New Law Changes Commercial Solar Tax Credit: What Businesses Need to Know
Updated 8.18.2025
A new federal bill, known as the One Big Beautiful Bill Act (OBBBA), has introduced significant changes to the clean energy tax landscape, particularly for commercial solar projects. As a certified B Corp and CLEARE values-driven leader in solar energy in Missouri and Illinois, StraightUp Solar is committed to helping our communities and businesses understand these updates, especially regarding the new commercial solar tax credit law.
The Federal Investment Tax Credit (ITC) is a solar incentive that allows businesses to receive 30% of their total system cost back as a credit against their tax liability for the year the system is installed.
New legislation, signed into law on July 4, 2025, and a subsequent Executive Order, introduces new deadlines and regulations that impact the tax credit for commercial solar installations. In addition, this new bill also shortens the residential solar tax credit, which now expires on December 31, 2025. Our team of experts is closely following the IRS guidance to ensure you remain well-informed of the opportunity for maximum solar savings.
Key Takeaways: Secure the Tax Credit Today
- The new federal bill sets strict deadlines for commercial solar projects to receive the full 30% tax credit. Projects that begin construction by July 4, 2026 must be placed in service within four calendar years. For projects that begin construction after July 4, 2026, the credit is only available if the project is placed in service by December 31, 2027.
- New regulations on Foreign Entities of Concern (FEOC) will affect where solar equipment can be sourced, potentially leading to increased costs and supply chain complexities.
- Nonprofits, houses of worship, and government entities can still benefit from Direct Pay, turning the tax credit into a refundable payment to reduce project costs.
New Deadlines for Commercial Solar Installations
For businesses, schools, and other organizations, the Clean Electricity Investment Tax Credit (Section 48E) remains a powerful incentive for going solar. However, the new law significantly cuts the timeline for when projects must be completed.
To qualify for the 30% credit, the sunset depends on when construction begins:
- If the project starts construction by July 4, 2026, the business must complete the project within four years.
- If the project begins construction after July 4, 2026 it must be installed by December 31, 2027.
This means the window for planning and implementing your commercial solar project is closing to take advantage of this powerful incentive. Don’t wait to get started on your solar project!
A Different Story for Battery Storage
While solar projects face tighter deadlines, the law treats energy storage differently. The stringent deadlines do not apply to stand-alone battery projects. These systems remain eligible for the 30% investment tax credit under the original IRA timetable, which extends into the 2030s. If your business prioritizes resilience and self-consuming your own solar energy, adding batteries can be beneficial.
Safe Harbor Rules and Stricter Enforcement
The Treasury Department has issued updated guidance, following the Executive Order calling for stricter enforcement of safe harbor rules. A major focus of this guidance is on tightening the “beginning of construction” rules, often referred to as safe harbor.
Historically, developers could secure tax credit eligibility by performing some preliminary physical work or incurring 5% of project costs, then have up to four years to finish the project. Under the updated guidance effective September 2, 2025, projects 1.5 MW (AC) and larger must use the Physical Work Test—meaning significant on-site construction work (such electric work, racking and mounting preparation) qualifies, not preliminary activities. The Physical Work Test requires the project to maintain a continuous program of construction for the next four years. Smaller projects under 1.5 MW (AC) may still use either the Physical Work Test or the 5% Safe Harbor Test. For businesses with projects planned for 2028 or beyond, it’s now crucial to begin construction as soon as possible.
Learn how to plan ahead for your commercial safe harbor strategy.
Navigating Compliance: New Foreign Entity of Concern Rules
In a move to favor domestic supply chains, the new law introduces strict Foreign Entity of Concern (FEOC) provisions. This means projects may not be able to claim certain credits if they rely too heavily on equipment that comes from “prohibited” countries, such as China, Russia, or North Korea.
The law introduces a new metric—the Material Assistance Cost Ratio (MACR)—to measure a project’s material content. The government is working to define specific thresholds for where your project’s solar panels, inverters, and batteries can be sourced.
What this means for you: This could make projects more expensive and more susceptible to supply chain delays if they’re not managed carefully. If your project starts in 2025, equipment can be sourced from any country. However, if your project begins in 2026, equipment from certain countries will be prohibited. If your project doesn’t meet the MACR, you could lose eligibility for the tax credit.
As your local solar energy partner, StraightUp Solar project developers are closely tracking these changes to provide expert guidance on how these regulations impact your project.
Direct Pay Benefits Nonprofits and Government Entities
Nonprofits, local governments, and houses of worship can leverage a powerful tool to make solar projects more financially viable. Through a feature known as Direct Pay, the 30% Federal Investment Tax Credit is essentially turned into a refundable cash payment. This enables organizations without a tax liability to secure the full financial benefit of the credit, which significantly lowers the upfront cost of the solar PV system.
Another possibility for tax-exempt organizations is through a third-party ownership model. In this case, an outside investor installs and owns the system on your property. That investor claims the commercial solar tax credit and other available incentives, and in turn, offers your organization a low monthly rate for the solar energy produced. You still benefit from the energy bill savings that come along with the array.
The Window of Opportunity is Bright:
Make Your Move Today
Your business’s window of opportunity is narrowing to take full advantage of the commercial solar tax credit. Investing in solar energy already offers strong long-term benefits, like energy independence, protection against utility rate hikes, and significant operational savings for decades. Securing the 30% federal tax credit makes this bright investment even brighter, strengthening your bottom line for decades.
Since 2006, StraightUp Solar’s team of experts has brought more than 3,000 solar projects to light for our Missouri and Illinois neighbors. Our full-time Service Team, rare among local solar installers, ensures we’ll be here to care for your system for years to come. Make a brighter energy choice for your business today.
Disclaimer: We are not tax professionals, we are solar experts. Please consult with your tax advisor to see how the Federal Tax Credit can work best for you.
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