Construction Starts on Solar, Wind Facilities: What’s Different?

IRS Notice Outlines Construction Start Guidelines for Solar and Wind Facilities

The Internal Revenue Service (IRS) published Notice 2025-42 on August 15, 2025. This document provides guidance to taxpayers on establishing the “beginning of construction” (BOC) of a wind or solar facility. The notice comes in response to an executive order (EO) issued by President Donald Trump on July 7, 2025.

The EO mandated the U.S. Department of the Treasury secretary to issue guidance for wind and solar facilities under certain sections of the Internal Revenue Code. The guidance was to ensure policies concerning the ‘beginning of construction’ are not circumvented and to prevent the artificial acceleration or manipulation of eligibility.

New Changes in Rules for Wind and Solar

Notice 2025-42 introduces several changes to the construction commencement rules for wind and solar facilities:

• Elimination of the 5 Percent Safe Harbor for all wind facilities and for solar facilities with net output of more than 1.5 megawatts of alternating current power (MW(ac))
• Retention of the Physical Work Test with minor modifications
• A four-year continuity requirement safe harbor, replacing the 10-year continuity safe harbor for offshore wind projects and projects on federal lands

Notice 2025-42 Scope

The new notice applies to solar and wind facilities that start construction on or after September 2, 2025. It is used to determine if the construction of a wind or solar facility begins by July 3, 2026. However, it doesn’t apply to the determination of the beginning of construction for the foreign entity of concern (FEOC) material assistance rules.

Changes in Beginning Of Construction Rules

The Beginning Of Construction (BOC) notices from the IRS provide two methods to establish the BOC of a qualified facility or energy property project. These are either by beginning physical work of a significant nature (Physical Work Test) or by paying or incurring 5 percent or more of the cost of that facility or property (5 Percent Safe Harbor).

Physical Work Test

The Physical Work Test requires taxpayers to start physical work of a significant nature on a qualified facility. Notice 2025-42 has not significantly modified the historical rules under this test. However, it doesn’t include the 10-year Continuity Safe Harbor provision for offshore wind projects and projects built on federal land, as included in previous BOC Notices.

5 Percent Safe Harbor

Under the 5 Percent Safe Harbor, taxpayers are required to pay or incur 5 percent or more of the total cost of a qualified facility or energy property project. However, Notice 2025-42 eliminates the use of the 5 Percent Safe Harbor for wind and solar facilities that begin construction on or after September 2, 2025, apart from solar facilities with a net output of less than 1.5 MW(ac).

Notes

¹ See Notices 2013-29, 2013-20 IRB 1085; 2013-60, 2013-44 IRB 431; 2014-46, 2014-35 IRB 520; 2015-25, 2015-13 IRB 814; 2016-31, 2016-23 IRB 1025; 2017-04, 2017-3 IRB 541; 2018-59, 2018 IRB 196; 2019-43, 2019-31 IRB 487; 2020-41, 2020-25 IRB 954; 2021-05, 2021-3 IRB 479; 2021-41, 2021-29 IRB 17; and Notice 2025-42.