News Summary
The IRS has announced updated guidelines that redefine the ‘beginning of construction’ requirements for wind and solar energy facilities. These changes primarily impact projects beginning construction after a specified date and include stricter limitations on using the five percent safe harbor, which is now limited to smaller solar projects. The notice is part of a broader strategy aimed at promoting domestic energy production and minimizing reliance on foreign-controlled energy sources. Developers must ensure compliance with these new regulations to benefit from associated tax credits.
Washington, D.C. – On August 15, 2025, the Internal Revenue Service (IRS) announced the release of Notice 2025-42, which outlines updated requirements for determining the “beginning of construction” for wind and solar energy facilities under Sections 45Y and 48E of the Internal Revenue Code. This new guidance primarily affects projects that begin construction on or after September 2, 2025, and implements significant changes in response to governmental directives aimed at reducing reliance on foreign-controlled energy production.
The newly introduced regulations are part of a broader strategy stemming from Executive Order 14315, which was issued on July 7, 2025. This executive order specifically calls for the cessation of subsidies for energy sources controlled by foreign entities, reinforcing the need for domestic energy production.
The notice maintains the existing Physical Work Test but introduces stricter limitations regarding the application of a previously available five percent safe harbor, restricting its use solely to small solar projects with a nameplate capacity of 1.5 megawatts (MW) or less. For larger wind and solar projects, this five percent safe harbor is no longer an option; instead, these projects are now mandated to adhere directly to the Physical Work Test requirements.
For developers of larger projects who wish to utilize the five percent safe harbor, it is crucial that construction has commenced under the former guidance prior to the September deadline. The Physical Work Test allows for a variety of significant activities to take place on-site or off-site—including tasks such as excavation for turbine foundations and pouring concrete pads for wind facilities, as well as setting up support structures for solar arrays.
Additionally, the continuity requirement stipulated in previous guidelines remains unchanged. It mandates that projects must be operational by the end of the calendar year that falls four years after construction begins, ensuring adherence to established timelines.
While this notice addresses immediate concerns regarding the beginning of construction criteria, it does not extend to how these new standards interact with the Foreign Entities of Concern (FEOC) framework. The IRS has indicated that future guidance will be provided to clarify these relationships, as mentioned in a footnote within the notice.
Under The One Big Beautiful Bill Act (OBBBA), wind and solar facilities must commence construction by July 5, 2026, or be operational by December 31, 2027, to qualify for associated tax credits. This time constraint further emphasizes the urgency for developers to align their projects with the newly modified IRS guidelines.
The IRS has a history of providing updates on the beginning of construction criteria, including past notices like Notice 2013-29 and Notice 2018-59. This continued evolution of regulations reflects ongoing efforts to tighten control and streamline eligibility for both the Section 45Y clean electricity production credit and the Section 48E clean electricity investment credit.
In summary, Notice 2025-42 is a significant regulatory update that reshapes the eligibility criteria for tax incentives tied to wind and solar energy projects, aligning with federal directives to minimize foreign energy dependency. Developers are encouraged to review the updated guidance closely to ensure compliance and avoid potential penalties.
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HERE Resources
IRS Implements Stricter Construction Guidelines for Renewable Energy Tax Credits
Additional Resources
- OurQuadCities: IRS to Keep Wind, Solar Companies from Tax Breaks
- RTO Insider: IRS Guidance on Wind and Solar Credits
- New York Times: IRS Wind, Solar Tax Credits
- PwC: IRS Sheds Light on Construction Rules for Wind and Solar Credits
- Wikipedia: Renewable Energy in the United States
Author: STAFF HERE INDIANAPOLIS WRITER
INDIANAPOLIS STAFF WRITER The INDIANAPOLIS STAFF WRITER represents the experienced team at HEREIndianapolis.com, your go-to source for actionable local news and information in Indianapolis, Marion 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 Indianapolis 500, Indy Jazz Fest, and the Indiana State Fair. Our coverage extends to key organizations like the Indy Chamber and Visit Indy, plus leading businesses in motorsports and healthcare that power the local economy such as Indianapolis Motor Speedway and IU Health. As part of the broader HERE network, we provide comprehensive, credible insights into Indiana's dynamic landscape.
