In August 2025, the Treasury Department and the Internal Revenue Service (IRS) released new guidance regarding safely accommodating solar projects for the investment tax credit (ITC). Safe Harboring allows companies to make a good faith effort to start a solar energy project to secure applicable tax credits that year.
Credit: McCarthy Building Companies
While utility-scale solar projects could once take advantage of the “5% safe harbor” rule, which only required the project developer to cover 5% of the project cost by a certain date, the federal government changed this to a “physical work test.” For projects larger than 1.5 MW, racks must be installed at a location at least before July 4, 2026 to qualify for the ITC.
The physical work requirement does not include “preparatory activities” such as leveling the land, conducting studies or clearing a site. The IRS also requires that projects using the physical work test “maintain a continuous construction program,” 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 enter service under the continuity safe harbor.
This was an abrupt rule change, said US Democrat Sens. Catherine Cortez Masto (Nevada), Chuck Schumer (New York) and Ron Wyden (Oregon). The trio filed a resolution this month under the Congressional Review Act to overturn the IRS’s physical work testing rule because it “makes it harder for wind and solar companies to claim critical tax benefits” and “raises the cost of building America’s clean energy infrastructure, harming the United States’ ability to meet increased electricity demand and leading to higher energy prices for working families.”
“This eleventh-hour change to the IRS guidelines is nothing more than a blatant attempt to disqualify projects needed to build out our nation’s clean energy infrastructure,” Cortez Masto said. “For years, wind and solar companies have been planning their investments in our nation’s energy grid, ready to meet our rising energy demands, create good-paying jobs and invest in our future. The Republican tax bill and this last-minute administration guidance will increase energy prices and dampen investment, and Congress must act.”
Senate Joint Resolution 107 was read twice and referred to the Finance Committee.
