Safe Harbor Strategies: What “Under Construction” Really Means for ITC/PTC Qualification
With the Senate pushing to wind down full federal tax credits for new wind and solar projects after this year, developers are moving fast to make sure their 2025 projects are properly “under construction” — as defined by the IRS.
That’s where safe harboring comes in. But what actually qualifies?
Two Legit Ways to Start Construction
You’ve got two options to lock in the 2025 credit levels:1. Physical Work Test
Start “significant physical work of a permanent nature” — either on-site or off-site. No dollar minimum, but you must show continuity.
Examples that count:
- Foundation or racking installation
- Excavation and trenching for electrical
- Off-site fabrication of transformers, switchgear, etc. (must be custom/project-specific)
2. 5% Safe Harbor (Financial Spend)
Spend at least 5% of your total project cost in 2025 on eligible equipment or services.You must also make continuous progress — documented steps like equipment delivery, site prep, contracts, etc.
Which Method Should You Use?
5% Safe Harbor is ideal if:
- The site isn’t ready for physical work yet
- You’re still working through permits or interconnection
- You need more control over documentation and flexibility
Physical Work Test makes sense if:
- You’re already under construction
- You have long-lead fabrication started
- You’re confident you can keep continuity
What Qualifies as a 5% Spend?
Eligible- Inverters, transformers, racking, switchgear
- BESS containers or key components
- Project-specific purchase orders or deposits
Not eligible- Bulk orders for generic future projects
- Soft costs (legal, studies) with no tie to construction
- Equipment not clearly allocated to the site
Why It Matters
Under the current Senate proposal:- 2025: 100% ITC/PTC
- 2026: 60%
- 2027: 20%
- 2028+: 0%
This year may be the last chance to fully lock in the value stack.
Resources
What approach are you taking — physical work, financial spend, or both?Would be great to hear what others are seeing from legal, tax equity, and procurement teams.
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