New HR1 deadlines and IRS notices tighten rules for large solar and wind projects, presenters say

Lawyers for Good Government attorneys told a webinar audience that recent changes under the budget reconciliation law commonly called HR1 shorten deadlines and narrow methods to secure clean-energy tax credits, with practical consequences for developers and tax-exempt elective-pay claimants.

AC Meyer, supervising tax attorney at Lawyers for Good Government, said elective pay allows states, local governments and nonprofits to receive direct IRS payments for eligible clean-energy tax credits. "Those credits themselves, they accounted for about 70% of the IRA's climate funding," Meyer said, stressing the size of the program and the need to preserve eligibility through careful timing and documentation.

Meyer summarized the key timing rules: projects that begin construction after July 4, 2026, generally must be placed in service by Dec. 31, 2027, to remain eligible under HR1's accelerated deadlines. Technologies other than solar and wind—such as battery storage, pumped hydro and ground-source heat pumps—retain the original placement timelines and phase-out rules, he said.

On how to establish the "beginning of construction," Meyer explained two recognized methods: the physical-work test (first significant physical work) and the 5% safe-harbor (when 5% of total project cost is paid or incurred). He cautioned that the 5% figure is evaluated against the final total cost, not early estimates, and advised practitioners commonly pad estimates (for example, using 7–14%) to reduce the risk that later cost overruns will change the start date.

Meyer told attendees that recent IRS guidance narrows method choice for solar and wind in a limited context: "solar property that is over 1.5 megawatt in nameplate capacity and any wind property regardless of the nameplate capacity of that wind property must use the physical work test to establish beginning construction and cannot use the 5% safe harbor." He added that projects at or below the 1.5 MW threshold may continue to use either method and noted aggregation rules can affect sizing determinations.

The presenters emphasized continuity requirements: once a project has started construction, claimants must show continuous progress toward completion to preserve the start date. A safe harbor generally presumes continuity if the property is placed in service within about four years of the start date; beyond that window, auditors will expect contemporaneous documentation of allowable delays (for example, natural disasters or permitting delays).

The webinar concluded with practical advice for project teams: decide early which method you will rely on, document permits, contracts and payments contemporaneously, and consider using conservative estimates if relying on the 5% safe harbor. The presenters said slides and the recording will be posted on the Energy Assistance Finder site and encouraged developers and public entities to consult tax counsel for project-specific decisions.