Carbon Capture Tax Credits & the New IRS Safe Harbor: What Businesses Need to Know for 2025

The One, Big, Beautiful Bill (OBBB) significantly expanded and modified the federal carbon capture and sequestration tax credit under IRC Section 45Q, creating new opportunities — and new compliance responsibilities — for businesses investing in sustainability and environmental technologies.

In December 2025, the Treasury Department and IRS released Notice 2026-01, which introduces a safe harbor for taxpayers claiming the carbon capture credit for qualified carbon oxide captured and permanently stored during calendar year 2025.

At Velin & Associates, Inc., we are already seeing increased interest in this credit from businesses exploring clean energy, manufacturing, real estate development, and high-capital projects. Below is a practical breakdown of what this new guidance means — and how it may apply to businesses evaluating or claiming the credit.

What Is the Carbon Capture Tax Credit (Section 45Q)?

The Section 45Q credit provides a federal tax incentive for businesses that:

• Capture qualified carbon oxide (such as CO₂)
• Permanently dispose of it in secure geological storage, or
• Use it in qualified processes that prevent its release into the atmosphere

The OBBB expanded eligibility and clarified several aspects of the credit, making it more accessible to a broader range of businesses — not just large energy companies.

What Changed Under IRS Notice 2026-01?

The Core Issue: Reporting Delays

To claim the 45Q credit, taxpayers must normally comply with EPA greenhouse gas reporting requirements, including electronic submissions through the EPA’s reporting system.

However, the IRS acknowledged that:

• The EPA’s electronic Greenhouse Gas Reporting Tool for 2025 may not be operational by June 10, 2026

Without relief, this delay could have jeopardized otherwise valid tax credits.

The New Safe Harbor for 2025 Claims

How the Safe Harbor Works

Under Notice 2026-01, if the EPA reporting tool is not launched by June 10, 2026, taxpayers claiming the carbon capture credit for 2025 may instead:

1. Prepare an annual report detailing:
   • The amount of qualified carbon oxide captured
   • The method of disposal
   • Confirmation that disposal meets regulatory standards in effect as of December 31, 2025
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2. Submit that report to a qualified independent engineer or geologist
   ⠀
   
3. Obtain a certification confirming:
   • The capture and disposal comply with EPA greenhouse gas reporting requirements
   • The disposal qualifies as secure geological storage

This certification acts as a substitute for the delayed EPA electronic filing — allowing taxpayers to claim the credit without penalty.

Who This Matters For

This guidance primarily affects businesses planning to claim carbon capture credits for 2025, including:

• Manufacturing companies
• Energy and infrastructure investors
• Real estate developers incorporating sustainability initiatives
• High net worth individuals investing through pass-through entities
• Businesses participating in environmental or clean-tech partnerships

At Velin & Associates, we frequently work with clients who don’t realize they may qualify for credits like 45Q until after a project is already underway.

Practical Examples:

Example 1: Manufacturing Business with Emissions Capture

A manufacturing company operating in California installs carbon capture equipment as part of a plant modernization project in 2025. The captured carbon oxide is permanently stored in secure geological formations.

Due to EPA reporting delays, the electronic system is unavailable by mid-2026.

Under the new safe harbor:

• The company prepares an annual capture report
• A qualified geologist certifies compliance
• The business may still claim the Section 45Q credit on its 2025 return

Without this safe harbor, the credit could have been delayed or disputed.

Example 2: High Net Worth Investor Using a Pass-Through Entity

A high net worth individual invests in a clean-energy LLC that captures and sequesters carbon as part of its operations.

Because the IRS allows reliance on Notice 2026-01 until formal regulations are issued:

• The LLC may rely on certified reporting instead of EPA electronic submission
• The investor’s share of the credit flows through properly
• The credit is preserved despite regulatory timing issues

This is particularly relevant for CPA for High Net Worth Individuals clients evaluating sustainability investments.

Example 3: Real Estate or Infrastructure Developer

A development group integrates carbon capture technology into a large infrastructure project completed in 2025.

Using the safe harbor:

• The project avoids delays caused by incomplete EPA systems
• Credits can be calculated with confidence
• The business can incorporate the credit into broader tax planning and financing strategies

What Happens Next?

The IRS has stated that:

• Formal Section 45Q regulations are forthcoming
• Taxpayers may rely on Notice 2026-01 until final regulations are issued
• Future rules will address measurement, verification, and long-term compliance standards

This makes 2025 a critical transition year for businesses planning to claim carbon capture credits.

Why Planning Matters

Carbon capture credits are:

• Highly valuable
• Documentation-intensive
• Often misunderstood or underutilized

Improper reporting or missed deadlines can result in:

• Disallowed credits
• IRS scrutiny
• Lost tax savings

At Velin & Associates, Inc., we help businesses evaluate whether sustainability projects qualify for federal credits — and how to properly document and defend them.

How Velin & Associates, Inc. Helps

We assist clients with:

• Evaluating eligibility for Section 45Q credits
• Coordinating with engineers and geologists for certification
• Structuring investments for maximum tax efficiency
• Integrating environmental credits into long-term tax planning
• Supporting documentation in the event of IRS review

Whether you are a CPA for Online Commerce, CPA for Medical Practice, CPA for Doctors, or advising high-income investors, carbon capture credits may be an overlooked opportunity.

Final Thoughts

The new IRS safe harbor under Notice 2026-01 provides critical certainty for businesses planning to claim carbon capture credits for 2025.

With proper planning and documentation, these credits can play a meaningful role in reducing tax liability while supporting long-term sustainability goals. For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

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