HB1237 (PANELS Act) amends the Internal Revenue Code to make property used to generate solar energy ineligible for the Section 48 energy investment credit and for the Section 45Y clean electricity production credit when that property is located on 'prime farmland' or 'unique farmland' as defined in 7 CFR part 657. The bill adds a statutory cross-reference to the USDA definitions and limits the qualified property/facility rules so solar sited on those farmland categories cannot receive the federal credits.
This matters because the energy credits are central to solar project economics and tax equity structures. By removing credits for projects on USDA-designated prime and unique farmland, the bill would materially alter where developers choose to site utility-scale solar, affect lease values for farmland, and create coordination and enforcement questions between IRS and USDA about site-level determinations.
At a Glance
What It Does
The bill amends Section 48 to deny the energy investment credit for property used to generate solar energy that is located on 'prime' or 'unique' farmland, adds a statutory definition that defers to 7 CFR part 657, and amends Section 45Y to exclude solar facilities on those lands from the clean electricity production credit.
Who It Affects
Utility-scale and commercial solar developers, tax equity investors, landowners and lessors of prime/unique farmland, project lenders, and IRS/USDA staff who will need to coordinate site eligibility determinations.
Why It Matters
Because federal tax credits are often decisive for project finance, removing credits for projects on certain farmland shifts market incentives away from those parcels, could depress farmland lease revenues tied to solar, and raises administrative and legal questions about how to determine and document eligibility at the parcel level.
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What This Bill Actually Does
HB1237 revises the federal tax code to carve out an explicit prohibition: if a solar project is located on land the Secretary of Agriculture classifies as 'prime' or 'unique' under 7 CFR part 657, the project cannot claim the Section 48 investment tax credit for the property used to generate solar energy. The bill accomplishes this by amending the statutory definitions of 'energy property' and 'qualified property' so that solar equipment sited on those USDA-defined categories is excluded.
It also updates the statutory language governing 'qualified solar and wind facilities' to bar solar facilities on those lands from counting as eligible facilities under Section 48.
The bill makes a parallel change to the Section 45Y clean electricity production credit, adding an explicit exclusion so that a 'qualified facility' used for generating solar energy does not include facilities sited on prime or unique farmland (with the cross-reference pointing back to the new definition added to Section 48). The measure is prospective: the exclusion applies only to property placed in service after the date the law would take effect.Operationally, the statute delegates the substantive land-category definitions to the Secretary of Agriculture by citing 7 CFR part 657.
That means eligibility determinations for tax purposes will depend on USDA's classifications or maps. Developers and investors will therefore need parcel-level confirmation that a site is not classified as prime or unique farmland before they rely on federal credits, and taxpayers will need to preserve evidence of those determinations for IRS review.Because the exclusion language is limited to 'in the case of property used for the purpose of generating solar energy,' the statutory denial targets solar specifically; other technologies (for example, wind) are not broadly barred by these amendments.
The change therefore alters relative incentives across technologies as well as across parcels, with downstream effects on project economics, lease negotiations, and potential litigation over land classification or whether an installation amounts to 'use' of the farmland for generating solar energy.
The Five Things You Need to Know
The bill amends Section 48 of the Internal Revenue Code to deny the energy investment tax credit for any property used to generate solar energy that is located on 'prime farmland' or 'unique farmland' (terms defined by reference to 7 CFR part 657).
It adds a new Section 48(c)(9) definition that incorporates the Secretary of Agriculture's definitions in 7 CFR part 657, making USDA's land classifications determinative for tax eligibility.
Section 48(e)(2)(A) is amended so that a 'qualified solar and wind facility' excludes solar facilities located on prime or unique farmland, altering which projects can use investment-credit rules tied to facilities.
Section 45Y (clean electricity production credit) is changed to exclude solar facilities sited on prime or unique farmland from the definition of a 'qualified facility,' extending the denial to production-based credits as well as the investment credit.
The amendments apply only to property placed in service after enactment, so projects already placed in service before the law takes effect would not be affected by these provisions.
Section-by-Section Breakdown
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Short title — PANELS Act
This single-line section supplies the bill's short title, 'Protect Agriculture, Nutrients, and Essential Lands from Solar Act' (PANELS Act). It has no operative effect on tax treatment but frames legislative intent to prioritize protection of USDA-designated farmland categories.
