Overview

• Notice 2025-42 preserves the physical work test by requiring significant on-site or off-site construction activity to establish beginning of construction.
• The longstanding 5% spend safe harbor is eliminated for all but low-output solar facilities of 1.5 MW or less, cutting off a cost-based qualification route for larger projects.
• The guidance applies prospectively to projects beginning after Sept. 2, 2025, while projects that met earlier construction tests remain grandfathered under prior rules.
• Treasury retained a four-year continuity safe harbor, allowing developers up to four years after construction starts to place facilities in service.
• Industry reaction split as solar equities climbed on reduced worst-case fears and clean-energy groups and lawmakers signaled legal, financing and FEOC-related uncertainties ahead.