The Section 48E Investment Tax Credit for commercial solar projects has a hard construction-start deadline of July 4, 2026. With less than 60 days remaining, commercial property owners in Texas who have been evaluating solar need to understand exactly what’s required -and what changes for new solar projects in-flight if the deadline passes.

What Happened: The One Big Beautiful Bill Act Changed the Timeline

The Inflation Reduction Act (enacted August, 2022) originally extended clean energy tax credits through 2032. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, accelerated that timeline dramatically for solar and wind.

Under the new rules, Section 48E -the “ITC” or Investment Tax Credit- is no longer available for solar or wind facilities placed in service after December 31, 2027, unless construction begins on or before July 4, 2026.

So there’s now two paths for a commercial solar project to qualify for the 30% ITC (*it’s actually up to 40% with all domestically manufactured components) :

Path 1: Begin construction by July 4, 2026, then place the system in service within four years (by the end of 2030 under the continuity safe harbor).

Path 2: Miss the construction-start deadline entirely, but have the project fully placed in service by December 31, 2027.

THIS IS IMPORTANT : For most commercial projects in Texas –where permitting, interconnection, and construction timelines routinely stretch beyond 18 months for larger systems- Path 2 is not realistic. Path 1 is the viable option, and it hinges entirely on what “begin construction” means. (this gets into the legal weeds a little bit)

What “Begin Construction” Means in 2026 — and What Changed

Historically, the IRS offered two methods for establishing that construction had begun:

1. The Physical Work Test — begin physical work of a significant nature on the project.
2. The 5% Safe Harbor — pay or incur at least 5% of total project costs.

In August 2025, Treasury and the IRS released Notice 2025-42, which eliminated the 5% Safe Harbor for most solar and wind projects. This was a significant change. -And not in the good way, either.

The 5% Safe Harbor Is Gone for Most Commercial Projects

Under Notice 2025-42, the 5% Safe Harbor is no longer available for solar facilities with a maximum net output greater than 1.5 MW (AC). For all wind projects, it’s eliminated entirely regardless of size. The good news is the many (most) commercial solar sites are built at a size of less than 1.5Mwatts.  Keep reading!

The lovely exception: Lower-output solar installations- systems with a maximum net output of 1.5 MW (AC) or less -can still use the 5% Safe Harbor. This covers many rooftop commercial installations, but not larger ground-mount or multi-building projects on the same electrical service. *The IRS has made clear that facilities with “integrated operations”  -same owner, same tax year, same electrical utility interconnection point- will be aggregated for the 1.5 MW determination. You can’t slice a larger project into sub-1.5 MW pieces to stay under the threshold. Yep, they saw this loophole and closed it tight before the start.

The Physical Work Test Is Now the Primary Path

For commercial solar projects above 1.5 MW, the Physical Work Test is the sole method for establishing that construction has begun before July 5, 2026.

This test requires that physical work of a significant nature is performed -either on-site or off-site- with respect to the solar facility. The work can be performed by the project owner directly or by another party under a binding written contract.

What counts as physical work of a significant nature:

• Excavation for foundations or mounting structures
• Installation of racking, piling, or mounting systems
• Pouring concrete for equipment pads
• Off-site manufacturing or assembly of custom components under a binding written contract (e.g., custom inverter skids, structural steel fabrication)

What does NOT count:

• Planning, designing, or engineering the system
• Securing permits or utility interconnection agreements
• Conducting environmental or geotechnical studies
• Ordering equipment without a binding written contract for manufacture
• Site clearing alone (in most cases)

The distinction matters. A signed engineering contract and a pile of permits do not constitute “beginning of construction” under IRS rules. Physical work must actually be performed.

The Continuity Requirement

Starting construction isn’t enough by itself. The IRS also requires a continuous program of construction after work begins.

The good news: there’s a Continuity Safe Harbor. If a project begins construction by July 4, 2026, and is placed in service by the end of 2030, the continuity requirement is automatically satisfied — no questions asked.

If a project takes longer than four years, the IRS will evaluate continuity based on facts and circumstances. Certain disruptions beyond the taxpayer’s control — severe weather, permitting delays, interconnection queues, supply chain disruptions — are explicitly excused and won’t break continuity.

