Tax insurance after OBBB: Policies cost more, but the market is turning back towards buyers

These trends may be starting to reverse. Brokers report more deal flow in 2026 than in 2025, with capacity from insurers increasing and policy premiums beginning to fall. A July court ruling on the Alta Wind case has also given sponsors firmer ground on the basis step-up risk that historically worried underwriters most.

The real risks often are in the areas where insurance does not cover a buyer—exclusions or coverage gaps.

Deadlines and supply chains

Two aspects of OBBB are driving tax insurance underwriting in the current market. The first is the construction deadline. For wind and solar, qualification for the Section 48E investment tax credit (ITC) and Section 45Y production tax credit (PTC) depends on when construction began. A project that started by 4 July 2026 has four years to finish; one that didn’t must be placed in service by the end of 2027.

Beginning-of-construction (BOC) documentation used to be a routine closing item. Now the whole credit depends on it. Initially, the IRS had provided notice that beginning-of-construction must be established using the continuous work test rather than the 5% safe harbour. In June, a federal court vacated the IRS notice that had tightened the rules and restored the 5% safe harbour, and the government let its appeal window close. The IRS could still rewrite the notice, but underwriters appear comfortable underwriting the BOC test.

The second is the foreign entity of concern (FEOC) rules. A project that begins construction after 2025 loses the credit if it receives “material assistance” from a prohibited foreign entity, and a credit can’t be transferred to a specified foreign entity, so the buyer’s own status is tested, too. The US Treasury’s February 2026 interim safe harbours left harder questions—such as what “effective control” means—open. For underwriters, the question is whether a supply chain with Chinese ties can be documented to a standard nobody had to meet before. For now, most insurers are hesitant to provide broad FEOC tax insurance coverage.

Policies now answer one question at a time

The core coverages haven’t changed: qualification, recapture and timing. What’s new is the scoping.

Underwriters are increasingly writing bespoke policies around a single question, such as BOC qualification or FEOC compliance. Despite the narrower scopes, they often expect far more paper: supply chain attestations, component-origin records, evidence of physical work or the 5% spend and manufacturer certifications tied to units by serial number. A well-documented project is generally insurable at a sensible price. A poorly documented one may not be insurable at all.

In a credit sale, the seller often buys the policy and names the buyer as an additional insured. Buyers should read these policies and ask questions, such as:

• Who controls the claim if the seller ceases to exist, such as in a bankruptcy?
• Is the buyer’s own FEOC status covered or assumed?
• And does coverage run the full FEOC recapture window (e.g. ten years for ITCs in 2028 and beyond), or only a standard seven years?

It is also worth noting that while a buyer-procured policy costs more, it may provide better answers to these questions.

Capacity is coming back

The market has kept growing even as underwriters have gotten pickier. One broker placed US$9–10 billion of limits in 2025, according to a Norton Rose Fulbright presentation during a finance event held in the US earlier this year.

The price increases are being driven mostly by supply, not risk. Per policy capacity fell to roughly US$700–800 million by mid-2025, down from about US$1.5 billion a year earlier, as carriers left and reinsurers pulled back. We’ve seen quotes near 8% of the policy amount on harder risks.

This year, pricing has started to ease. At least two new primary insurers have entered and several others have returned. We count more than 20 underwriters with towers above US$1 billion for the largest deals, and quotes on straightforward single-asset solar ITC deals are running at lower prices than we saw in late 2025.

Small deals haven’t shared in the relief. Minimum underwriting premiums of US$200,000–500,000 make a policy hard to justify on credit sales under about US$10 million, and no standardised small-project policy has launched. As a workaround, some brokers are pooling several small deals from different buyers and sellers under one policy using the same forms and diligence package. Otherwise, the buyer is relying on the seller’s balance sheet, and many sellers are highly leveraged development companies that may not be considered sufficiently creditworthy.

Wider exclusions, and a court ruling on basis

Policies have always excluded tax credit recapture caused by the insured, such as voluntarily selling the project inside the five-year compliance period. For the first time in 2026, some insurers also began to exclude ITC recapture caused by weather casualties.

On FEOC, the market insures Section 48E credits but generally excludes the FEOC risk itself. FEOC is a threshold question: a project is either in or out, and the loss is total. A few underwriters will cover a narrow FEOC question on a strong legal opinion, but none yet offer broad cover. We are hopeful that will change once the US Treasury finishes its guidance.

