As 2025 draws to a close, commercial property owners and renewable energy investors face a narrow window to secure the highest-value incentives. The One Big Beautiful Bill Act (OBBBA) has reshaped the tax landscape beginning January 1, 2026, tightening rules on equipment sourcing and “commence construction” definitions.
Commercial projects completed or safe-harbored in 2025 remain eligible for the 30 % Investment Tax Credit (ITC) under Sections 48 and 48E, 80% – 100% bonus depreciation, and potential 10% domestic-content adders. It’s a combination that delivers some of the fastest returns on investment (ROI) in the commercial renewable sector.
Taking Advantage of the 30% Investment Tax Credit (Section 48/48E)
Commercial systems that commence construction before December 31, 2025 qualify for full 48E credits. Projects can meet this test through one of two paths:
- Five Percent Safe Harbor Test: Spend at least 5 % of total project cost on qualifying equipment such as inverters or batteries before year-end 2025.
- Physical Work Test: Begin measurable construction activities at the project site.
Projects meeting either condition are grandfathered under 2025 rules, avoiding stricter “Foreign Entity of Concern” (FEOC) sourcing limits that begin in 2026. The 48E credit offers a 30% federal tax incentive for qualifying solar or storage investments, with potential 10% adders for U.S.-sourced materials, energy-community siting, or low-income benefits (U.S. Department of Energy, 2024).
Bonus Depreciation: Immediate Write-Offs, Immediate Savings
Under the Tax Cuts and Jobs Act phase-down schedule, bonus depreciation dropped from 100% in 2022 to 60% in 2024. The OBBBA, however, extended accelerated depreciation to 80% for 2025 and preserved immediate expensing for clean-energy projects that commence construction within the transition window (Journal of Accountancy, 2025).
When combined with the ITC, depreciation is applied to 85 % of the project’s cost basis (after the 30% credit reduction), generating substantial first-year deductions and lower tax liability Together, the 30% ITC + 80% bonus depreciation structure can yield payback periods of under five years for well-sited commercial solar + storage projects (The Tax Adviser, 2024).
2025 vs. 2026: What Changes? Why “Now” Is the Best Time
Projects that begin construction in 2025, either through the Five Percent Safe Harbor or the Physical Work Test. qualify under current, more flexible rules (IRS Notice 2025-42). The Five Percent Safe Harbor remains available for solar facilities ≤ 1.5 MW(ac), while larger systems may need to demonstrate physical work. Beginning construction this year also avoids new FEOC sourcing restrictions, consistent with Sol-Ark’s ITC guidance letter to procure from non-PFE manufacturers.
2026: New Hurdles & Commercial Solar Deadlines
Starting January 2026, several changes raise compliance and cost risks:
- Stricter Construction Rules: The IRS limits use of the Five Percent Test for larger projects, emphasizing ongoing physical work over financial spend. This shift increases documentation, scheduling demands, and verification requirements.
- Placed-in-Service Deadline Risk: Projects beginning after July 4, 2026 must be placed in service by December 31, 2027 to remain ITC-eligible, compressing schedules and heightening delivery risk.
- Expanded FEOC Compliance: Broader FEOC provisions will apply, potentially disqualifying credits if any covered components or suppliers are linked to prohibited foreign entities, forcing owners to restructure supply chains or accept higher costs.
New Complexities for Commercial Owners
From 2026 onward, commercial solar and storage developers will navigate a more demanding regulatory environment. Procurement diligence and certifications will become more rigorous. Owners must verify that inverters, batteries, and other subcomponents meet non-FEOC standards, adding legal and supply-chain workstreams such as vendor affidavits, contractual representations, and warranty documentation (K&L Gates, 2025).
Construction tracking and evidence requirements will also intensify. As the IRS restricts the Five Percent Safe Harbor for larger systems, developers must prove continuous on-site work to meet the “begin construction” standard, maintaining detailed logs, contractor attestations, and photographic proof throughout the build (IRS, 2025). Projects starting after July 4, 2026 must be operational by December 31, 2027 to qualify for tax credits. This condensed window drives tighter EPC contracts, larger contingency budgets, and early interconnection planning to avoid liquidated-damages penalties (Baker Botts, 2025).
Together, these changes make 2025 the final opportunity to capture full incentives under simpler, clearer rules with fewer compliance risks.
References
Energy Department. (2024, February). Federal Solar Tax Credits for Businesses. U.S. Department of Energy. https://www.energy.gov/sites/default/files/2024-02/508%20Federal%20Solar%20Tax%20Credits%20for%20Businesses_Feb24.pdf
Journal of Accountancy. (2025, June). House Passes One Big Beautiful Bill Act with Its Many Tax Changes. https://www.journalofaccountancy.com/news/2025/jun/tax-changes-in-senate-budget-reconciliation-bill
The Tax Adviser. (2024, October). Bonus Depreciation Phase-Out Planning. https://www.thetaxadviser.com/issues/2024/oct/bonus-depreciation-phaseout-planning
Internal Revenue Service. (2025, Aug. 20). Notice 2025-42: Beginning of Construction—Sections 45Y & 48E.
Baker Botts. (2025, Aug. 18). Clean Energy Tax Credits: New Guidance on Beginning of Construction for Wind and Solar Facilities.
K&L Gates. (2025, Sept. 18). Understanding the New Prohibited Foreign Entity (FEOC) Rules for Clean Energy Tax Credits.