THE SOLAR TAX CREDIT PLAYBOOK

Beginning of construction (BOC) is established in one of two ways: the 5% Safe Harbor Test, where the project taxpayer incurs at least 5% of total energy property costs under a binding contract, or the Physical Work Test, where actual physical work begins on site or off site. For solar projects over 1.5 MW AC beginning construction after September 2, 2025 (per IRS Notice 2025-42), the Physical Work Test is the only qualifying option.

The project entity — the actual taxpayer claiming the credit — must incur the cost. A common and costly mistake is assuming that an EPC or distributor purchasing equipment satisfies this requirement. It does not. The project must enter into a binding contract and either take title to the equipment or incur the cost directly. 

For accrual-basis taxpayers, a payment under a binding contract is treated as incurred on the date of payment only if title to the equipment transfers within 105 days. If title transfers later, the incurred date shifts to the actual title transfer date — potentially pushing the BOC date past the July 4th deadline. This rule catches many deals off guard, especially when working through EPC or distributor intermediaries. 

You need to satisfy either the 5% Safe Harbor Test or the Physical Work Test. For the 5% test: sign a binding contract as the project taxpayer, make a payment of at least 5% of energy property costs, ensure the EPC or distributor sets aside specific inventory for that project simultaneously, and take title to the equipment within 105 days of payment. For the physical work test: begin actual physical work on-site or off-site before July 4th. Document every step as if the IRS and your tax equity investor will scrutinize it — because they will. 

Energy property cost estimates at the time of safe harbor can be lower than final actuals. If your 5% is calculated against an underestimate and the true denominator grows, you may fall below the threshold on final accounting. Targeting 7-8% provides a buffer that absorbs variability in final energy property costs. 

If you can place in service by December 31, 2027, you retain the ITC regardless of your BOC date — so the July 4th deadline is not critical for credit termination. However, BOC date still matters for FEOC: beginning construction in 2025 avoids material assistance requirements entirely, and beginning in 2026 versus 2027 affects domestic content thresholds (50% vs. 55%). Equipment cost hedging is another reason some developers are safe harboring even on shortertimeline projects.

FEOC stands for Foreign Entity of Concern — a regulatory framework that limits the involvement of primarily Chinese-owned or Chinese-controlled entities in U.S. energy projects claiming the ITC. FEOC compliance is now the primary pass/fail test for tax equity investors. You either pass or you lose the credit. There is no partial credit and no way to fix a FEOC failure after the fact. 

MACR stands for Material Assistance Cost Ratio. It measures the percentage of your manufactured product component costs that are tied to non-prohibited foreign entity (PFE) manufacturers. For projects beginning construction in 2026, you need a MACR greater than 40% — meaning at least 40% of your manufactured product costs come from non-FEOC sources. 

The Direct Cost Method requires a detailed, project-specific calculation of each component's cost and origin. The Safe Harbor Method allows you to rely on manufacturer certifications signed under penalty of perjury, using the pre-calculated percentage tables from IRS Notice 2025-08, as long as you have no reason to doubt their accuracy. Most projects elect the Safe Harbor Method for its simplicity, though the Direct Cost Method can sometimes yield higher FEOC credit percentages.

No — these are two entirely separate analyses. A component manufactured in the United States but owned or controlled by a prohibited foreign entity can qualify for domestic content but still fail FEOC. Always evaluate each separately, with appropriate documentation for each. 

Projects with a BOC date before December 31, 2025 are generally not subject to FEOC material assistance requirements. This is one of the reasons tax equity investors are prioritizing 2025 BOC projects — FEOC is simply not in the analysis. If you have projects with a clean 2025 BOC date, that is a significant competitive advantage. 

The domestic content adder is an additional 10% ITC credit — bringing the base 30% credit to 40% — for projects that meet two requirements: 100% of steel and iron components must be produced in the United States, and manufactured products must meet a threshold of 50% domestic cost for projects beginning construction in 2026 (rising to 55% for projects beginning construction in 2027).

Yes. Nonprofits are eligible for direct pay (also called elective pay), which allows them to receive the value of the tax credit as a direct payment from the IRS rather than using it to offset tax liability. If domestic content criteria are met, a nonprofit can access the full 40% direct pay amount. 

Early during procurement. Once equipment is specified and ordered, your flexibility is essentially gone. Projects that evaluate domestic content after equipment is locked frequently find that the opportunity has passed. The strategy must be decided before equipment selection is finalized. 

The cleanest approach is a customer deposit of 5-10%, which fulfills the incurred cost requirement, with the remaining 90-95% financed. Sunstone Credit's Milestone Plus program goes further. It provides a 5% construction draw to the EPC at the time contracts are signed, allowing the EPC to purchase and take title to equipment and satisfy BOC requirements with no customer cash outlay. The full project cost is then financed as permanent debt once the system is installed. 

Milestone Plus is a construction financing program from Sunstone Credit designed specifically for safe harbor scenarios. It provides a 5% draw at contract execution, used to purchase and title equipment, with the remainder financed as permanent debt upon project completion. The program is available to established, experienced EPCs and developers who are already or willing to become Sunstone partners. Interested parties should contact their Sunstone account manager or reach out via sunstonecredit.com. 

Inverters and specifically SolarEdge's U.S.-manufactured C&I inverters are often preferred for safe harbor for several reasons: they are smaller in footprint and require less warehouse space than modules or racking, they provide significant FEOC and domestic content contributions from a single SKU, and SolarEdge's Florida manufacturing facility provides verified U.S.-origin status. This simplifies procurement, reduces storage costs, and provides a strong compliance foundation before any module or racking decisions are made. 

Mid-DC content modules are a middle-ground product between fully imported modules (contributing ~5-8% domestic content for rooftop projects) and high-cost domestic-cell modules (highest domestic content but limited availability and high cost). They typically use domestically manufactured frames, backsheets, encapsulants, and junction boxes with imported cells. When paired with high-contributing domestic content inverters like SolarEdge's C&I products, and domestic content racking, mid-DC content modules can bridge the remaining gap to the 50% domestic content threshold. This may enable full 40% ITC access without the cost and availability constraints of domestic-cell modules.