Energy investment credit: exclude solar on USDA-designated farmland
These clauses amend multiple cross-references in Section 48 to exclude property used to generate solar energy when located on 'prime' or 'unique' farmland. Practically, the bill changes the statutory eligibility rules for the investment tax credit: developers cannot claim the credit for equipment sited on those land types. The new Section 48(c)(9) does not create a fresh statutory definition but instead imports the USDA definitions in 7 CFR part 657, which means the IRS will look to USDA determinations, maps, or certifications when administering the tax exclusion.
Qualified solar and wind facility rule adjusted to exclude solar on prime/unique farmland
This amendment targets the qualified-facility rules tied to Section 48(e), adding language that a facility used to generate solar energy does not qualify if located on prime or unique farmland. That change integrates the siting exclusion into facility-level eligibility tests used in several programmatic contexts (for example, aggregated facilities and placed-in-service calculations), and it will affect how developers document facility boundaries and parcel-level eligibility.
Clean electricity production credit (Section 45Y) excludes solar on specified farmland
Section 45Y's definition of 'qualified facility' is expanded to add a subparagraph excluding solar facilities on prime or unique farmland from the production credit. By amending both the investment and production credit statutes, the bill removes both major federal tax incentives for solar sited on those farmland types, not just one program. The amendment relies on the new Section 48(c)(9) reference for the farmland definition, ensuring a single point of reference but also binding 45Y eligibility to USDA determinations.
Effective date: prospective placed-in-service rule
The bill applies only to property placed in service after the date of enactment. That timing is important for projects in active development: equipment or facilities placed in service before enactment retain eligibility, while projects completing construction after enactment must comply with the exclusion. Developers will need to track placed-in-service documentation carefully to determine whether a project falls on the pre- or post-enactment side.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Owners and operators of USDA-designated prime or unique farmland who wish to preserve crop production: by eliminating federal tax incentives for solar on those parcels, the bill preserves the economic case for continued agricultural use and reduces demand-driven pressure to convert high-quality soils to solar leases.
- Adjacent landowners and communities prioritizing farmland conservation: reduced competition from solar developers for prime parcels may protect agricultural productivity, local nutrient management, and long-term land-use planning objectives.
- Conservation and agricultural advocacy groups seeking federal policy leverage to limit agricultural land conversion: the bill provides a national-level, tax-based tool to steer developers away from certain farmland categories.
Who Bears the Cost
- Utility-scale solar developers and tax equity investors with projects planned for prime or unique farmland: losing eligibility for the Section 48 investment credit and Section 45Y production credit will degrade project returns, complicate tax-equity structures, and may render some projects uneconomic.
- Landowners and farmers who relied on lease income from solar siting on their land: property owners expecting multi-decade solar lease revenue on prime or unique farmland may see lower offer prices or terminated deals as tax-driven demand decreases.
- Project lenders and offtakers who face credit and delivery risk: projects that lose tax credits may require renegotiation of financing terms or power purchase agreements, creating exposure for lenders and purchasers.
- Federal agencies (IRS and USDA): the IRS must incorporate USDA's land classifications into tax audits and guidance, while USDA may face increased requests for determinations, mapping updates, or technical assistance, potentially creating an unfunded administrative workload.
Key Issues
The Core Tension
The bill forces a classic policy trade-off: using the federal tax code to preserve scarce high-quality farmland versus using those same tax incentives to accelerate low-carbon energy deployment. Both goals—farmland protection and rapid decarbonization—have strong policy claims, but the statute solves one problem (protecting prime soils) by weakening a primary financial lever (tax credits) that drives where and how fast solar gets built, raising questions about whether tax policy is the right tool for land-use decisions and how to manage the administrative friction that follows.
The bill ties tax eligibility to USDA land classifications in 7 CFR part 657 rather than creating an independent tax-code standard. That delegation simplifies statutory drafting but creates operational questions: Will IRS accept USDA map layers without additional site-level verification?
How will temporary changes in land use, partial conversions, or dual-use (agrivoltaic) setups be treated? The statute's reliance on an external administrative classification invites coordination, discrete determinations for contested parcels, and possibly litigation over whether an installation qualifies as 'located on' the protected farmland.
The exclusion targets solar explicitly, leaving other renewables like wind untouched by these provisions. That asymmetric treatment creates technology-distortion risks: developers may prefer wind or hybrid configurations, or seek to reclassify projects to avoid the 'solar' label.
The bill does not address agrivoltaics — systems designed to maintain crop production under panels — so it is unclear whether dual-use projects on prime farmland would be treated as 'use' for generating solar energy and therefore ineligible. Finally, the placed-in-service effective date reduces retroactivity risk but creates a cliff for in-flight projects and could spur a rush to complete construction before enactment or trigger restructured project plans.
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