Securing the Investment Tax Credit
What Solar Developers Need to Know Now
By Lane Sharman, Stuart Smits and Emil Botes for Open Doors Management
Maximize the ITC Before Time Runs Out
As the renewable energy landscape continues to evolve, the recently enacted tax legislation brings new deadlines into focus for solar project developers. Under the new tax law, the Investment Tax Credit (ITC) remains a critical financial incentive—but only for those who understand and act on the updated eligibility requirements.
Key Requirement Under the New Investment Tax Credit Framework
To qualify for the ITC under the new rules, solar projects must:
- Begin construction within 12 months of the bill’s enactment (by July 4, 2026).
- Be placed in service by December 31, 2027.
Critical Timeline Alert
The window for action is narrow, and developers must move with precision and confidence to secure the full credit benefits available for 2025 project starts
Investment Tax Credit
Understanding "Start of Construction:" The 5% Rule
A central component of eligibility is proving that the project has officially “started.” The IRS recognizes two methods: the Physical Work Test and the 5% Safe Harbor. Most developers opt for the latter due to its clearer financial threshold. The Physical Work Test requires clear proof of actual site construction.
What is the 5% Safe Harbor?
To meet this standard, a project owner must incur at least 5% of the total project cost on eligible expenditures in 2025. These costs must be integral to project completion — meaning they are necessary for the generation of electricity and not merely ancillary services or development fees.
📅 Upcoming Changes to Watch
Recent legislative changes—the One Big Beautiful Bill signed on July 4, 2025, and an Executive Order on July 7, 2025—require the IRS to update guidance for this rule by August 18, 2025. Future updates may impose stricter requirements or limit what qualifies as eligible costs.
For now, the 5% Safe Harbor remains available under current law, but developers should stay informed about forthcoming IRS guidance.
Examples of Qualifying Expenditures
Project Development Services
Essential services that directly contribute to project completion and electricity generation.
Solar Equipment Purchase
Purchase of solar modules or inverters that are core to the system’s functionality.
Site-Specific Components
Site-specific engineering or racking components tailored to the project location.
Equipment Down Payments
Down payments on major equipment with binding contracts that guarantee delivery.
⚡ Critical Takeaway
The 5% must be both committed and paid. Simply signing a contract or issuing a purchase order is not enough. Payment must be completed, and documentation must be robust.
The Open Doors Advantage
Navigating the ITC eligibility landscape requires more than good timing – it requires strategic execution. At Open Doors Management, we specialize in guiding solar project developers through complex regulatory environments with a focus on compliance, speed, and certainty.
Contract Structuring
Structuring contracts and payment schedules to meet the 5% threshold requirements.
Cost Verification
Verifying qualifying costs and coordinating with vendors to ensure compliance.
Documentation Support
Documenting the Start of Construction for tax purposes with thorough record-keeping.
Financial Management
Managing cash flow from trust accounting to vendor disbursements seamlessly.
The Open Doors Advantage
With the countdown beginning now immediately in 2025, timing is everything. Reach out today to learn how Open Doors Management can help you secure your project’s eligibility for the ITC—and ensure your Investment Tax Credit opportunity.
Lane Sharman, President
References
Executive Order: Ending Subsidies for “Foreign-Controlled” Renewables. July 2025 order phases out tax credits for certain wind and solar projects, with new IRS rules on the way. https://www.whitehouse.gov/presidential-actions/2025/07/ending-market-distorting-subsidies-for-unreliable-foreign%E2%80%91controlled-energy-sources/
H.R. 1 – One Big Beautiful Bill Act. (2025, May 15). House of Representatives Committee on Rules. https://rules.house.gov/bill/119/hr-ORH-one-big-beautiful-bill-act
Beginning of Construction for Sections 45 and 48; Extension of Continuity Safe Harbor to Address Delays Related to COVID-19 and Clarification of the Continuity Requirement Notice 2021-41. Retrieved June 1, 2025, from: https://www.irs.gov/pub/irs-drop/n-21-41.pdf
Beginning of Construction for Purposes of the Renewable Electricity Production Tax Credit and Energy Investment Tax Credit. (2013). Retrieved June 1, 2025, from: https://www.irs.gov/pub/irs-drop/n-13-29.pdf
Safe Harbor Extended for Energy Credits for Qualified Projects | Tax Notes. (2020). Retrieved June 1, 2025, from: Tax Notes Research
A Closer Look at the House Ways and Means Budget Reconciliation Legislation–Process and Policies. (2025). Klgates.com. Retrieved June 1, 2025, from: K&L Gates Analysis