Disclaimer: This article is for educational purposes only and does not constitute professional tax or financial advice, as we are not financial advisors. Due to the evolving nature of the OBBB Act, this information is subject to change based on new legislation or updated IRS guidance. We strongly recommend consulting with a qualified professional before making any investment or tax-related decisions.
The passage of the “One Big Beautiful Bill” (OBBB) Act on July 4, 2025, has significantly updated the requirements for businesses or nonprofits seeking the commercial solar tax credit. This article summarizes the key changes to qualify for this incentive.
What is the Commercial Solar Tax Credit?
Informally known as the “30% Solar Tax Credit,” the formal legislation for this commercial incentive is the Clean Electricity Investment Credit found in Title 26 of the United States Code, Section 48E. The incentive acts as a 30% discount provided by the federal government to help businesses finance solar projects. Unlike a tax deduction (which only lowers the income you are taxed on), this is a tax credit, meaning it reduces your final tax bill dollar-for-dollar.
New Deadlines
Under the new rules, a solar project must meet ONE of two milestones defined below to qualify for the 30% credit:
- Milestone 1: Begin Construction by July 4, 2026
- Milestone 2: Place the System in Service by December 31, 2027
Exploring Milestone 1: Begin Construction by July 4, 2026
If construction officially begins by 7/4/2026, the project is granted a four-year grace period to be “placed in service.” For systems under 1.5 mW (a very, very large system), two methods can be used to prove construction has officially begun:
| Method: | 5% Safe Harbor Test | Physical Work Test |
| Description: | The business or nonprofit claiming the credit must spend a minimum of five percent of the total project cost. | Construction “begins” when physical work of a significant nature is performed. Examples of qualifying work includes setting anchor bolts, installing racking structures, or driving piles for racking. |
| Notes: | The cost must be specifically allocated to the solar project via a contract, and the system builders must take receipt of the 5%. Additionally, the buyer must take possession of the equipment within 3.5 months. | Achieving this milestone on short notice is difficult, as permitting, engineering, and site visits must occur before physical work can begin. A minimum of 4-5 months should be planned before the deadline. |
Exploring Milestone 2: Place the System in Service by December 31, 2027
If the system is placed in service before the end of 2027, it should be eligible for the tax credit (provided all other requirements are met). Being “placed in service” can be defined as the system is ready and available for its intended function, even if it is not yet being actively used. Obtaining Permission to Operate (PTO) from the utility company is the safest way to demonstrate the system is placed in service.
Unlike Milestone 1, there is no four-year grace period for this method. If the system is not placed in service by December 31, 2027, it is not eligible for the tax credit. Project timelines can vary significantly based on location, size, and type, so early action is advised.
New Material Requirements
The OBBB Act introduces Foreign Entity of Concern (FEOC) rules to diversify the supply chain by removing components sourced from countries like China and Russia. The minimum required percentage of raw materials that must NOT come from FEOC countries is detailed below:
| Construction Year: | 2025 | 2026 | 2027 |
| Required Non-FEOC Content: | 0% | 40% | 45% |
Example: If the project begins construction in 2027, it must have at least 45% material that must NOT come from China, Russia, etc. Furthermore, simply ensuring the final solar panels are manufactured in the U.S. is not enough. The rules track the raw materials within the components, which complicates compliance, as many raw materials originate from FEOC countries.
When to Claim the Tax Credit
The tax credit is legally claimable for the year the system was placed in service. The legislation reads as follows:
“The Clean Electricity Investment Credit… for any taxable year is an amount equal to the applicable percentage of the qualified investment… placed in service by the taxpayer during such taxable year.”
Takeaway: You do not claim the credit when the contract is signed or construction begins. You claim it on the tax return for the year the utility grants you Permission to Operate (PTO) and the system is fully operational.
Act Now to Secure Your Credit
The window for securing the 30% Clean Electricity Investment Credit is closing. The sooner a business initiates its project and takes concrete steps toward meeting a milestone, the better positioned it will be to claim this valuable tax credit. To begin planning your project’s compliance strategy and walk through the full process together, please reach out to our team as soon as possible!