Sponsors
Read twice and referred to the Committee on Finance.
Adds expenses for “natural carbon sinks” to the existing energy-efficient home improvement tax credit so those qualifying expenses can be claimed when the property is placed in service after enactment. At the same time, it removes the enhanced tax credit for carbon oxide sequestration (internal revenue code Section 45Q) for new carbon capture equipment whose construction begins after enactment, by amending Section 45Q to exclude such equipment from the previously available credit.
Add a new paragraph to Section 25C(a) so that the energy-efficient home improvement credit includes the amount of the taxpayer’s "natural carbon sink expenditures" for the taxable year.
Create a new subsection 25C(f) defining "natural carbon sink expenditures." These are expenditures for a "natural carbon sink" that (A) are installed on or in connection with a dwelling unit in the United States owned and used by the taxpayer as the taxpayer’s principal residence (within the meaning of section 121), (B) whose original use commences with the taxpayer, and (C) can reasonably be expected to remain in use for at least 5 years.
Define the term "natural carbon sink" to mean (A) any flooring, paneling, millwork, cabinetry doors, or cabinetry facing, or (B) any frame for a window or skylight.
Amend (redesignated) Section 25C(i)(2) by striking and inserting text (the section states an amendment to 25C(i)(2), but the new text to be inserted is not specified in this section).
Make a conforming amendment to Section 1016(a)(33) of the Internal Revenue Code by replacing the reference to "section 25C(g)" with "section 25C(h)" (reflecting the redesignation of subsections).
Last progress June 5, 2025 (8 months ago)
Introduced on June 5, 2025 by Cindy Hyde-Smith
Who is affected and how:
Homeowners and private property owners: Gain potential new tax relief for qualifying "natural carbon sink" expenses as part of the energy-efficient home improvement credit, but only for property placed in service after enactment. This could lower out-of-pocket costs for eligible land- or site-based activities that the statute defines as natural carbon sinks.
Carbon capture equipment manufacturers, project developers, and investors: Lose access to the enhanced Section 45Q tax credit for any carbon capture equipment projects where construction begins after enactment. That reduces a major federal incentive used to make capture projects financially viable and may change project timing or investment decisions.
Energy sector firms and industrial emitters: Entities that planned to rely on new 45Q-enhanced credits to offset capture costs may face higher net costs for capture projects or may accelerate project starts to meet the pre-enactment construction-begin threshold.
Taxpayers and federal revenue: The measure changes tax expenditure exposures by expanding one credit’s scope and curtailing another; net revenue impacts would depend on uptake and the value of the credits but are not quantified in the text.
Contractors, landscapers, and conservation service providers: May see increased demand for work eligible as natural carbon sink activities if property owners seek the expanded credit.
Overall effect: The legislation redirects federal tax incentives away from new engineered carbon capture equipment toward certain natural carbon sink investments. That change can alter market incentives, investment timing for capture projects, and the mix of climate-related activities supported by tax policy. Implementation will rely on IRS rules and guidance to define eligible natural sink expenses and to administer the 45Q exclusion.
Updated 2 days ago
Last progress May 9, 2025 (9 months ago)