In September, the Treasury Department issued new guidance on the “beginning of construction” rules for solar and wind projects seeking the 48E Investment Tax Credit and 45Y Production Tax Credit. It is believed that the Trump administration’s tightening of these rules for renewable energy projects will make it more difficult for projects to obtain the tax credits.

Already strict rules under the One Big Beautiful Bill Act passed in July imposed requirements that projects must pass a “physical work test” to qualify for tax credits. These rules enacted conditions that solar and wind projects must demonstrate that “physical work of a significant nature” and a “continuous program of construction” have started and been maintained on a project. More specifically, they must begin construction by July 2026 or be “placed in service,” meaning reaching commercial operations, by Dec. 31, 2027.

The new guidance makes it harder for projects to qualify for tax credits. For example, the bright-line 5% capital expenditure test for starting construction of solar projects over 1.5 megawatts (MW) has been discarded. Projects smaller than 1.5 MW can still achieve tax credit eligibility by showing a 5% capital expenditure.

The 5% spend test for larger projects has been replaced with a murky facts-and-circumstances approach of looking at the amount of physical work done by a factory on custom-made equipment for the project or at the project site. Previously, projects had to have begun physical work. Under the new guidance, projects must start “physical work of a significant nature.” This raises questions about how much work is required to qualify for the tax credits.

Once a project is approved for “start of construction,” it has four years, or through the end of 2030, to be completed in order to receive the federal tax credits. Contractors asking for more than four years must show continuous construction. Interconnection and other specified delays can be excused for the four-year construction period under facts and circumstances, according to Keith Martin, partner at Norton Rose Fulbright.

The new rules go into effect for projects starting construction from Sept. 2, 2025, through July 4, 2026. Projects that start after July 4, 2026, must be completed by the end of 2027 to qualify.