Navigating IRS Notice 2025-42: From Safe Harbors to Proven Physical Work

IRS Notice 2025-42 quietly did something big for wind and solar developers: it rewrote what “beginning of construction” means for the new clean electricity production and investment credits under sections 45Y and 48E.

Under the One, Big, Beautiful Bill Act, the clean electricity credits are terminated for “applicable wind and solar facilities” placed in service after December 31, 2027 if construction starts after July 4, 2026. Notice 2025-42 tells you exactly how the government will decide whether you began in time.

The bottom line:

The IRS is tightening the rules so that only real, substantial construction counts.
The familiar Five Percent Safe Harbor is off the table for this question.
You now need a Physical Work Test plus a continuous program of construction to avoid falling on the wrong side of the termination date.

For developers, tax equity investors, and insurers, that turns “documentation” from a box-checking exercise into a core risk factor.

What Notice 2025-42 Actually Changes

1. Only the Physical Work Test counts

For purposes of the new termination rules, the Physical Work Test is the sole way to establish that construction began before July 5, 2026, subject to limited transition relief in the notice. The IRS explicitly says the traditional Five Percent Safe Harbor is not available to determine whether a wind or solar project has met the beginning of construction deadline for avoiding the credit termination.

That means:

No more “we spent 5%” as a standalone answer.
You must show physical work of a significant nature has actually started.

2. What counts as “physical work of a significant nature”

The notice focuses on the nature of the work, not the cost or percentage of spend. Both on-site and off-site work can count, but it must be tied to the actual facility and done under a binding written contract.

Examples that do qualify:

For wind: excavation for turbine foundations, setting anchor bolts, pouring concrete pads, or manufacturing turbine components under a binding contract that are not just standard inventory.
For solar: installation of racking or other structures that will permanently support PV panels or collectors.

Examples that do not qualify (even if capitalized):

Planning, design, resource mapping, and modeling
Securing permits, licenses, or interconnection approvals
Site clearing, grading, and test drilling
Environmental and engineering studies
Manufacturing components that are standard inventory

This is a subtle but critical shift: a lot of work that historically felt like “progress” is now explicitly labeled preliminary and does not start the clock.

3. The continuity requirement and the four-year safe harbor

Starting construction is only half the test. Notice 2025-42 also requires a continuous program of construction. You must show ongoing physical work of a significant nature, not a single milestone with years of silence.

There is a Continuity Safe Harbor: if the facility is placed in service by the end of the fourth calendar year after the year construction began, it is deemed to satisfy continuity.

For example, if construction begins in 2025, the project must be placed in service by December 31, 2029 to automatically meet continuity. If it slips beyond that, continuity becomes a facts-and-circumstances argument.

The IRS also lists “excusable disruptions” that will not count against you, including:

Severe weather or natural disasters
Delays in permits or licenses (including from FERC, EPA, BLM, FAA)
Interconnection-related delays and grid upgrades
Delays in manufacturing custom components, supply shortages, labor stoppages, or endangered species issues

But again, you will need evidence that these were genuine disruptions and that the project resumed.

The New Standard: Objective, Timestamped Proof of Progress

Read together with the executive order that pushed Treasury to restrict broad safe harbors and prevent “artificial acceleration or manipulation of eligibility,” the message is clear: paper-only strategies are not enough.

Developers, tax equity investors, and insurers will increasingly be asked:

Can you prove that physical work of a significant nature began before July 5, 2026?
Can you show continuity of construction, not just one photo or one invoice?
Can you document disruptions and resumption of work in a way that will stand up in an audit or dispute?

That’s where geospatial evidence becomes a financial instrument.

How We’re Responding: Satellite-Based Construction Verification

TurbineHub, working with EarthDaily, is building exactly the kind of independent, repeatable evidence system that Notice 2025-42 implicitly demands.

Using multi-sensor satellite data (optical and radar/SAR), we provide:

1. Automated change detection and construction heatmaps

We detect land disturbance, new infrastructure, and structural build-out using time-series imagery and analytics:

Optical imagery shows the visible progression of roads, pads, racking, and panels.
Radar (SAR and InSAR) identifies ground disturbance and structural change even when it’s cloudy, smoky, or dark, and can highlight the start of construction for each solar field or plant expansion.

This allows us to flag when activity crosses from “preliminary” (site clearing, light disturbance) to actual physical work of a significant nature (foundation excavation, racking installation, building construction).

2. Timestamped timelines for physical work and continuity

We don’t just show “before and after.” We build a time-stamped timeline of site activity:

When construction first meets the Physical Work Test
The pattern and intensity of ongoing activity
Periods of slowdown or interruption and when construction resumes

This directly supports:

The beginning-of-construction determination (did substantial physical work begin before July 5, 2026?). IRS
The Continuity Requirement and the four-year safe harbor by providing evidence that work continued in a meaningful way, or that gaps line up with IRS-recognized “excusable disruptions.”

3. Portfolio-scale, audit-ready reporting

For developers, investors, and insurers managing dozens or hundreds of projects, we deliver:

Standardized change maps and heatmaps by project and by date
Radar time series charts showing spikes in activity that correspond to key construction milestones
Formatted reports that can be attached to tax files, credit opinions, or insurance underwriting packages 20251110_ChangeDetection for Ut…

Because everything is georeferenced and time-stamped, it creates a defensible, third-party record that does not depend on whoever happened to be on-site with a camera.

4. Integration with financial and tax equity models

Inside TurbineHub, these geospatial timelines link directly into project-level financial models:

Beginning-of-construction status feeds into 45Y/48E eligibility logic.
Construction progress informs placed-in-service timing and tax credit start dates.
Scenario analysis lets sponsors and tax equity see how delays, interconnection issues, or force-majeure events affect economics and compliance in one place.

Instead of arguing over emails, spreadsheets, and scattered photos, you get a single, data-driven record that connects what happens on the ground to what shows up in your capital stack.

Why This Matters Now

Notice 2025-42 is not just a technical tax update. It accelerates a trend: federal incentives are increasingly tied to verifiable, objective performance and progress, not just intent.

Developers that can prove physical work and continuity will move faster through tax equity and underwriting.
Investors and insurers will favor assets backed by independent, auditable evidence.
Portfolios that rely on informal or ad hoc documentation will find themselves exposed as scrutiny tightens.

Our view is simple: if the IRS is going to judge projects based on what actually happened, when, and where, then your evidence needs to be built on the same foundation.

That is what we are building with TurbineHub and EarthDaily: a bridge between satellite-verified construction reality and tax, credit, and investment decisions in the clean energy market.