The Treasury Department and IRS released guidance on what is considered beginning construction for clean energy projects trying to qualify for tax credits, generally nixing a prior guideline on investing 5% to qualify.
Developers have long relied on IRS notices to define the starting point of construction to qualify for the energy tax credits from the Biden-era tax-and-climate law. There have been two tests: physical work or a safe harbor where developers can delay physical work by paying at least 5% of the project costs and showing continuous work on the project.
Notice 2025-42 released Friday said that the safe harbor isn’t available for determining whether a wind or solar facility has met the beginning of construction deadline and therefore “is not subject to the credit termination date.” Companies will instead rely on the physical work test.
For low solar outfit facilities, which is considered a facility with a maximum net output of not greater than 1.5 megawatt, the 5% safe harbor remains an option.
Following passage of the GOP’s tax law disbanding most of the credits over several years, President Donald Trump ordered Treasury to revise guidance related to construction rules so they’re not circumvented, “including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of the subject facility has been built.”
The order came after House conservative holdouts agreed to back the GOP’s massive tax-and-spending law following negotiations with Trump on the approach to enforcing the end of the credits.
Wind and solar projects must start construction within a year or be placed in service by the end of 2027 to qualify for the clean electricity investment and production credits, making this guidance critical for developers rushing to qualify before the tax credits expire.
(Updated with additional information from the Treasury notice. )
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