Navigating Safe Harbor: How to Lock in Solar Tax Credits Before It’s Too Late
Updated
April 23, 2025
5:30
min read
About Author
Alex has spent his entire career, in solar energy. In his current role at SunGreen, Alex oversees the design and optimization of systems to ensure they fit customer needs and maximize return on investment. Alex loves the technical aspects of solar energy production and is also well-versed in Federal, state, and utility-level policies regarding renewable energy. Alex is also a regular panel member in various industry webinars.
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If you’re planning a commercial solar installation, there’s a critical piece of tax code that could save your project a lot of money—but only if you act in time. It’s called Safe Harbor, and it’s one of the most strategic tools available to protect your investment in a changing policy landscape.
At SunGreen Systems, we guide businesses through this process regularly, and while we’re not tax professionals, we work closely with your tax advisors to ensure your solar project stays eligible for the full FederalInvestment Tax Credit (ITC)—currently at 30%. In this post, I’ll walk you through how Safe Harbor works, how to qualify, what to watch out for, and why early action is essential.
5 key takeaways from the updated Safe Harbor article:
- Safe Harbor still protects your ITC rate
By starting construction or spending at least 5% of your project cost before IRS deadlines, you can lock in the 30% Investment Tax Credit, even if your project finishes later. - New federal law changes deadlines.
The recently passed bill sets a new Safe Harbor construction deadline of July 4, 2026, but requires those projects to start project operations by December 31, 2027. Projects started before December 31, 2025 retain more flexible timelines. - Bonus credits remain in play.
Projects can still qualify for additional 10% credits for using domestic content, being located in energy communities, or serving low-income areas. However, an executive Order released on July 7th may change Safe Harbor and FEOC rules by August 21st. We encourage clients who are capable of moving forward quickly to Safe Harbor their projects before this date under current rules. After August 21st, guidelines may be changed. Contact SunGreen Systems to find out the current status of this EO and if the August 21st deadline has been accelerated or delayed. Keep in mind, domestic content of equipment thresholds have increased starting mid-2025. - Timing and sourcing are more critical than ever.
FEOC (Foreign Entity of Concern) restrictions and rising tariffs may limit your ability to use foreign-made equipment after 2025. Start planning early to meet Safe Harbor rules and avoid compliance risks.
- Consult a tax pro, but act now.
It’s important to work with your CPA to validate your path forward, but don’t delay. SunGreen can help you prepare the documentation and strategy to stay ahead of the curve.
At SunGreen, we regularly guide businesses through this process. We’re not tax professionals, but we collaborate closely with your advisors to ensure your project remains eligible for the 30% Federal Investment Tax Credit (ITC). Here’s what you need to know now:
1. Safe Harbor Still Locks In the ITC Rate
By meeting IRS criteria—either physical work or a 5% financial spend—your project can secure the 30% ITC rate based on the year you meet that threshold. Safe Harbor remains effective even if your installation finishes later, but…
2. New Deadlines Under the Big Beautiful Bill
- Solar and wind projects that start construction by July 4, 2026 can still be placed in service by December 31, 2030 under legacy Safe Harbor timelines .
- Projects beginning after July 4, 2026, though, must be in service by December 31, 2027, or they lose eligibility for the ITC .
- Beginning construction by December 31, 2025, gives you 4 years to complete your solar project to retain ITC eligibility.
- After Dec 31, 2025, U.S. Treasury may impose enhanced Foreign Entity of Concern (FEOC) restrictions on equipment sourcing.
3. Qualifying Paths: Physical vs. Financial
- Physical Work Test: Tangible on-site activity (like racking, trenching) must begin by the deadline.
- 5% Financial Test: You must spend at least 5% of total project costs and take ownership of that equipment within 3.5 months. April 15th if you use the Decmeber 31 deadline. We recommend 6–7% to buffer against cost overruns. .
Key Strategy: Action Today = ITC Tomorrow
- Developers should aim to start construction by Dec 31, 2025, or meet the Safe Harbor 5%/physical test well before the new July 4, 2026 cutoff.
- Projects beginning early enough enjoy the traditional 4-year placed-in-service window, meaning installations could finish by 2029–2030.
- Delayed start (after July 4, 2026) means you have only until Dec 31, 2027 to be operational. Missing that window risks losing the credit entirely.
4. Bonus Credits & Materials Sourcing
Safe Harbor still secures more than just base ITC:
- +10% Domestic Content (increased thresholds apply post-June 16, 2025: 45% in 2025, 50% in 2026, 55% thereafter)
- +10% Energy Community bonus
- +10% Low-Income Community bonus
- Keep ownership and equipment take-over timelines in check—FEOC rules may limit foreign parts for projects starting after Dec 31, 2025 .
5. Plan Early—The New Bill Means Less Time
- Time is now more limited. Contracts, payments, and equipment orders can take weeks.
- Don’t wait until late December; your procurement timeline may slip into 2026, risking the 2027 placed-in-service requirement.
- As mentioned above, the Treasury may issue updated IRS guidance—especially around FEOC—within 45 days of enactment .
6. Still Work With a Tax Pro—We Prep You
- We’re not tax advisors, but we provide tax education and documentation—enabling your CPA to navigate these complexities.
- Prepare your project to start in 2025 or early 2026 to leverage Safe Harbor before tighter deadlines and new sourcing restrictions go into effect.
- Consult your tax professional to optimize credit stacking and compliance.
Final Summary
