Treasury and the IRS have issued Notice 2025-42 to implement the “begin construction” deadline in the One, Big, Beautiful Bill Act (OBBBA). Under OBBBA, the clean electricity production credit (§45Y) and investment credit (§48E) terminate for wind and solar facilities after December 31, 2027, if construction begins after July 4, 2026. The Treasury guidance tells contractors exactly how to prove they began construction in time and tightens the standard compared with pre-OBBBA practice.
The most important change in the notice is that now the only way to establish construction began before July 5, 2026 for wind and solar projects is the “Physical Work Test”. This requires “physical work of a significant nature” and a “continuous program of construction” throughout the life of the project. The notice makes clear that this is the sole method (with one narrow exception for low output solar projects), replacing the more flexible approach that existed under prior guidance which allowed the “begin construction” threshold to trigger if at least 5% of the project’s costs had been incurred.
Typical physical construction activities qualify under the test, however equally important is what doesn’t qualify. There is a list of preconstruction activities such as design, financing, permitting, site clearing, and general grading which do not start the “construction begins” clock.
However, proving a “begin construction” date is not enough; a project must also maintain a “continuous program of construction”.
The notice applies to facilities that had not already begun construction before September 2, 2025. To read more about what qualifies and what doesn’t, click here.
For additional information, please contact Deniz Mustafa.