2025 Recommendations for Securing Tax Credits for Your Solar Projects

Recently, the political landscape in the US has felt increasingly uncertain. Between ping-ponging tariffs and potential changes to the 2026 tax code, large construction projects like solar PV might feel like a more risky investment than it did a year or two ago. While we do not have any way of predicting exactly how all of these policies will shake out, we have reason to believe that many of the policies that make solar a worthwhile investment will remain in place. Beyond federal tax credits, the rapidly increasing cost of electricity and the soon-to-be finalized SMART 3 program continue to make solar a great solution for Massachusetts organizations looking to decrease their operating costs and build resiliency.

According to a Financial Times analysis, in its first year, the Inflation Reduction Act (IRA) spurred $180 billion of investment in districts represented by Republicans in Congress, compared to approximately $10 billion in districts represented by Democrats. The solar investment tax credit (ITC) represents billions of dollars in investments across projects ranging from small residential (IRC Section 25D) systems to commercial and utility-scale projects (IRC Section 48) costing hundreds of millions of dollars. The country’s largest financial institutions are highly involved in this investment pipeline and have been actively lobbying congress to maintain the IRC Section 48 30% business investment tax credit that is critical for solar projects large and small.  Solar has widespread, bipartisan support and most industry experts believe it is unlikely that congress will eliminate the provision entirely.

That being said, there still is some concern that other parts of the solar tax credit landscape included in the Inflation Reduction Act, like the Low-Income Bonus Tax Credit Adders and Elective Pay provisions, could be on the chopping block for FY 2026 and beyond. We expect more information about any changes to the tax code will be available in the summer and fall – sign up for our newsletter to stay on top of all of the newest solar policy updates.

In the meantime, here are Resonant’s suggestions for protecting your active solar investments so you have the best protections against any future changes to the tax credit rules:

For Projects Already Under Development:
Safe Harbor by EOY 2025

Safe Harbor is a tax provision that allows a solar project that has already undergone significant development to lock in its tax credit under the current tax law, protecting the project from economic challenges that could result from a change in tax code. This means that Customers that sign contracts and spend 5% of the total project costs by the end of 2025 (the easiest compliance pathway) should be able to secure the current 30% tax credit based on FY 2025 rules, even if congress votes to eliminate or decrease the tax credit for FY 2026 and beyond.

Resonant recommends that projects currently under development sign contracts by ~October 2025 in order to ensure that equipment can be ordered before the end of the year to meet this 5% threshold. We are also recommending that clients aim to spend 10% of the total development cost by the end of the year so there is flexibility for the project size and cost to change thereafter if needed, without risking falling out of compliance with the 5% threshold. 

For Early Stage Projects: Letter of Intent

For projects that are fairly early in their solar journey, we recommend working to get a Letter of Intent (LOI) signed by July 2025. The LOI allows our team to get started with many of the important first steps in the solar design process including finalizing designs through a site visit and applying for interconnection. These steps need to be completed before equipment can be ordered and they can take some time, so it’s important to get the process started early enough so we can ensure that we are ready to order equipment in time to Safe Harbor the tax credit by EOY.

Safe Harbor Detailed Information

If you are interested in the details of the Safe Harbor provisions for solar tax credit policy, here is some additional background information: 

The premise behind the idea of “safe harbor” is for congress to be able to provide a predictable means of determining if a project “started” in a given tax year under the rules applicable to that year. Given how long clean energy investments take to permit and develop (especially at the utility-scale size range where development timelines can run in the 4-10 year range), the only way investment can flow into these projects is if there is predictability around the pathway to getting federal tax credit support (the single largest incentive for clean energy projects nationally for the past 20 years).

On December 18, 2015, President Obama signed the Consolidated Appropriations Act, 2016 (the "Omnibus Bill"). The Omnibus Bill notably included key new rules about how taxpayers could Safe Harbor the solar investment tax credit (IRC Section 48).  In May 2016, the IRS issued Notice 2016-31, 2016-21 I.R.B., which further clarified the rules. 

Safe Harbor Tests for “Construction Commencement”

• The Physical Work Test - this pathway requires starting construction at the site. This is often used by large scale clean energy developers who can start clearing or grading land, but is not as easily applicable to smaller-scale solar projects like the ones Resonant develops.

• 5% Safe Harbor Test - this pathway requires expending at least 5% of the total cost of the project. Notably, this is typically not satisfied by just paying a provider like Resonant through an EPC contract, but also requires providers to in turn expend those funds on things like equipment specific to that project. Inverters or modules are the most common pieces of equipment purchased by solar providers in these circumstances. As noted above, Resonant recommends 10% instead of 5% be spent in this way to provide system size / price flexibility later in the development process. 

How long does Safe Harbor Last for?

Once a project has satisfied a safe harbor test in a given fiscal year, the project must be completed within 4 calendar years thereafter, which for smaller projects like the ones Resonant develops, is typically not a concern. 

Source: Norton Rose Fullbright article on Safe Harbor.

Elective Pay Detailed Information

Resonant supports many nonprofits that are investing in solar projects on the basis of the current Elective Pay provisions that allow tax exempt entities to get a check in lieu of a tax credit for their solar projects. As noted above, we have reason to believe that this provision of the tax code may be eliminated or partially rolled back by Congress in 2025 (partial elimination could, for instance, limit eligibility to just 501c3 entities and remove the ability for public / tribal entities). Regardless of how this unfolds, our best advice at this stage is to rely on the safe harbor rules. Given this risk, we believe that tax exempt entities considering solar ownership as a pathway should be especially motivated to take action right away based on the guidance in this article to meet one of the safe harbor tests in FY 2025.