Companies that have been developing wind and solar projects have found their plans scuttled by changes in federal policy under the Trump administration, including changes in tax laws and regulations, but a recent court decision provided them with a little breathing room.
Last month, the U.S. District Court for the District of Columbia vacated the Internal Revenue Service's
Taxpayers can now revert to the earlier guidance under
"Having the court step in and do something is not a big surprise on some level," said Stephen Eckert, practice leader of the national tax office at Plante Moran, a Top 25 Firm based in Southfield, Michigan. "What was different is we don't often see challenges to notices because notices often provide safe harbors or taxpayer-favorable positions. This one was very different in the sense that it was a notice carrying out an executive order to really restrict credits in a particular way."
The rules emerged after the passage last July of the One Big Beautiful Bill Act, which
"What's interesting on this one is just the timing," said Eckert. "Pretty late in the game to try to build the beginning of construction position, the court steps in and the notice is thrown into question. Seemingly you would have potential to apply the 5% safe harbor for relevant wind and solar projects. We've been counseling a little bit of caution as this development occurred for a lot of our projects. If you were planning to meet the physical work test, don't all of a sudden change and think you're just going to meet the 5% safe harbor. Let's continue planning and move forward with the physical work test to satisfy that safe harbor. This may also open a door to then have a fallback or a secondary position to bolster your beginning of construction date by satisfying the 5% safe harbor. In general we've been viewing this as an additional opportunity to further strengthen the beginning of construction position, but I'm not necessarily counting on this being the status quo moving forward."
Companies should continue to move forward under both frameworks when it's feasible and don't assume the 5% safe harbor will remain indefinitely available, Eckert advises clients. He believes taxpayers should proceed with caution and maintain a strategic overview of both current circumstances and potential changes. Most project owners already developed robust BOC strategies in response to Notice 2025-42 before the court ruling. The ultimate resolution won't occur until after the July 4 deadline at this point.
As always with BOC, project owners must maintain comprehensive records of physical work activities, incurred costs and the timing of contract execution and payments, Eckert noted. Such detailed documentation will become crucial should IRS scrutiny arise years down the road.
The decision offers optionality in planning but doesn't ensure certainty. Developers should avoid making any drastic changes unless there's a clear, strategic benefit. If anything, this decision may allow some owners of projects that otherwise had accepted credit noneligibility due to timing constraints to get back into the game. While this situation may be limited, it's worth considering.
Keep a vigilant watch on appeals, new IRS guidance and further court rulings to adjust strategies proactively and adaptively, Eckert cautions. The situation will likely continue to evolve quickly in the weeks and months ahead. Smaller projects get a little bit of breathing room at least.
"This beginning of construction by July 4, 2026 became a relevant matter because the One Big Beautiful Bill started to phase out these credits and gave this elongated period to begin construction and that if you placed it in service in the future that you can claim the credits as long as you begin construction by this date," said Eckert. "If you failed this beginning construction date, as long as you place in service these wind and solar projects by the end of 2027 you still qualify. For smaller-scale wind and solar, you still have the opportunity to complete the project by the end of next year. You have another 18 months, basically, to do that. The challenge is if we're talking utility-scale wind and solar — projects in the tens of millions of dollars, if not more — then the timeline for permitting and construction and sourcing everything to get that done is a bigger lift."
Energy-efficient buildings
Companies working on wind, solar and energy efficiency projects may be able to benefit from doing cost segregation studies after the OBBBA phased out tax breaks like the Section 179D deduction for energy-efficient commercial buildings. Under the OBBBA, the deduction isn't allowed for any property where the construction starts after June 30, 2026.
"There's definitely a higher demand as far as looking at tax rates and interest rates," said Daniel Hurtado, cost segregation leader at Cherry Bekaert, a Top 25 Firm based in Raleigh, North Carolina. "Clients are looking for opportunities to minimize taxable income and increase deductions. There's definitely more of a demand for cost segregation. Also, there were some tax provisions that are sunsetting, like 179D, that are helping drive some renewed interest in cost segregation. If anything, it seems like there's definitely been a higher uptick of interest in the need for cost segregation studies as of recently."
He noted that the Section 179D deduction applies to qualifying improvements to interior lighting, HVAC, hot water systems and the building envelope. The deduction is claimed when the qualifying property is placed in service.
The sunset rule is set for construction projects starting after June 30, 2026. Any project starting post June 2026 will no longer be eligible. For 2025, the maximum deduction is up to $5.81 per square foot when prevailing wage and apprenticeship requirements are met.
The OBBBA added a new Section 168(n) to the Internal Revenue Code, allowing a 100% first-year depreciation deduction for Qualified Production Property. The QPP rule replaces the standard 39-year straight-line depreciation for eligible domestic manufacturing, production, refining and agricultural real property placed in service through 2030. Hurtado noted this is the first time certain 39-year building property can be immediately expensed if it meets the QPP rules. It applies to taxpayer buildings used as an integral part of a qualified production activity, manufacturing, chemical production, agricultural production or refining in the U.S.
To be eligible, construction must begin after Jan. 19, 2025, and before Jan. 1, 2029. In addition, the property must be placed in service after July 4, 2025, and before Jan. 1, 2031.
"If it's manufacturing related, then the actual portion of the building that's dedicated to that activity will qualify," said Hurtado. "We're basically going to be taking bonus depreciation for the first time on 39-year property. Bonus depreciation has always been applicable to shorter lived property, but now with this QPP, we're actually going to be having 39-year property that's eligible for bonus appreciation."
That could help incentivize more manufacturing to be done inside the U.S., as well as production activities in the oil refining, agricultural and chemical sectors.
"From our standpoint, it definitely seems like there's been an uptick in the market interest and need for people doing cost segregation studies, as well as tax planning," said Hurtado. "Our tax credits and incentives team focuses on not just cost segregation but also R&D studies as well as New Markets [Tax] Credits. There definitely seems to be a lot of planning discussions for new investments that our team is handling with clients. That's definitely on the positive side to see higher interest in tax planning around capital investments."