Underwriters are also strict on basis step-ups (i.e. the amount of developer profit built into the eligible basis the credits are claimed on). Most will fully insure a basis step-up only to about 25% above cost, prior owners’ profit included, because step-ups have been the main focus of what little IRS audit activity there has been.

That may start to loosen. In July of this year, the US Court of Federal Claims ruled on Alta Wind, a 13-year dispute over the basis of six California wind farms under the old Section 1603 cash grant, which used today’s ITC basis rules. The court counted developer profit of 15–20%, construction interest and a US$100.5 million related-party development fee as eligible basis and set no cap on profit. The roughly US$157 million it rejected failed for lack of documentation, not on principle.

The ruling may be appealed, but sponsors that back a step-up with contemporaneous appraisals and every prior owner’s purchase price allocation could have a stronger case for coverage above 25% in some situations.

Two bank losses show where coverage ends

Ever since the solar investment tax credit has come into existence, full recapture or disallowance of credits has been almost unheard of. Yet in the first few years of transferability, there are already two public cases of large credit losses. That isn’t just bad luck. Structural differences make transferred credits more exposed to loss than tax equity investments, and the two cases show how.

In the first case, a bank bought more than US$30 million of ITCs from a residential solar company with the usual protections: an uncapped seller indemnity, a parent guarantee and a tax insurance policy the seller paid for. The seller later filed for Chapter 11 bankruptcy, and the court approved a sale of the system-owning entities free of the credit arrangements.

Because the seller appears to have owned the projects directly, that change of ownership triggered a Section 50 recapture. Had the projects instead sat in a tax equity partnership, the sponsor’s bankruptcy would have triggered recapture only on the sponsor’s share, typically 1%.

The bank booked a US$24.1 million charge in the third quarter of 2025. The indemnity and guarantee became unsecured claims, and the US$32.1 million insurance claim was still pending when the bank reported in July. The policy may yet pay, but the bank has now carried the charge for four quarters.

In the second case, a different bank agreed in mid-2025 to buy US$50 million of ITCs from a project subsidiary of another residential solar company. Within months, that seller was also in bankruptcy, and ownership of the projects shifted before the credits had been properly transferred.

The bank tried to work with the seller to claim the credits, but the new owner said it couldn’t establish ownership of the systems behind roughly US$20 million of the credits. The transfer agreement required the seller to obtain IRS pre-filing registration numbers for the credits by 31 December 2025, and it didn’t. No registration numbers, no credits. The bank now holds an unsecured claim and may face a near-total loss on the credits.

The second case wasn’t a Section 50 recapture at all. The credits were simply never delivered. That is an execution risk many buyers of transferable credits may not fully appreciate, and tax insurance policies sometimes exclude failures to properly claim the credits, which can leave buyers exposed.

Five things to do before binding your next policy

1. Bring the underwriter in early. Get the underwriter into diligence early enough that qualification, timing and FEOC exposure shape the deal terms and the policy together, before the price is set. Placement typically takes two to five weeks.
2. Scope the policy to the appropriate risks. A BOC or FEOC policy written for that one risk is usually cheaper and cleaner than a full wrap policy and may be sufficient for tax equity investments. For transferable tax credit deals, a full wrap tax insurance policy is more customary.
3. Read the exclusions. Read the casualty, voluntary act, change-of-ownership and seller bankruptcy exclusions carefully as the limit. That is where policies now differ most.
4. Cover delivery risk. Tax insurance policies may not cover a credit that never reaches you. Buyers should be wary when paying for credits prior to the delivery of IRS pre-filing registration numbers.
5. Plan for the claim timeline. The claim process is inevitably a negotiation. Buyers should think about the months between recapture and recovery, and how it may show up in quarterly earnings.

A better time to buy

Tax insurance is still widely utilised in tax credit deals, and it is becoming more important than ever. Tax insurance underwriters are adding additional scrutiny to BOC and supply-chain documentation and driving market caps on eligible basis step ups. FEOC risk will likely stay outside most policies until Treasury finishes the rules, which may not happen until 2027.

In the meantime, capacity is returning, prices are stabilising and the Alta Wind ruling has given sponsors a clearer way to defend their basis. This means it’s likely a better time to buy a policy now than it was in late 2025. Before signing your next tax insurance policy, ask what it excludes, and think about what happens if the seller fails to properly claim the credits on their tax return.

Bryen Alperin is partner and managing director at Foss & Company, a tax equity syndication firm. As head of the Energy & Infrastructure platform, Bryen helps institutional investors navigate the renewable energy and advanced manufacturing tax credits landscape. For informational purposes only. Not tax advice.