For most Texas commercial solar projects, the four-year window (placed in service by end of 2030) provides ample runway.

What About Projects 1.5 MW and Under?

Good news for smaller commercial installations. Systems at or below 1.5 MW (AC) — which includes many rooftop C&I projects — retain access to both the Physical Work Test and the 5% Safe Harbor.

That means a qualifying project can establish beginning of construction simply by paying or incurring at least 5% of total project costs before July 5, 2026. This is a more straightforward path: sign a contract, make a deposit that hits the 5% threshold, and the clock starts.

However, aggregation rules apply. If you’re planning multiple small systems across several buildings and they share an owner, tax year, and interconnection point, the IRS may aggregate them — potentially pushing the combined output above 1.5 MW and disqualifying the 5% Safe Harbor.

What Happens After July 4, 2026?

If construction has not begun by July 4, 2026, a commercial solar project can only qualify for the Section 48E ITC if it is fully placed in service by December 31, 2027.

That’s an 18-month window from the deadline to full operation — a timeline that’s tight for even straightforward commercial installations, and likely impossible for larger or more complex projects in Texas, given current permitting and interconnection timelines.

For projects that miss both deadlines — no construction start by July 4, 2026, and not placed in service by end of 2027 — the Section 48E credit is simply not available.

What That Means for Project Economics

The 30% ITC is typically the single largest financial driver in a commercial solar project. When combined with MACRS accelerated depreciation (including 100% bonus depreciation restored by the OBBBA, remains available for qualifying property), the federal tax benefits can offset roughly 50–60% of total project cost for qualifying commercial entities. [Frankly this tax math isn’t my strong suit, and I (Adam) am not 100% sure about this, so ask your controller or tax attorney about this!]

Without those incentives, the payback math changes substantially. The project may still make economic sense (rising texas commercial electricity rates, abundant solar resource, and the statewide 100% property tax exemption under Tax Code §11.27 can still provide a pretty strong ROI) but the financial case is meaningfully different if you get the solar project built commissioned too late.

Battery Storage Is Treated Differently

One important note: the OBBBA’s accelerated termination of credits applies to solar and wind facilities. Battery energy storage systems (BESS) are not subject to the same July 4, 2026 construction-start deadline under the OBBBA’s termination provisions. OK. We like this. This helps.

That said, the ITC for standalone storage still exists under its own terms, and the economics of pairing storage with solar are strongest when the solar component qualifies for the full credit. A solar + storage system solution seems to capture the most value when both components are included.

What Texas Commercial Property Owners Should Do Now

If you’ve been evaluating commercial solar, the next 60 days matter. Here’s a practical framework for noodling on this with your team:

If your project is above 1.5 MW (around 3000+ solar panels): Physical work of a significant nature must begin before July 5, 2026. That means you need a binding construction contract and actual physical (or logical) activity -on-site or off-site- underway. Design, permitting, and procurement alone won’t satisfy the test. Talk to a trusted solar firm and tax advisor now about what specific work can be initiated and documented.

If your project is 1.5 MW or under: You have the additional option of the 5% Safe Harbor. A binding contract with a qualifying deposit may be sufficient to establish the construction start date. -Same as above I would encourage folks to discuss the potential project with a turnkey solar integration for (like NATiVE :) and the bean-counters *now* about what specific work can be initiated and documented. Seriously -do it soon.

Regardless of project size: Document everything. The redliners @ IRS will be taking an aggressive position on examining whether projects have genuinely begun construction. Contemporaneous records -contracts, invoices, photos of work performed, delivery receipts, all that stuff- are essential for getting these tax credits!

I’ll say it again here to reiterate : For commercial property owners in Texas who have been in the evaluation phase, the window to capture the full 30% ITC under Section 48E is narrowing. We’re (NATiVE Solar) not in the business of manufacturing urgency as a sales tactis- but the tax code is sorta doing that on its own.

If you’re weighing a commercial solar or solar + storage project, the most productive step right now is a to begin conversations about your project goals and criteria, timeline, site conditions, etc — so you can make an informed decision about whether the July 4 deadline is achievable for your project.

Start a conversation with our team →