New IRS rules for clean energy tax credits aim to clarify what ‘starting construction’ means

In terms of allowing developers to access clean energy tax credits before they’re phased out in coming years, recent IRS rules on applicable projects aren’t as bad as some feared—but they also could be more clear on the particulars, a lawyer told Tech Brew.

The rules were drafted by the Department of Treasury as a follow-up to the so-called One Big Beautiful Bill, and in response to a Trump executive order to clarify what counts as “beginning construction” on a wind or solar energy project. A project’s ability to claim tax credits is based on when it begins construction, or what the rules call “physical work.” And the new rules say that the “physical work test” is now the only way that projects can prove they’ve commenced construction, though passage of the test will be decided on a case-by-case basis.

“Construction of an applicable wind or solar facility begins when physical work of a significant nature begins,” the rules state. “Provided that physical work performed is of a significant nature, there is no fixed minimum amount of work or monetary or percentage threshold required.”

“Significant nature” are the key words there, and one of the biggest changes in the new rules, lawyer Keith Martin told Tech Brew. Martin is an expert in tax law and the co-head of US projects at law firm Norton Rose Fulbright.

“The notice said that physical work of a significant nature ‘must be performed.’ Before it had said [work] must merely ‘have begun,’” Martin said. “So does that mean more work will have to be done?”

The IRS was clear on one thing, though: Physical work doesn’t mean anything developers have to do to a construction site to get it ready for building—it’s all the work that comes after that.

Overall, though, Martin told Tech Brew the new rules are a compromise between renewable enthusiasts and their allies in Congress, and opponents of wind and solar energy on Capitol Hill.

“Everybody reacted favorably,” Martin said, “suggesting that the Treasury did a good job of threading a needle.”