import tariff risks, particularly in the solar and wind sectors.
The Impact of Transferability and Direct Pay
With the IRA’s transferability provision (Section 6418), project developers can now sell tax credits to unrelated taxpayers, monetizing them without requiring traditional tax equity structures. This has proven particularly beneficial for smaller projects and entities without substantial tax liability. More corporate buyers—including companies with large tax liabilities—are entering the market to purchase credits, increasing liquidity. This shift allows project developers to access capital more efficiently and structure deals more flexibly. Transferability is proving to be a game-changer, particularly for smaller-scale projects that previously struggled to secure tax equity investors.
Meanwhile, direct pay (Section 6417) allows certain tax-exempt entities—such as governments, nonprofits, and cooperatives—to receive a cash refund for eligible tax credits. For taxable entities, direct pay remains limited to select credits, including 45Q (carbon capture) and 45V (clean hydrogen), offering a five-year window for claiming cash payments instead of tax offsets.
Why Staying Up to Date is Critical—and How Foss & Company Can Help
The tax credit market is evolving rapidly, with new opportunities and regulatory shifts shaping investment strategies. Navigating these changes requires expert insights to ensure compliance, optimize financing structures, and maximize returns.
Foss & Company specializes in navigating the complexities of the tax credit market. Our team provides expert guidance on structuring tax credit transactions, optimizing transferability opportunities, ensuring compliance with IRS regulations, and securing tax equity financing.
As tax credits become more liquid and accessible, leveraging Foss & Company’s expertise can help developers, investors, and corporations strategically position themselves in this expanding market.
To learn more about how to capitalize on tax credits, contact our team today: Foss & Company
