In August 2025, the Dept. of the Treasury and the Internal Revenue Service (IRS) released new guidelines related to safe harboring solar projects for the investment tax credit (ITC). Safe harboring allows companies to demonstrate a good-faith effort at starting a solar project to secure the applicable tax credits in place that year.
Credit: McCarthy Building Companies
Whereas utility-scale solar projects could once use the “5% safe harbor” rule that only required the project developer to incur 5% of the project costs before a certain date, the federal government changed it to a “physical work test.” Projects larger than 1.5 MW must at least have racks installed on a site by July 4, 2026, in order to apply for the ITC.
The physical work requirement does not include “preliminary activities” like grading the land, conducting studies or clearing a site. The IRS also requires projects using the physical work test to “maintain a continuous program of construction,” where the “physical work performed is of a significant nature.”
Projects smaller than 1.5 MW can still use the 5% safe harbor. All projects still have four years to be placed in service under the continuity safe harbor.
This was an abrupt rule change, stated U.S. Democrat Sens. Catherine Cortez Masto (Nevada), Chuck Schumer (New York) and Ron Wyden (Oregon). The trio introduced a resolution under the Congressional Review Act this month to overturn the IRS’s physical work test rule, as it “makes it harder for wind and solar energy companies to claim vital tax credits” and “adds to the cost of building America’s clean energy infrastructure, hurting the United States’ ability to meet increased demand for electricity and leading to higher energy prices for working families.”
“This eleventh-hour change to IRS guidance is nothing but a blatant attempt to disqualify projects needed to build out our nation’s clean energy infrastructure,” Cortez Masto said. “For years now, wind and solar companies have been planning their investments into our nation’s energy grid, ready to meet our rising demand for energy, create good-paying jobs and invest in our future. The Republican tax law and this last-minute guidance from the administration will raise energy prices and chill investment, and Congress must step in.”
Senate Joint Resolution 107 has been read twice and referred to the Committee on Finance.
