Today, the Internal Revenue Service (IRS) released guidance establishing when construction starts for solar projects under tax law.
According to the Solar Energy Industries Association (SEIA), the notice will allow developers to “invest with confidence” in new solar projects.
As explained by SEIA, the guidance, Notice 2018-59, provides two methods to establish when construction of a solar facility starts in order to qualify for the solar investment tax credit (ITC):
(1) Starting physical work of a significant nature; or
(2) Meeting the “five percent safe harbor test” – i.e., paying or incurring 5% or more of the total cost of the facility in the year that construction begins.
“The IRS has taken an important step forward with this guidance and provided certainty that will help solar project sponsors finance and build more solar,” comments Abigail Ross Hopper, president and CEO of SEIA, in a statement. “Our members have been working hard to secure financing for projects and keep them on track to meet critical development and construction milestones. This guidance provides them with a strong timeline for keeping up momentum for new projects.”
She continues, “In the absence of this ‘commence construction’ guidance, tax equity partners were growing cautious about project risk. Solar projects are helping modernize and secure our energy infrastructure, creating jobs and bringing clean energy to communities around the United States. We look forward to working with the IRS to ensure the guidance is implemented in a way that keeps this solar economic engine moving forward.”
Hopper notes the “strong efforts from our congressional supporters who worked tirelessly to encourage the Treasury Department to release this crucial guidance document in a timely manner,” including U.S. Sens. Rob Portman, R-Ohio; Maria Cantwell, D-Wash.; Dean Heller, R-Nev.; and Ron Wyden, D-Ore., as well as U.S. Reps. Tom Reed, R-N.Y., and Patrick McHenry, R-N.C.