Your company can still lock in the 30 – 60% tax credit for your commercial solar project. But you will have to act quickly in order to do so.
This blog provides dates and specific steps that are necessary to utilize this extremely valuable tax benefit.
We also illustrate how much you will miss out on if you wait until the ITC is gone to begin your solar project.
The One Big Beautiful Bill Act (OBBBA) significantly threatens the business case for commercial solar projects, with a key deadline in 2026. Specifically, the Federal Investment Tax Credit (ITC) for commercial solar is set to expire for new projects unless they begin construction by July 4, 2026, or are become operational by the end of 2027.
To help illustrate just how valuable the ITC incentive is, here are some OnSwitch solar project financials with and without the ITC, to help convey what’s at stake. These assume a 500kWdc system with standard electric rate increases and annual degradation in production, and a moderate 40% ITC:
As you can see, for customers using capital budgets to purchase and own projects, simple payback/breakeven timelines increase dramatically with loss of the ITC. Similarly, for Power Purchase Agreements (PPAs) the first year electric savings goes down substantially or even negative, thus rendering PPAs uneconomical in some states like PA, MD, and NJ, unless additional cost efficiencies are gained or state incentives change.
Here are the key deadlines and next steps that customers should plan for.
Before July 4, 2026 (first deadline):
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- Projects less than 1.5 MWac (approximately 1.8 MWdc), which applies to a majority of rooftop solar, thankfully retain a safe harbor tax provision which allows a project to “begin construction” and lock in the ITC benefits, even if the project takes until end of 2030 to become operational.
- 5 Percent Incurred Cost Method (or “safe harbor”): Paying or incurring at least 5% of the total project cost on qualifying equipment. To be safe, many advisors recommend aiming for 7-10% to account for potential cost changes.
- OnSwitch advises customers: Engage now to evaluate solar projects for viability, with a goal to sign a Letter of Interest (LOI) by March 31 and execute contracts shortly thereafter.
- Projects greater than 1.5 MWac must rely solely on a physical work test to qualify as “begin construction”, and similarly have until end of 2030 to become operational.
- Physical Work Test: Beginning “work of a significant nature,” which can be on-site (e.g., installing racking or foundations) or off-site (e.g., the manufacture of custom components). The nature of the work is key, not the amount or cost.
- OnSwitch advises customers: Engage now and execute contracts by March 31 to allow for time to get through utility approvals, permits, and equipment procurement and begin construction before July 4.
- Projects less than 1.5 MWac (approximately 1.8 MWdc), which applies to a majority of rooftop solar, thankfully retain a safe harbor tax provision which allows a project to “begin construction” and lock in the ITC benefits, even if the project takes until end of 2030 to become operational.
After July 4, 2026:
Projects must be placed in service by December 31, 2027 (second deadline), or they lose all eligibility for the ITC. Accounting for timelines to secure utility interconnection approval and permits, order long-lead equipment, and work through inevitable construction scheduling variables, it’s essential to start projects no later than Q1 2027. The larger the project, the more critical it is to start earlier. As an example, lead times to order major electrical gear to tie-in to a building’s main panel usually will take 4-10 months.
The Foreign Entities of Concern (FEOC) requirements in the OBBBA will also play a role in which projects qualify for the ITC. Starting January 1, 2026, new restrictions went into effect and projects not safe harbored before this date must ensure they do not use components from certain foreign suppliers (in China, Russia, North Korea, Iran) otherwise they risk ineligibility for the ITC.
Since the solar industry is working with all customers to hit these deadlines, we expect increasing supply chain variability, longer approval timelines from utilities and local permitting agencies, and an overall scramble on resources to hit these deadlines.
Engage now to lock in savings
With rapidly increasing utility prices and grid shortages, there is no better time than now for business customers to install solar and lock in lucrative incentives as well as hedge against volatile future costs. OnSwitch is an experienced solar solutions provider that can help you both reach the safe Harbor requirements and avoid the consequences of the FEOC with strategic suppliers for your solar project. We help customers determine whether capital purchases or financed power purchase agreements are better tailored to their unique requirements, and can flexibly contract both scenarios.
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