On Friday, the IRS issued Notice 2025-42, providing new guidance on what constitutes the beginning of construction for solar and wind energy projects seeking to qualify for tax credits under Internal Revenue Code Sections 45Y (Production Tax Credit) and 48E (Investment Tax Credit). The notice primarily preserves the physical work test but limits the 5% safe harbor to projects generating no more than 1.5 megawatts.

NAIOP and its real estate allies sent a letter to U.S. Treasury Secretary Scott Bessent urging the continuation of the longstanding 5% safe harbor as an available method for determining the beginning of construction prior to the new guidance and will continue to follow this issue.