Overview

• Notice 2025-42 applies prospectively to projects that begin construction on or after Sept. 2, leaving a short window through Sept. 1 to rely on the prior 5% cost safe harbor.
• The Physical Work Test remains available for on-site and qualifying off-site work, and projects meet continuity if placed in service within four years of starting construction.
• The 5% safe harbor survives only for low‑output solar facilities of 1.5 MW AC or less, with aggregation rules to prevent splitting larger projects into smaller units.
• Attorneys note the removal of the looser “continuous efforts” option under continuity, signaling tighter compliance expectations even as the four-year safe harbor is preserved.
• Reactions were mixed—Sen. Chuck Grassley called the guidance a viable path, SEIA warned of harms to solar—while solar shares rose and Treasury signaled separate FEOC guidance is forthcoming.