Guidance for Optimizing Solar Power Project Tax Credits

Brian Grenko

Wed, April 1, 2026 astatine 6:22 AM CDT 4 min read

After transition of the One Big Beautiful Bill Act (OBBBA), IRS Notice 2025-42 eliminated the “Five Percent Safe Harbor” allowance for star facilities with much than 1.5 MWac of procreation capacity. As a result, astir commercialized star projects indispensable present conscionable rigorous “physical enactment of a important nature” requirements to found national taxation recognition eligibility. Projects that miss this deadline look an 18-month placed-in-service model that could beryllium hard to meet. In a post-OBBBA environment, star task taxation recognition optimization is fundamentally an workout successful gathering the U.S. Department of Treasury’s alleged “beginning of construction” requirements up of a fast-approaching July 4, 2026, deadline. Here is simply a high-level overview of IRS standards pertaining to Notice 2025-42, on with an overview of captious occurrence factors for establishing and maintaining star task taxation recognition eligibility.

Solar powerfulness procreation projects that commence operation aft Sept. 2, 2025—the effectual commencement day for Notice 2025-42—only suffice for Five Percent Safe Harbor if the installed capableness does not transcend 1.5 MWac. Per IRS guidance, star facilities that transcend 1.5 MWac indispensable present fulfill a caller Physical Work Test to found eligibility for the Section 48E concern taxation recognition (ITC) oregon Section 45Y accumulation taxation recognition (PTC). In different words, the Physical Work Test is simply a caller IRS modular utilized to find erstwhile operation officially “begins” for taxation recognition qualification purposes. As the sanction suggests, the Physical Work Test focuses connected the quality of carnal enactment activities performed. To conscionable the Physical Work Test, owners indispensable show that “physical enactment of a important nature” has started. Importantly, task owners tin conscionable this modular utilizing qualifying onsite carnal enactment activities, cautiously qualified offsite manufacturing activities, oregon a operation of both. (For a heavy dive connected qualifying enactment activities, spot VDE Americas’ method memorandum, “Navigating Beginning of Construction Requirements for Solar Projects,” disposable astatine bit.ly/VDE-POWER.) While the Physical Work Test is disposable to each commercialized star projects, it is the exclusive means of establishing commencement of operation for taxation recognition eligibility for facilities larger than 1.5 MWac.