Below is update to the most current guidelines for achieving Safe Harbor for commercial solar projects. The updates below are a summary of IRS guidance on the termination of the Solar Investment Tax Credit under Section 48E.
If you’re reading this before September 4, 2025, you definitley want to sign up for our webinar on Safe Harboring Multi-Family Solar Systems. You can also go directly to the webinar sign-up page.
What follows below is an encapsulation of the new Treasury guidelines that were announced in mid-August as a response to the Executive Order given on 7.7.25.
Background: Following the enactment of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, and under Executive Order 14315, the IRS has issued new guidance (Notice 2025-42) governing when construction of a solar facility must begin to remain eligible for the full 30% Investment Tax Credit (ITC) under Section 48E of the Internal Revenue Code.
Key Changes Affecting Solar Projects
1. Tax Credit Termination Date
- The Section 48E ITC will no longer apply to applicable solar facilities placed in service after December 31, 2027 if construction begins after July 4, 2026.
2. Five Percent Safe Harbor Restrictions
The IRS has eliminated the Five Percent Safe Harbor for large projects that are greater than 1.5MW AC. In other words, spending 5% of project costs by July 4, 2026 will no longer be enough to lock in the ITC.
Exception for Small Systems – Systems under 1.5 MW AC can still use the Five Percent Safe Harbor Test, offering some flexibility for distributed solar and behind-the-meter installations.
3. New Standard: Physical Work Test Only.
- To preserve ITC eligibility for projects greater than 1.5MW AC, system builders must now begin “physical work of a significant nature” on the project before July 5, 2026. This includes:
○ Off-site work: manufacturing custom racks, inverters, and transformers under a binding contract.
○ On-site work: installing racking or other structures to affix solar panels.
4. Preliminary Activities Do Not Qualify
- Activities such as permitting, engineering, clearing land, or financing do not meet the test for beginning construction.
5. Continuity Requirement
- Projects must show a continuous program of construction. A four-year “Continuity Safe Harbor” allows the project to qualify if placed in service within four years of starting construction.
IMPORTANT DATES
Date
Event / Milestone
July 4, 2025
“One, Big, Beautiful Bill Act (OBBBA)” enacted.
July 7, 2025
Executive Order 14315 issued asking the Treasury Department to update the safe harbor guidelines as they relate to solar projects.
September 2, 2025
Effective date of this IRS guidance (Notice 2025-42).
December 31, 2025
Deadline to safe harbor a project to avoid FEOC (Foreign Entity of Concern) rules. FEOC places restrictions on access to the tax credit for projects that include products that are manufactured in FEOC countries.
July 4, 2026
Deadline to safe harbor to avoid credit termination. Projects safe harbored by this date have four years to complete.
December 31, 2027
Termination of 45Y and 48E credits for non safe-harbored solar facilities placed in service after this date.
December 31, 2029
Continuity Safe Harbor deadline for projects that began construction in 2025.
What You Can Do Now
Accelerate Your Project Timeline:
Act now to safe harbor your project. HES Renewables is experienced in the rules regarding Safe Harbor and can walk you through the options and required steps.
Engage Early with Our Team:
Collaborate with us now to see if your project can be safe harbored under today’s rules. We’ll help you lock in the most favorable incentives before policy shifts create uncertainty.
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Important Note: While we strive to provide accurate, timely news, HES Renewables is not a tax advisor, and this blog post does not constitute legal or tax advice. We strongly encourage companies to consult with their internal tax team or external tax professionals to review how these developments apply to each business’ specific financial situation.