Five key insights for meeting end-of-year Safe Harbor deadlines

With the release of IRS Notice 2025‑42 by the Internal Revenue Service, developers of wind and solar projects, and their advisers, must sharpen their focus on the need to begin construction as soon as possible. Notice 2025-42 established modified “beginning of construction” timetables, which drive Safe Harbor strategies under the new tax law regime for sections 45Y and 48E. Below are five key items that every project team should finalize before year-end.

1. Understand the deadline: Begin construction by July 4, 2026 or earlier for additional benefits

Under the One Big Beautiful Bill Act (OBBBA), tax credits for applicable solar and wind facilities will terminate for projects placed in service after Dec. 31, 2027, unless construction begins by the “beginning of construction deadline” of July 4, 2026.

Notice 2025-42 establishes that for purposes of determining the beginning of construction date, the new guidance generally applies for facilities the construction of which did not begin, under prior guidance, before Sept. 2, 2025.

In practical terms, projects should aim not only to satisfy this beginning of construction requirement and begin by July 4, 2026, but ideally to lock in that status before Dec. 31, 2025, to maximize planning certainty and thereby avoid being subject to foreign entity of concern (FEOC) compliance rules that kick in on Jan. 1, 2026, for most companies.

Take-away: If you haven’t already begun construction on your solar or wind project by Dec. 31, 2025, you should treat July 4, 2026, as your back-stop window to ensure you have plenty of time to build your project and still earn section 45Y and 48E tax credits.

2. Safe Harbor methods: Physical Work Test vs 5 % Safe Harbor — with major changes

Historically, taxpayers could establish beginning of construction by either the “Physical Work Test” (begin physical work of a significant nature) or the “5% Safe Harbor” (pay/incur at least 5% of total project cost) under earlier guidance (e.g., Notice 2013-29 and successors).