What Your Nonprofit Customers Need to Know About the Latest Solar Policy

This blog was originally posted on CollectiveSun and has been adapted for HeatSpring with permission.

The recent passage of the “One Big Beautiful Bill” (OB3) rapidly phases out solar tax benefits and adds new restrictions for nonprofits who want to go solar. An executive order signed shortly after the OB3’s passage could place further restrictions on solar project viability.

These challenges can seem daunting for nonprofit customers, but as always, CollectiveSun is here to help navigate the rapidly changing solar landscape. We’ve charted a path forward to help nonprofits go solar — if they act now. That’s the main message you should take away from the information we’re sharing: Start your solar project now.

 Note: The information here is current as of August 12, 2025. Please check the CollectiveSun Events and Solar Policy pages often for the latest updates, or reach out to us anytime. We will also be updating the Changes to Solar Policy: What Nonprofits Need to Know to Go Solar Now course on HeatSpring.

Some good news and some bad news

Like many bills, OB3 was created in a cauldron of competing public policy priorities. With budget hawks at odds with moderate Republicans — who have seen the benefits of clean energy in their states — and numerous other issues in the mix, the bill went through a number of iterations. 

The final result could have been worse: one option on the table was a full repeal of the investment tax credit (ITC) within two months. It could have been better: one proposal left ITC untouched for several years and then implemented a slow phasedown over a number of years. The final bill, enacted July 4, 2025 via reconciliation, requires placing a solar system in service by December 31, 2027.  However, projects that begin construction on or before July 4, 2026 will have 4 years to be placed in service.

To add to the cauldron, three days after the bill was passed, the president issued an Executive Order instructing the Treasury department to further restrict eligibility for the ITC, which we’ll dig into below.

Confused? Don’t worry — we’ll lay it all out for you. If you want to dig deeper, you can read the relevant sections of OB3, which amount to about 20 pages: Section 70512 (p.181) covers the Production Tax Credit (PTC) and Foreign Entity of Concern (FEOC) rules, and Section 70513 (p.199) covers the ITC. 

The good news:

• The solar ITC wasn’t immediately eliminated, and as long as it’s in place, the bonus adders (such as the adders for low-income communities and energy communities) and direct pay also remain in place. Remember, direct pay is a feature that sits on top of the ITC, so it’s only available as long as the underlying ITC is available.
• The ITC for battery storage survives untouched through 2032, then has a phaseout over 3 years.

The bad news:

• The Foreign Entity of Concern (FEOC) provisions in OB3 create further challenges to qualifying for the ITC.
• The 7/4/26 Beginning of Construction and 12/31/27 Placed in Service date requirements will be here soon. The 12/31/25 Beginning of Construction date for projects subject to FEOC restrictions will be here even sooner.

The latest policy changes create a major sense of urgency to start your solar project now. That’s especially true given FEOC, the sleeping giant of OB3.

FEOC

Failing to meet FEOC requirements will eliminate ITC eligibility. The FEOC requirements are based on a complex series of tests related to the ownership and control of both the taxpayer claiming the ITC and the entity manufacturing components used in the project. 

To avoid having to deal with FEOC compliance, start your solar project now.

Critical dates

These are the main dates to keep in mind:

• Begin construction on or before July 4, 2026 to safe harbor the ITC for 4 years.
• If you begin construction after July 4, 2026, your project must be placed in service by December 31, 2027.

FEOC creates additional considerations and has an even greater sense of urgency:

• Begin construction on or before December 31, 2025 to safe harbor your project from the need for FEOC compliance.

Did we mention you should start your project now?

Beginning of construction

What does it mean to start your project now? As with much of solar policy, it’s a bit more complex than it might sound. 

The current standard has two pathways to determine Beginning of Construction: the physical work test and the 5% test. For both of these, you need to have some basics in place, such as a binding contract and solid documentation; for more details, check out Module 2: How to Safe Harbor Your Project in the Changes to Solar Policy: What Nonprofits Need to Know to Go Solar Now course.

The physical work test has some nuances. The focus is on the nature of the work, not simply the amount of work or how much is spent. The work must be of a significant nature and part of your solar project, such as manufacturing components specifically for the project (e.g., transformers, wind turbines), install racking/support structures, pouring concrete, or mounting solar modules.

In most cases, preliminary activities like clearing land do not count. Other examples of activities that are not eligible are planning, administrative, design, or legal work; acquiring permits; purchasing equipment (unless it’s custom equipment); and site preparation such as clearing, leveling, or removing items. For most nonprofit rooftop and carport solar projects, the physical work for a solar project tends to begin later in the process than for larger wind farm and utility-scale solar projects, making the physical work test less attractive.

Then we have the 5% test. The good thing about the 5% test is that it’s more objective than the physical work test. This test is passed by paying or incurring 5% of your project’s final cost. Because cost overruns can happen, it’s recommended that you pay or incur a bit over 5% because even a small cost overrun could put you under the 5% mark, and there’s no wiggle room here. We recommend shooting for at least 7–10%+ of the ITC-eligible total cost of your project.

Example

Project cost = $100,000
You spend $5,000 = 5%

Then project cost increases to $101,000
The $5,000 is now 4.95% = FAIL

When determining whether your project will qualify as having begun construction, you should consult with your tax advisor. 

The Executive Order issued on July 7 directs Treasury to issue, within 45 days, new rules on Beginning of Construction, to “ensure policies concerning the ‘beginning of construction’ are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built.”

We don’t know what will ultimately be in the Treasury guidance that results from this Executive Order, but we will provide updates as they come. We do know that the EO provides all the more reason to start your solar project now.

Remember these dates

To sum it all up:

If you begin construction by 12/31/25:

• You have four years, until 12/31/29, to place your project in service.
• FEOC “Material Assistance” rules do not apply.

If you begin construction between 1/1/26 and 7/4/26:

• You have four years, until 12/31/30, to place your project in service.
• FEOC “Material Assistance” rules do apply.

If you begin construction after 7/4/26:

• You have till 12/31/27 to place your project in service.
• FEOC “Material Assistance” rules do apply.

Learn more

For more details, see our recent Changes to Solar Policy: What Nonprofits Need to Know to Go Solar Now course, including the slides, recording, Q&A transcript, and follow-up video and slides. You can also find more information on solar policy on our policy page — and don’t hesitate to reach out to us directly with any questions.

Disclaimer: The information presented here is for educational purposes only and should not be construed as tax or legal advice. Please consult your tax advisor or legal professional for personalized guidance.