For commercial solar projects, the Investment Tax Credit (ITC) has been the crown jewel of federal incentives—offering 30%+ in potential tax savings with the right project conditions. The ITC is a federal tax credit that reduces federal income tax liability by a percentage of the cost of the solar system placed in service during that tax year. The Inflation Reduction Act (IRA) set this credit to 30%, with additional 10% bonuses available on top of the base credit.
The Trump Administration’s One Big Beautiful Bill Act (OBBB) has initiated a major shakeup. Some of the changes include: solar and wind projects will be phased out of the credit, the requirements for eligibility have become stricter, and projects now face tight deadlines to receive the credit.
Let’s look at the changes the OBBB has made to the ITC and how solar projects need to act now to take advantage of the tax benefits before they are gone.
Key Terms
Inflation Reduction Act (IRA): The Inflation Reduction Act of 2022 was a major federal law that expanded clean energy incentives like the ITC.
Investment Tax Credit (ITC): A tax credit that allows taxpayers to deduct at least 30% of the cost of a clean energy project (like solar) from their federal taxes.
One Big Beautiful Bill (OBBB): Passed into law on July 4, 2025, it is a legislative package created by the Trump Administration that significantly impacted the IRA and ITC regulations.
Material Assistance: A prohibited amount of support in the form of components or materials from a prohibited foreign entity (PFE). This is determined using a Material Assistance Cost Ratio.
Foreign Entity of Concern (FEOC): A foreign entity that is defined by the United States government to be an adversary or directly controlled by one.
Prohibited Foreign Entity (PFE): An entity that is disqualified from receiving the tax credit due to ownership or involvement with a foreign entity.
In Service: A project that is placed in service means it is fully operational and legally ready to produce energy. The project is complete.
Safe Harbor: A provision of the ITC that preserves tax credits when a project has “begun construction” by incurring 5% or more of the total project cost, or started significant physical work.
The One Big Beautiful Bill and Solar ITC: What You Need to Know Now.
- Your solar/wind project needs to start construction before the end of this year (2025) to take advantage of the current, full IRA ITC of 30%+ without any new restrictions.
- Projects that begin within the next 11 months may still claim the 30%+ ITC; however, must comply with new, stricter FEOC rules.
- The IRA version of the ITC guidelines remain in place for battery storage projects but are still subject to FEOC restrictions.
Updated Timeline and Key Deadlines
To further outline the key deadlines, solar and wind projects that:
- Start construction before December 31, 2025: are unaffected and can claim current IRA ITC (grandfathered).
- Start construction by July 4, 2026: can claim the ITC (subject to stricter FEOC rules). They have 4 years to place the project in service.
- Start Construction after July 4, 2026, AND placed in service before December 31, 2027: can claim the ITC (subject to stricter FEOC rules).
- Miss both deadlines: will be ineligible for the credit moving forward.
Before we go any further, let’s be clear: the window for ITC eligibility has shortened significantly. Solar projects are now operating on an accelerated timeline. With demand spiking, both material and construction costs are also expected to increase. On top of that, new tariffs on imported components could further drive project costs higher.
Solar ITC Construction Start Date and Grandfathering
You may be wondering what constitutes construction being “started”. The existing guidance from the IRS follows two Safe Harbor tests. Under the 5% Safe Harbor rule, if a project has incurred 5% of its total cost, then it has technically begun construction. Under the physical work test, if there has been “significant work” on or off-site, then construction has begun.
Why is this important? The criteria for Safe Harboring is crucial to understanding where projects fall into this new version of the ITC.
New Restrictions Regarding Foreign Entities of Concern (FEOC)
The other aspects of the ITC that have been impacted are the restrictions on projects that involve foreign entities of concern (FEOC) and material assistance – the details of which are described in Section 70512 (b) of the OBBB.
Material Assistance
Under the bill, projects that receive “material assistance” from a prohibited foreign entity (PFE) are ineligible for the tax credits. For the sake of solar this mostly applies to Chinese material suppliers, even if they are operating outside of China.
In 2026, a project is determined to satisfy the requirement for non-FEOC materials, if their material assistance cost ratio is above the threshold allowed. This threshold begins at 40% in 2026 and increases annually to 60% in 2029.
The above chart represents the minimum non-FEOC materials percentage of total direct costs required to obtain the credit, which increases by 5% annually.
FEOC Ownership
Under the FEOC restrictions, if the taxpayer of a project is owned or influenced by a PFE, they will no longer be eligible for the credit. Curious what it means to be influenced by a PFE? Let’s use China as an example. The taxpaying entity would be ineligible to receive the credit if a:
- Chinese company owns more than 25%
- Chinese company and other PFEs own more than an aggregate 40%
- Chinese company holds more than 15% of the entity’s debt
Continuation of ITC for Batteries
While solar and wind are being phased out by the new bill, other technologies such as battery storage are eligible for the credit moving forward. Though, they are not untouched. They will have updated requirements, especially when it comes to foreign entity involvement.
These FEOC restrictions will become particularly problematic for energy storage projects since the overwhelming majority of the world’s battery supply chain — from raw materials to the finished battery cells — is dominated by China and Chinese-owned companies.
The above chart represents the minimum amount of material (cost) that must come from non-FEOC sources, which increase over time.
Continuation of 10% Adders
Another aspect of the ITC that will remain available to qualified projects is the 10% tax bonuses. Adders like the Energy Community and Domestic Content Bonuses each stack an additional 10% on top of the 30% base ITC.
The OBBB has not made changes to these bonus credits, meaning if your project is eligible, you can still receive 40%+ in tax credits while the base ITC remains available.
What’s the Bigger Picture of the ITC?
The message is clear: if you’re considering solar, start your project as soon as possible. With rushed project deadlines and restrictive FEOC rules, waiting to complete a project will complicate the development process.
We have reached the global clean energy tipping point. 74% of new energy worldwide is from renewables. It’s cheaper, more efficient, and more scalable than ever before. The ITC is just one piece of the solar equation. Clean energy is the long game—and even without the ITC, the long-term return on solar still shines bright.
Want to Learn More About This Deduction and Get Started on Saving?
Green Econome, a woman-owned, full-service energy and water efficiency construction and consulting company, has over 20 years of combined experience. We can help explain these complicated tax benefits and make sure your property is getting the most from them. Furthermore, we can recommend solutions that will increase the NOI of your property and increase market value. Feel free to reach out to Green Econome’s founder and CEO, Marika Erdely, at marikae@greeneconome.com.
This page was developed in collaboration with Xero Solar, whose expertise in the solar industry provided valuable insight on how policy changes are affecting projects in the field.
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