Article
What’s new with the Inflation Reduction Act (IRA)?
Aug. 22, 2025 · Authored by Doug Baldessari
The Inflation Reduction Act (IRA) continues to be the most sweeping climate and energy legislation in U.S. history. For public sector entities – including municipalities, school districts, housing authorities and transit agencies – it has unlocked new funding streams, tax credits and incentives aimed at accelerating clean energy adoption, infrastructure upgrades and sustainability initiatives.
But the IRA was never meant to be static. Regulations, guidance and follow-on legislation continue to shape how the law is applied and which opportunities are accessible. Most recently, the One Big Beautiful Bill Act (OBBBA) ushered in the most significant changes since the IRA’s original passage. From expanding eligibility to tightening compliance requirements, the OBBBA has reshaped the path forward for public sector projects in ways that demand immediate attention.
Put simply, if your organization is counting on IRA-related funding – or considering projects that could potentially qualify – now is the time to re-evaluate your approach. The rules have changed.
Understanding the latest changes in the IRA
The OBBBA, signed into law in July, was pitched as a way to “streamline and expand” the most impactful provisions of the IRA. In practice, it did both – clarifying certain aspects that had been murky or underutilized while also introducing new conditions that will require careful planning and documentation.
One of the most notable provisions of the original IRA, Elective Pay (also known as Direct Pay) has been left unchanged in the OBBBA. This mechanism allows tax-exempt entities to receive the value of clean energy tax credits as a direct cash payment from the IRS – an essential feature for governments and not-for-profits that don’t have tax liability.
Additionally, the domestic content bonus – which boosts credit values for projects that use U.S.-manufactured materials – continues to be 10%, along with an additional 10% for the energy community bonus (assuming prevailing wage and apprenticeship requirements are met, or that your project is under 1 megawatt). The domestic content and prevailing wage and apprenticeship five-times multiplier on the base credit incentives continue to come with very stringent documentation and verification processes.
At the same time, the OBBBA added new foreign entity of concern (FEOC) requirements along with limitations on project construction periods if certain clean energy projects, such as solar and energy storage projects, don’t meet beginning of construction (BoC) requirements by Dec. 31, 2025. These new FEOC rules may be difficult to meet, so it’s important to move quickly with your project to meet the BoC requirements by the end of this year if possible.
Additionally, there are many other provisions of the OBBBA that need to be considered for your clean energy project, depending on the incentive, as there were changes made that affect most of the incentives in the original IRA.
Several key implementation dates are worth noting
- By Dec. 31, 2025: Section 48E projects, such as solar and energy storage, must meet BoC rules in order to not be subject to the new FEOC rules.
- Starting Jan. 1, 2026: Public sector projects over 1 megawatt capacity seeking direct pay must meet domestic content requirements. Otherwise, there is a 100% loss of the direct pay credit. This is in addition to the FEOC requirements.
- By July 3, 2026: Must begin solar and certain other IRA-eligible projects in order to keep the normal safe harbor construction period. Solar projects starting after July 3, 2026 will need to complete construction by Dec. 31, 2027.
What public sector leaders should be doing now
The updated IRA landscape still offers tremendous opportunity, but the timeline and requirements have shifted. Public sector leaders should take a proactive approach to stay ahead of the changes and maximize the value available to their communities. Here's where to focus:
- Re-evaluate your project pipeline: Projects that may not have qualified under previous guidance could now be eligible for credits. Energy storage credit project eligibility and project timelines carry on largely unchanged from the original IRA. On the flip side, some planned projects may need to be modified to comply with the new rules.
- Revisit your compliance strategy: Recent rules have increased both the complexity and scrutiny around labor standards. If your project depends on prevailing wage or apprenticeship provisions, your documentation processes need to be current and aligned with the enhanced enforcement expectations.
- Prioritize shovel-ready projects: Updated guidance increasingly favors projects that can move quickly into development. If you're still in the early stages, accelerating pre-development work – like feasibility studies or stakeholder engagement – could improve your competitive position.
- Re-engage your advisors, contractors and legal partners: These updates are nuanced and evolving. By looping in experienced advisors early, you can ensure your project design, procurement process and compliance strategy are aligned with the latest requirements, minimizing delays and maximizing funding potential.
What does this mean for your projects?
The OBBBA’s impact varies by project type and stage. For public sector entities still in the early planning phase, it’s essential to understand the revised eligibility criteria and incentives. Modeling credit values based on updated domestic content and labor rules can help shape your financial plan from the outset.
For projects moving into design and procurement, new benchmarks for energy performance and material sourcing must be factored into the RFP and vendor selection processes. Missing these requirements can jeopardize funding or add costly redesigns later.
In the construction phase, stricter labor standards are now in effect. These include apprenticeship ratios and prevailing wage documentation – areas that are likely to face closer oversight moving forward.
Finally, for projects nearing commissioning or operation, meticulous recordkeeping is more important than ever. Documentation of compliance, procurement choices and labor practices will determine whether the IRS approves your direct pay request.
Of course, certain project types are more directly affected than others. Tax credits for electric vehicles will no longer be available if not purchased by Sept. 30, 2025. Geothermal HVAC projects have been left largely unchanged, and solar and energy storage projects continue to be eligible but need to meet certain new requirements to obtain direct pay benefits.
Final thoughts
With the One Big Beautiful Bill Act, the IRA is entering a new chapter. The opportunities remain enormous for public sector organizations, but only for those that stay informed and adjust accordingly. If your organization hasn’t reassessed its capital planning, compliance practices or project design in light of these updates, the time to act is now.
Baker Tilly’s public sector specialists are already helping clients across the country understand the shifting IRA landscape, assess project feasibility and secure funding under the new rules.
Wondering what this means for your next project?
