Wind and Solar Hit a July 4, 2026 Begin-Construction Deadline

Sections 45Y and 48E After the Notice 2025-42 Vacatur 

The 2025 reconciliation law rewrote the timeline for federal clean-energy tax credits, extending some incentives while imposing hard deadlines on others. For the technology-neutral clean-electricity credits that replaced the older production and investment credits — Section 45Y and Section 48E — the most important date for wind and solar developers fell on July 4, 2026.

The stakes are unusually high because a single question — whether a project validly “began construction” by the deadline — can determine substantial credit value across the energy and infrastructure sectors. And this year that question arrived without a settled answer, after a federal court vacated the IRS guidance that had defined how developers meet the test.

Recent Program Activity: What Changed

Under Public Law 119-21 (enacted July 4, 2025), Congress accelerated the phase-out of the clean-electricity credits for wind and solar. A wind or solar facility is denied the Section 45Y and Section 48E credits if it is placed in service after December 31, 2027 — unless it began construction on or before July 4, 2026. Projects that begin construction on or before that date instead rely on the continuity safe harbor under IRS beginning-of-construction guidance: a facility placed in service by the end of the fourth calendar year after the year construction began is deemed to satisfy the continuity requirement (for a construction start in 2026, generally by the end of 2030). It is a safe harbor, not an unconditional guarantee — a facility that misses that window can still qualify, but only by demonstrating continuous progress toward completion under a facts-and-circumstances test.

Two Ways to “Begin Construction” — Then One

Historically, a taxpayer could establish beginning of construction in either of two ways: the Physical Work Test, based on starting physical work of a significant nature, or the Five Percent Safe Harbor, based on paying or incurring at least five percent of a project’s total cost. On August 15, 2025, responding to an executive order, the Treasury Department and IRS issued Notice 2025-42, which eliminated the Five Percent Safe Harbor for wind facilities and for solar facilities with a maximum net output above 1.5 megawatts (AC), leaving the Physical Work Test as the only path for those projects. The Notice applied only prospectively — to applicable facilities that had not begun construction before September 2, 2025 — and low-output solar facilities of 1.5 megawatts (AC) or less kept the Five Percent Safe Harbor.

A Court Vacates the Notice

On June 6, 2026, the U.S. District Court for the District of Columbia vacated Notice 2025-42 in full as arbitrary and capricious under the Administrative Procedure Act — finding that the IRS had not given a reasoned explanation for reversing its long-standing dual-test framework and had not adequately weighed the serious reliance interests built up over more than a decade — and remanded the matter to the IRS. The immediate effect was to restore the Five Percent Safe Harbor, at the district-court level, as an available method for establishing beginning of construction. The July 4, 2026 statutory deadline then passed with the applicable standard unsettled and the ruling subject to a possible government appeal or replacement guidance, meaning the method a project relied on to “begin construction” could still be affected by later proceedings.

Program Overview: How the Clean-Electricity Credits Work

Sections 45Y and 48E are the technology-neutral successors to the traditional renewable electricity production tax credit and the energy investment tax credit. Section 45Y provides a production credit based on the electricity a qualified zero-emissions facility generates over a defined period, while Section 48E provides an investment credit based on a percentage of the cost of qualified property placed in service. Both are available to a range of generation technologies that meet emissions criteria, with bonus amounts tied to prevailing-wage and apprenticeship, domestic-content, and energy-community requirements.

For wind and solar specifically, the 2025 law overlaid the accelerated placed-in-service cutoff described above. That is why beginning of construction — and the ability to document it — became the pivotal compliance question for these two technologies in 2026. The core production-credit and investment-credit structure did not change, though the 2025 law layered on other restrictions, including prohibited-foreign-entity provisions that can affect eligibility.

The Compliance Reality

Beginning of construction has always been a facts-and-circumstances determination that depends on contemporaneous records — dated evidence of physical work performed, or records substantiating qualifying costs paid or incurred. With the governing method in flux, that documentation discipline matters more than ever. Projects that relied on the Physical Work Test under the now-vacated notice, and projects that relied on the restored Five Percent Safe Harbor, both have an interest in preserving robust records in case the legal standard shifts again on appeal or through new Treasury guidance.

Because the situation remains subject to litigation and possible further guidance, companies should confirm their specific positions with qualified tax advisors and monitor developments closely rather than treating any single method as settled.

How SSG Can Help

Federal tax credits can materially affect a project’s economics, but they are only one component of a comprehensive location and incentive strategy. Site Selection Group specializes in identifying, evaluating, negotiating, and securing state and local incentives, including statutory benefits, discretionary packages, and location-based programs that can significantly influence where a project ultimately lands.

When federal incentives are part of a project’s economics, SSG factors them into the broader site-selection analysis and coordinates the state and local strategy alongside the client’s qualified tax and legal advisors, ensuring the local package complements the client’s overall incentive position.

If your company is evaluating locations for a new or expanding facility, contact SSG to compare competing jurisdictions and develop a coordinated state and local incentive strategy that strengthens the project’s overall business case.

Program details verified against primary sources as of August 1, 2026. This article is provided for general information and does not constitute tax or legal advice.