The House and Senate are working on a major tax bill. Both the House and Senate propose allowing energy credits for 2025. However, the Senate bill proposes eliminating some energy credits within 180 days after the tax bill is enacted.

While the legislation is still in process, there is a reasonable probability the bill will pass this summer. Before changes are passed, taxpayers can still benefit from energy credits during 2025. It is an excellent time to plan for these potential benefits because they are likely to phase out in early 2026.

There are four primary energy credits that benefit taxpayers. These include a new or used clean energy vehicle, improvements that make your home energy efficient or the purchase of items that help with home energy production.

1. New Clean Vehicles — There is a tax credit up to $7,500 for the purchase of most new clean energy vehicles. To qualify for this credit, the vehicle must meet specific criteria based on the source of the battery and other components. The credit has an income limit of $150,000 for a single filer, $225,000 for head of a household and $300,000 for joint filers. The credit is available for vehicles with a Manufacturer’s Suggested Retail Price (MSRP) under $80,000 for SUVs, vans and trucks and an MSRP under $55,000 for most other cars.
2. Used Clean Vehicles — There is a credit for the lesser of $4,000 or 30% of the sale price for a used clean vehicle. The income limit is $75,000 for a single filer, $112,500 for a head of household and $150,000 for joint filers. The used clean vehicle must qualify under specified rules, and most of these are electric vehicles.
3. Energy Efficient Home Improvements — There is a credit for up to 30% of the cost of qualifying improvements that make your home more energy-efficient. This includes ENERGY STAR windows, doors, insulation or similar items. The general annual limit is $1,200 for this credit.
4. Residential Clean Energy — There is a 30% credit for solar panels, wind energy, geothermal heat pumps and battery storage. This credit does not have a limit, so a homeowner may install a substantial solar panel and battery system and still qualify for this credit.

Editor's Note: There is likely to be availability for most of these credits during the remainder of 2025. The one exception is the used clean vehicle credit that may lapse 90 days after the enactment of the bill. The probable date for the elimination of the other credits is early in 2026. If the final bill is enacted in July, it is probable that most energy credits will be available for the rest of 2025.

Reforms May Apply to Tax-Exempt Organizations

The proposed Senate tax bill is similar to the House bill in that there are a number of reforms that affect charitable giving and nonprofit organizations. There are expanded benefits for scholarship gifts and additional qualified expenses under Section 529 plans. However, there are also potentially increased taxes on endowments of large private universities and excise taxes on high-income employees of nonprofits.

1. Gifts to Scholarship Granting Organizations (SGOs)— There is a proposed income tax credit for gifts to SGOs that is limited to the greater of 10% of a taxpayer's income or $5,000. There is an aggregate limit each year with a proposed value of $4 billion per year starting in 2027. Gifts to an SGO made after the annual limit is reached will qualify for a carryforward to the next year. Students who receive scholarships will be selected by the nonprofit educational organization. The students must come from a household with an income of less than 300% of the area median gross income.
2. Employer Exclusion for Student Loans— An employer is currently permitted to make payments for an employee’s education expenses or student loans in an amount up to $5,250 each year. The employer-provided educational assistance generally applies to tuition, fees and similar payments. The Senate bill would make the provision for student loan payments permanent. It also would adjust the maximum education expense amount for inflation starting in 2027.
3. Section 529 Higher Education Expenses— Section 529 savings plans allow contributions to fund education expenses such as tuition, fees, books and supplies. The 529 plan may cover tuition for higher education and up to $10,000 in tuition for K-12 education. The Senate proposal would also allow tax-exempt distributions from 529 plans for curricular materials, books or other instructional materials, online educational materials, tutoring outside the home, testing fees, fees for dual enrollment in an institution of higher education and educational therapy for students with a disability.
4. Postsecondary Credentialing Expenses— Section 529 plans would be expanded to allow distributions for "qualified postsecondary credentialing expenses." These expenses must be for a program with recognized postsecondary credentials.
5. Excise Tax on Endowment Income of Private Colleges— There is an existing 1.4% tax on net investment income of some larger colleges and universities. The basic rule for applicability of the tax is that the institution must have over 500 tuition-paying students, and over 50% of the tuition-paying students are located in the United States, they are not a state college or university and the value of the endowment is at least $500,000 per student. The proposal increases the excise tiered tax rates. The Senate proposal applies a tax rate of 4% if the student-adjusted endowment is over $750,000 and a rate of 8% if the student-adjusted endowment is over $2 million. There are specific technical rules to determine the student-adjusted endowment amount.
6. Tax on Excess Compensation— Under Section 4960 there is an excise tax on compensation generally in excess of $1 million paid to a covered employee of a nonprofit organization. The Senate bill would modify the definition of "Covered Employee" to include any employee of a nonprofit organization with salary over $1 million, beyond the current law of the top five highly compensated employees.

House and Senate Tax Bills in Substantial Agreement

The 2025 tax bill is a massive undertaking that has an impact on hundreds of tax provisions. Generally, the House and Senate proposed bills are similar. However, there are a number of specific differences in certain areas. These differences will require time to resolve before the House and Senate can pass identical bills.

1. State and Local Taxes (SALT)— House members from New York, New Jersey and other high-tax states insisted on an increase in the $10,000 SALT cap. The House proposal increases the annual cap to $40,000. However, Senators preferred to make other provisions permanent. Because there is a cost to making other tax provisions permanent, the Senate proposes to retain the SALT cap of $10,000. The lower state tax deductions will release funds to make other tax provisions permanent.
2. Senior Deduction Increase— The initial House discussion involved methods to allow Social Security payments to be tax-free. For technical reasons, this was not an option for the Senate. Therefore, an alternative solution was to increase the standard deduction for individuals over age 65. The House would increase the senior standard deduction by $4,000, while the Senate proposes to increase the deduction by $6,000. This new increased senior deduction would apply for years prior to 2029.
3. No Tax on Tips— The White House proposed that there should not be tax on tips. The House and Senate would exempt tips (if traditionally made by customers) from tax prior to 2029. However, the Senate version has a tip exempt limit of $25,000.
4. Retaliatory Tax (Section 899)— Both the House and Senate included a new provision that allows the U.S. to impose new taxes on overseas entities if the country levies an "unfair foreign tax." The Senate version does not take effect until 2027, one year after the House proposal.
5. Clean Energy Credits— The clean-energy credits of the Inflation Reduction Act are eliminated or phased out. The House and Senate proposed tax bills both eliminate the vehicle and home energy credits in early 2026, but some of the other clean energy projects for wind and solar are qualified through 2027. The Senate would permit hydropower, nuclear and geothermal projects to benefit from energy credits until 2033.
6. Medicaid— Both the House and the Senate create specific limits on qualifications for Medicaid. They also limit the "provider taxes” which are used by states to increase the federal contribution to the state Medicaid fund.
7. Estate Exemption— Both the House and Senate tax bills make the TCJA estate and gift tax exemptions permanent. The House estate exemption limit would be $15 million next year. There is a 40% tax on estates above the exemption. The House and Senate have minor differences in the inflation adjustment methods for future years.

Editor's Note: Your editor does not take a position on specific provisions of the House and Senate tax bills. This information is offered as a service to our readers.

Applicable Federal Rate of 5.0% for July: Rev. Rul. 2025-18; 2025-28 IRB 1 (16 June 2025)

The IRS has announced the Applicable Federal Rate (AFR) for July of 2025. The AFR under Sec. 7520 for the month of July is 5.0%. The rates for June of 5.0% or May of 5.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2025, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”