Legal Bulletins

The One Big Beautiful Bill Act, that was passed by the U.S. House of Representatives on May 22, 2025 (the “House Bill”), eliminates the credit for solar projects (the “Credit”) on which construction begins more than 60 days after the enactment of the Act and for projects that are placed in service after December 31, 2028.

On June 16, 2025, the U.S. Senate Finance Committee released its tax bill (the “Senate Bill”).  The Senate Bill takes a different approach with respect to eliminating the Credit by providing for a phaseout of the Credit based upon when construction begins.  For projects on which construction begins in 2025, such projects are entitled to the full amount of the Credit.  For projects on which construction begins in 2026, such projects are limited to 60% of the Credit.  For projects on which construction begins in 2027, such projects are limited to 20% of the Credit.  Finally, the Credit is eliminated for projects on which construction begins after 2027.

On June 16, 2025, the U.S. Senate Finance Committee released its tax bill (the “Senate Bill”).  The Senate Bill takes a different approach with respect to eliminating the Credit by providing for a phaseout of the Credit based upon when construction begins.  For projects on which construction begins in 2025, such projects are entitled to the full amount of the Credit.  For projects on which construction begins in 2026, such projects are limited to 60% of the Credit.  For projects on which construction begins in 2027, such projects are limited to 20% of the Credit.  Finally, the Credit is eliminated for projects on which construction begins after 2027.

Through various notices issued by the IRS, the IRS has prescribed two methods for a taxpayer to establish that construction has begun for purposes of the Credit.  Both methods require the taxpayer to make continuous progress toward completion once construction has begun.

Under the first method, the Physical Work Test, construction is deemed to begin when physical work of a significant nature begins.  This test focuses on the nature of work performed, and not the amount of the work or the cost of the work.  Both on-site and off-site work may be taken into account for purposes of this test.  Preliminary activities, such as planning, designing, exploring, and site clearing, are not taken into account, even if they are properly includable in the depreciable basis of the energy property.   Whether or not a taxpayer satisfies this test will be based upon the relevant facts and circumstances.

Under the second method, the Five Percent Safe Harbor, construction is deemed to begin if a taxpayer pays or incurs costs of five percent or more of the total costs of the project and, thereafter, the taxpayer makes continuous efforts to advance towards completion of the project. 

Douglas T. Coats
410-576-4002 • dcoats@gfrlaw.com