OBBBA’s Impact on Solar Buildings
The 2025 Act (formerly referred to as the One Big Beautiful Bill Act or OBBBA) eliminates credits for wind and solar projects placed in service after 12/31/27, with an exception for projects on which construction begins within 12 months of 7/4/25.
Getting the Construction of Your Green Projects
Started Before 7/5/26 and Into Service By 12/31/27 is Key
Now it’s just a question of defining when construction starts. In the past, taxpayers have relied on a 5% safe harbor, but on 8/15/25 the IRS released guidance on the beginning of construction requirement for wind and solar projects that put safe harbor in jeopardy for some facilities.
Notice Provided by Checkpoint
IRS Provides Beginning of Construction Guidance on Wind and Solar Credits: On 8/15/25, the IRS released guidance on the wind and solar beginning of construction requirement for projects to qualify for tax credits under IRC Sec. 45Y and 48E (IRS Notice 2025-42). The 2025 Act (formerly referred to as the One Big Beautiful Bill or OBBB) eliminates these credits for wind and solar projects placed in service after 12/31/27, with an exception for projects on which construction begins within 12 months of 7/4/25. Facilities that don’t begin construction prior to 9/2/25, may generally no longer use the 5% safe harbor test and must instead apply the physical work test to determine when construction begins. The notice defines the beginning of construction as the point at which continuous physical work of a significant nature commences. Physical work of a significant nature includes both off-site and on-site physical work (performed either by the taxpayer or by another person under a binding written contract) such as the manufacture of components, excavation, and installation of structures.
So standard safe harbor is no longer applicable for larger, high-output buildings. However, to determine the beginning date of construction for a smaller, low-output solar facility, the 5% safe harbor found under Notice 2022-61, Sec. 2.02(2)(ii) can be used [See Below].
- A low output solar facility is an applicable solar facility that has maximum net output of not greater than 1.5MW as measured in alternating current.
- The safe harbor provides that construction of a facility will be considered as having begun if a taxpayer pays or incurs 5% or more of the total cost of the facility, and thereafter, makes continuous efforts to advance towards completion of the facility.
There is another safe harbor for the “continuous efforts” requirement found at Sec. 4.04 of the Notice that provides if a taxpayer places an applicable wind or solar facility in service by the end of a calendar year that is no more than four calendar years after the calendar year during which construction of the applicable wind or solar facility began (Continuity Safe Harbor Deadline), the applicable wind or solar facility will be considered to satisfy the Continuity Requirement (Continuity Safe Harbor).
Conclusion
While we are unsure of the future of green energy tax initiatives, we can work together to get you all the savings that are available today. Contact us today speak with our green energy and tax experts today.
