Investment Tax Credit for Renewable Energy Manufacturing: What OBBBA Changed

January 26, 2026

By: Frank Calabrese

Partner, Tax

The One Big Beautiful Bill Act (OBBBA) rewrote the playbook for renewable energy manufacturing tax credits. What the Inflation Reduction Act gave, OBBBA partially took away—accelerating phaseouts, adding compliance requirements, and creating new timelines that manufacturers need to understand now.

If you manufacture solar panels, wind turbine components, or battery storage systems, the investment tax credit landscape just became more complex. Here’s what changed and what it means for your manufacturing operations.

What Survived OBBBA

The advanced manufacturing production credit (Section 45X) and advanced energy project credit (Section 48C) remain available for renewable energy manufacturing facilities. These credits still provide substantial tax benefits, but new restrictions and accelerated phaseouts mean manufacturers face tighter timelines than under the original IRA provisions.

The base credit structure holds: 6% for facilities meeting basic requirements, scaling to 30% when you satisfy prevailing wage and apprenticeship requirements. That five-times multiplier for fair labor practices remains the most significant lever manufacturers can pull to maximize credit value.

Manufacturing Equipment That Still Qualifies

Investment tax credits apply to facilities that produce renewable energy components, including solar panels and inverters; wind energy equipment such as blades and nacelles; battery components and energy storage technology; and grid modernization equipment. The credit covers manufacturing equipment and machinery, building structures, housing operations, land improvements integral to manufacturing, and construction period interest and taxes.

Critical requirement: Credits only apply to tangible property placed in service—functional, operational, and actually producing. Equipment sitting in warehouses awaiting “optimal deployment timing” doesn’t qualify.

New FEOC Compliance Requirements

OBBBA introduced foreign entity of concern (FEOC) rules that significantly complicate project supply chains. Starting January 1, 2026, these rules apply at both the entity and project levels.

At the entity level, taxpayers cannot claim credits if projects are owned or controlled by prohibited foreign entities as defined under FEOC rules. At the project level, projects cannot receive “material assistance” from prohibited entities, measured through a material assistance cost ratio calculation.

This material assistance requirement means manufacturers must trace the origin and cost of every component and material, verify whether suppliers link to prohibited foreign entities, and maintain extensive documentation proving compliance. For manufacturing operations with complex international supply chains, FEOC compliance is among the most burdensome aspects of claiming credits under current law.

Some manufacturers may need to shift sourcing to meet cost ratio thresholds, potentially facing supply chain disruptions or higher material costs that increase expenses or delay project timelines.

Bonus Credits That Stack

The real value comes from stacking bonus credits on top of base rates. The Energy Communities Bonus provides a 10% bonus for facilities in former coal or fossil fuel areas. The Domestic Content Bonus adds another 10% for using American-made steel, iron, and manufactured products. The Low-Income Communities Bonus offers up to 20% more for projects that benefit disadvantaged communities.

A well-structured manufacturing facility in a former coal region, using domestic content and meeting prevailing wage requirements, could see combined credits approaching 50% of qualified investment.

Accelerated Wind and Solar Phaseout

OBBBA introduced the most significant change to renewable energy manufacturing credits by accelerating phaseouts for wind and solar projects. Under IRA, production and investment credits for wind and solar were available until 2032. OBBBA compressed that timeline dramatically.

Solar and wind projects must now begin construction by July 4, 2026, and be placed in service within four years of construction start to remain eligible. If construction begins after July 4, 2026, the project must be placed in service by December 31, 2027, or it will lose eligibility for credit entirely.

For manufacturers planning major facility expansions, timing matters more than ever. A 2026 expansion that begins construction by July 4 gets full benefits. The 2027 expansion faces steep restrictions or complete ineligibility, depending on the placement-in-service dates.

Physical Work Test Replaces Safe Harbor

OBBBA tightened the criteria for the start of construction, eliminating the 5% safe harbor test that many developers relied on. The physical work test now stands as the primary method for establishing construction start dates, with an exception only for low-output solar projects.

Manufacturers who previously established construction dates through equipment procurement strategies must now demonstrate significant physical work related to energy property on appropriate timelines. This means visible construction activity, not just purchase orders or equipment deposits.

Facilities must either fit within the four-year continuity safe harbor or be placed in service by December 31, 2027, to maintain credit eligibility. This requirement forces manufacturers to compress project timelines that might have previously stretched across multiple years.

Prevailing Wage and Apprenticeship Compliance

The 6% to 30% credit multiplier depends entirely on meeting prevailing wage and apprenticeship requirements. Prevailing wage means paying Davis-Bacon Act wages for construction and installation, filing certified payroll reports, and documenting everything as if you’re expecting an audit—because you should be.

Apprenticeship requirements mandate that specified percentages of total labor hours come from qualified apprentices. Manufacturers must partner with registered apprenticeship programs, track hours meticulously, and create documentation that would satisfy both DOL and IRS scrutiny.

Failing to meet these requirements doesn’t just reduce your credit—it cuts it by 80%. A $10 million facility that should generate $3 million in credits drops to $600,000 if wage and apprenticeship documentation falls short.

Beware of Recapture Provisions

Investment tax credits include recapture provisions that claw back benefits if you fail to maintain compliance. Sell equipment before the recapture period expires, and the IRS wants its money back with interest. Fail to maintain the facility or misrepresent a qualified investment, and you face recapture plus penalties.

These provisions require long-term planning. A five-year recapture period means manufacturers must maintain facilities and meet ongoing requirements for years after claiming initial credits. Companies planning exits or asset sales need to structure transactions carefully to avoid triggering recapture.

Entity Structuring and Credit Transfers

Not every business can efficiently use credits directly. Partnership structures, tax equity arrangements, and the IRA’s transferability provisions all affect how manufacturers monetize credits.

Transferability allows manufacturers to sell credits to unrelated parties—creating a secondary market where credit buyers provide upfront capital in exchange for tax benefits they can use. This market tightened under OBBBA as accelerated phaseouts reduced the pipeline of available credits, particularly for wind and solar.

Manufacturers considering credit transfers must understand market dynamics, pricing expectations, and documentation requirements that buyers demand. Credit transfer transactions require extensive due diligence on both sides to ensure credits remain valid and defensible.

Strategic Planning for Manufacturing Facilities

The OBBBA changes make strategic planning even more critical. Manufacturers should evaluate project timelines against phaseout dates, assess whether facilities meet the beginning-of-construction tests under the physical work standard, analyze FEOC compliance implications for existing supply chains, and calculate potential bonus credits based on facility location and sourcing decisions.

Companies planning expansions in 2026 need to move quickly to meet July 4 construction deadlines for wind and solar projects. Waiting until 2027 essentially eliminates credit eligibility for most renewable energy manufacturing facilities.

How Wiss Helps Manufacturers Navigate Credits

Wiss Tax Advisory Services works with engineering and construction firms navigating renewable energy manufacturing credits under OBBBA’s new framework. Our team analyzes project structures to maximize credit stacking, ensures prevailing wage and apprenticeship compliance, manages FEOC material assistance calculations, and structures credit monetization strategies, including transfers.

We help manufacturers calculate qualified investments, document compliance requirements, and defend positions during IRS examinations. The difference between capturing 30% credits versus 6% often comes down to documentation quality and compliance planning—areas where professional guidance protects substantial value.

Ready to maximize renewable energy manufacturing tax credits under OBBBA’s new rules? Contact Wiss for a consultation on your facility planning and credit optimization strategy.