Beginning Construction: A Developer’s Playbook for the New Regime

Every renewable developer knows the “beginning of construction” date is the switch that locks in which tax credit rules you live under. For the past decade, you had two ways to flip that switch: incur at least five percent of total project costs (the familiar 5% safe harbor) or start physical work and keep up “continuous efforts.”

Now, the ground has shifted. Late last week, in response to an executive order from President Trump, the Treasury and IRS rewrote that playbook in Notice 2025‑42. Outside of a narrow carve‑out for very small solar projects, the familiar 5% spend safe harbor is gone. If you want the credit, you now prove it the old‑fashioned way: by doing physical work of a significant nature and keeping it going. That work can happen on site (foundations, racking) or off site (custom manufacturing of racks/rails, inverters, transformers). And to keep your BOC date safe, you ride the four‑year continuity safe harbor or maintain a steady drumbeat of physical activity with a clean record.

Below is what changed, what didn’t, and how to adapt your pipeline now.

The Top Line

What Changed

• The 5% Safe Harbor is now limited to “low-output solar” only: maximum 1.5 MW-ac per facility, and multiple facilities are aggregated if they have “integrated operations."

• For projects that need more than the four-year safe harbor to finish, the market should expect IRS and counterparties to look for continuous actual construction rather than the looser “continuous efforts” standard.

What Didn’t

• The Physical Work Test remains intact: on-site work (e.g., racking foundations, inverter pads) or off-site work (e.g., manufacturing a project-specific main power transformer) not from manufacturer/vendor inventory counts, if done under binding written contracts and incorporated into the project.

• The four-year continuity safe harbor is preserved: place in service by the end of the fourth calendar year after the year BOC begins and you’re deemed to satisfy continuity. 

Effective Dates

• Notice 2025-42 applies prospectively: It does not unwind BOC already established under prior guidance. The new rules apply to wind/solar projects that had not begun construction before Sept. 2, 2025.

• To avoid the 12/31/2027 placed-in-service deadline, wind and solar must begin construction by July 4, 2026, which then unlocks the four-year continuity safe harbor. Otherwise, you’re on the 2027 clock.

The Path to Beginning of Construction Under Physical Work

The Physical Work "Anchor"

Two families of activity move the needle. First, off‑site custom manufacturing when your supplier starts building project‑specific, non‑inventory components under a binding written contract executed before any work begins. Think racks and rails fabricated to your drawings, or inverters or transformers allocated to your project. Second, on‑site work that will become part of the facility: pouring a wind foundation, setting anchor bolts, driving structural piles, installing PV racking that will hold modules. Surveys, permits, financing, interconnection studies, or general site prep don’t qualify; they’re preliminary.

Maintaining Continuity

The easy mode is the four‑year safe harbor: place the project in service by December 31 of the fourth year after your BOC year. If you can’t, stay active. The notice recognizes real‑world delays — utility interconnection, permitting, supply of custom components, extreme weather — as excusable disruptions. They don’t save you on their own, but paired with periodic physical work and good logs, they keep the narrative intact: construction continued.

Document, Document, Document

Your future self (and your tax equity) will thank you for a tidy evidence record: the executed binding contracts and assignments; supplier attestations that components are non‑inventory and allocated to your project; weekly or monthly site reports; a short “continuity plan” that shows the cadence of work and a log of any excusable disruptions. When in doubt, write a two‑paragraph memo to file that answers: what was done, by whom, where, when, and how do we know?

How to Adapt Your Pipeline

1. Segment the pipeline by BOC strategy and deadline pressure. Create three bins:

• A. 2025 BOC candidates (highest priority): projects where off-site physical work is immediately feasible (e.g., transformer orders) or limited on-site work is permissible quickly; lock these first to maximize schedule cushion and FEOC flexibility.

• B. First-half 2026 BOC: projects that need more pre-work (permits, access agreements) to do on-site work, or where long-lead vendor slots start in Q1.

• C. <1.5 MW-ac solar: community/rooftop/behind-the-meter assets that can still use the 5% Safe Harbor, but watch for integrated operations so small projects don’t aggregate past 1.5 MW-ac.

2. Pick your “anchor equipment” now. Prioritize main power transformers or other integral electrical gear that vendors can start fabricating promptly under project-specific contracts. Coordinate interconnection design so the specs reflect the actual project POI; that also helps you avoid aggregation issues on smaller arrays.

3. Clear the site-access path for minimal on-site work. For landfill and brownfield sites, identify low-impact activities that satisfy “significant physical work” without disturbing caps or remedial systems (e.g., installing inverter or transformer pads, limited trenching off-cap). 

4. Avoid accidental aggregation on small solar. If you plan to lean on the 5% Safe Harbor for sub-1.5 MW-ac assets, watch the integrated operations test: a) same/related owner, plus b) same placed-in-service tax year, plus c) shared POI (or same end user behind the meter) equals aggregated capacity. If aggregation tips you over 1.5 MW-ac, you’re back to the Physical Work Test. Stagger COD years or use separate POIs/end users to preserve eligibility.

5. Build schedule slack around the continuity clock. With BOC in 2025, your continuity safe harbor runs to 12/31/2029; for BOC in H1 2026 (on or before July 4), to 12/31/2030. If you slip beyond those dates, expect counterparties to ask for evidence of continuous construction, not merely “efforts.” Be conservative with long-lead and interconnection timelines.

Quick Answers

• Do I need tax equity committed to begin? No. Helpful for finance, not required for BOC.

• Can I switch from off‑site to on‑site later? Yes. Continuity is about continuing physical work; just keep the records clean as you change modes.

• What if the utility slows me down? Document it. Interconnection delays can be excusable for continuity, especially if you maintain periodic physical activity.

• Where do FEOC rules fit? They’re on a separate track. Coordinate early so your BOC strategy doesn’t collide with sourcing constraints.

Bottom Line

• For utility-scale and most community solar, assume Physical Work is your only reliable path to BOC after Sept. 2, 2025. Lock it with project-specific contracts, non-inventory equipment, and tight documentation.

• Sub-1.5 MW-ac solar can still use the 5% Safe Harbor, but mind the integrated operations tripwires.

• If you begin construction by July 4, 2026, you get until year-end 2029/2030 (depending on start year) under the four-year safe harbor; otherwise, watch the 12/31/2027 placed-in-service cliff.