News Summary
The IRS has released new guidance changing the requirements for wind and solar energy projects to receive federal tax credits. The updates focus on the Tech-Neutral Tax Credits, which emphasize the necessity of concrete construction activities for eligibility. Projects must commence construction by July 5, 2026, to qualify, and the previously existing 5% Safe Harbor option has been eliminated. This shift aims to tighten oversight and could impact the pace of renewable energy project deployments amidst ongoing political debates.
Washington, D.C. — August 15, 2025
The Department of Treasury and the Internal Revenue Service (IRS) have issued new guidance that significantly alters the requirements for qualifying wind and solar energy projects to receive federal tax credits, aiming to be effective from September 2, 2025. The updates, outlined in IRS Notice 2025-42, respond to recent legislative changes and political directives targeting renewable energy subsidies, with implications for projects aiming to meet the upcoming construction deadline of July 4, 2026.
Overview of the New Guidance
The guidance pertains to the Tech-Neutral Tax Credits, particularly Sections 45Y and 48E, which support wind and solar projects respectively. It consolidates recent legislative and executive actions, including the One Big Beautiful Bill passed in July 2025, that caps tax credits for eligible facilities placed into service after December 31, 2027. The law stipulates that projects must initiate construction by July 5, 2026, to qualify for favorable tax treatment, setting a firm deadline to qualify.
Changes to Construction Requirements
Key modifications introduced by the IRS notice include:
- The elimination of the 5% Safe Harbor option for defining “beginning construction” for nearly all wind and solar facilities. Previously, projects that incurred at least 5% of the construction costs or activities could qualify, offering flexibility during project development.
- The Physical Work Test remains in place, requiring physical onsite work or work under a binding contract for offsite activities, such as manufacturing equipment. This test continues to be the primary measure for establishing the commencement of construction.
- The Continuity Safe Harbor remains available, allowing projects that start construction within four years and subsequently place the facility in service to qualify, provided ongoing construction activities are maintained.
- The guidance emphasizes the need for “physical work of significant nature,” with activities like surveys or test drilling not qualifying as initiation of construction.
Implementation and Impact
The new rules are set to take effect for projects beginning construction on or after September 2, 2025. Projects that meet the previous 5% Safe Harbor before this date continue to qualify. Additionally, solar facilities with less than 1.5 megawatts of maximum output can still rely on the old Safe Harbor criteria. The stricter definition aims to ensure that only projects demonstrating concrete construction activity qualify for tax credits.
Industry Response and Criticism
The renewable energy sector has expressed concern over the guidance, citing fears that the tighter standards will slow the deployment of wind and solar projects. Critics argue that by relying solely on physical work of significant nature, the rules could impose additional hurdles for project developers, potentially delaying construction and increasing costs. There are concerns that this shift favors more traditional energy sources and discourages early-stage development activities like testing or preliminary surveys.
Legislative and Political Context
The changes are rooted in political debates within the Republican Party during the passage of the One Big Beautiful Bill. Conservative members advocated for stricter requirements, arguing that federal incentives should be closely tied to tangible, ongoing work. Meanwhile, moderate Republicans supported clearer standards to prevent abuse of tax credits. A prominent senator expressed approval for the guidance, indicating that the rules provide a workable path for energy projects to fulfill the new criteria.
Background and Future Outlook
These updates mark a significant shift from prior standards, emphasizing the nature of construction activity rather than monetary thresholds or initial work. The move aims to tighten oversight of which projects qualify for federal incentives and to prevent claims based on minimal activities. As the industry adjusts to these new rules, stakeholders will need to carefully document physical work and adhere to the revised definitions to secure tax benefits for their renewable projects in the coming years.
Deeper Dive: News & Info About This Topic
HERE Resources
Additional Resources
- The Hill: Treasury Guidance on Wind and Solar Tax Credits
- Utility Dive: Treasury Commence Construction for Wind and Solar Tax Credits
- Wall Street Journal: European Renewable Stocks Rise After U.S. Tax Credit Guidance
- Recharge News: Wind Power Stocks Surge After U.S. Tax Credit Specification
- Politico Pro: Treasury Reportedly Tightens Screws on Tax Credits for Renewables
Author: STAFF HERE RALEIGH WRITER
RALEIGH STAFF WRITER The RALEIGH STAFF WRITER represents the experienced team at HERERaleigh.com, your go-to source for actionable local news and information in Raleigh, Wake County, and beyond. Specializing in "news you can use," we cover essential topics like product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise drawn from years of dedicated reporting and strong community input, including local press releases and business updates. We deliver top reporting on high-value events such as the North Carolina State Fair, Raleigh Arts Festival, and the Hopscotch Music Festival. Our coverage extends to key organizations like the Greater Raleigh Chamber of Commerce and Visit Raleigh, plus leading businesses in technology and education that power the local economy such as Red Hat and NC State University. As part of the broader HERE network, including HEREAsheville.com, HERECharlotte.com, HEREGreensboro.com, and HEREOBX.com, we provide comprehensive, credible insights into North Carolina's dynamic landscape.
