Expiring Commercial Solar Tax Credits: What to Know
Commercial solar projects can make attractive alternative investments due to their potentially high cash-on-cash yields and huge tax credits. Historically, investors in these projects have been able to deduct 30% of the total cost of a solar installation from their federal taxes. This Investment Tax Credit (ITC) was brought about through the Energy Policy Act of 2005, which was intended to spur growth in the industry for environmental purposes.
The One Big Beautiful Bill (OBBB) enacted by Congress on July 4th, 2025 made several changes to this Commercial Solar Investment Tax Credit that investors should be aware of prior to making an investment in a solar project.
- Construction Deadline: In order to claim the full 30% ITC, developers must begin construction by July 4, 2026. This means they must either start physical work on the site or incur at least 5% of the total project cost by that date. If a project starts after this date, it must be completed and operational by December 31, 2027 to qualify for the credit.
- Safe Harbor Provisions: If construction of a project commences prior to July 4, 2026, it qualifies for a continuity safe-harbor. This means that the project has up to 4 years to be completed from the commencement date while still maintaining the full tax credit.
- Compliance Requirements: The One Big Beautiful Bill (OBBB) also established compliance requirements related to the sourcing of materials for construction. Projects must take steps to ensure that component parts are not sourced from foreign entities flagged as Foreign Entities of Concern (FEOC) to main eligibility for the tax credits.
Commercial solar projects can still be attractive investments despite the changes in tax law. However, investors need to be aware of the changes and how they can potentially effect the returns on their projects.
