The end of the 5% safe harbor for energy credits

OBBBA didn’t just grab headlines, it pulled forward the sunset of clean electricity credits. For projects that begin construction after July 4, 2026, credits will only be available if they’re placed in service by Dec. 31, 2027. That’s a very short window. For example, if you are building a wind farm with a signed contract, and the construction starts next year on July 25, 2026, you’ll need to have it up and running by the end of Dec. 2027.

Notice 2025-42, which says, in essence, no more easy outs. For projects beginning construction on or after Sept. 2, 2025, you can’t lean on the old safe harbor (with one small exception). Instead, you’ve got to show real, tangible construction activity.

The headline change is clear; the 5% safe harbor is history for wind and most solar projects. The only survivors are small solar facilities with a maximum net output of 1.5 MW (AC) or less, such as residential or small commercial systems.

Everyone else is now pushed into the Physical Work Test lane. Developers can’t just front-load a modest spend and call it a day. They need to roll up their sleeves, break ground and lock in custom manufacturing if they want credits.

By: National Association of Tax Professionals

September 9, 2025