A judge blocked the administration's attempt to tighten safe harbor for large solar, but the appeal is pending, so here's who the ruling affects and why most commercial projects shouldn't change course.
Featuring Caleb Quaid, President, Clean Energy Help. Adapted from the SunSmart Engineering × Clean Energy Help × FlaSEIA panel, Commercial Solar in 2026. Watch the clip: "05 - The Safe-Harbor Court Ruling Explained.mp4".
The safe-harbor court ruling from a couple of weeks ago got a lot of press, and a lot of contractors are now asking whether it changes anything for their projects. For most of them, the answer is no. Clean Energy Help President Caleb Quaid calls it a developing story that matters mostly for very large projects and a lot less than the headlines suggest for a typical commercial job. Here's the timeline, what actually changed, and how to think about it.
The deadline, the executive order, and the lawsuit
Everything traces back to one deadline. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, set a termination date for the solar credits. As Caleb puts it: "The One Big Beautiful Bill put a termination date: you must start your project by July 4th of 2026, or place it in service by December 31st of 2027." Beginning construction by that July 2026 date preserves a multi-year window to finish. Miss it, and you have to be placed in service, meaning you've received Permission to Operate (PTO) from the utility, by the end of 2027.
A project "begins construction" through what's commonly called safe harbor, and there are two recognized tests. The physical work test requires meaningful physical work of a significant nature to have started. The 5% rule lets you establish your start by incurring at least 5% of the project's total cost, usually by purchasing major equipment, even if no one has broken ground. For most developers the 5% rule is the simpler, more common path.
Then the rules shifted. As Caleb explains: "Shortly after, I think the day after, the president issued an executive order that essentially said we're going to make it harder for projects to safe harbor, and if they're over a megawatt and a half, they must meet the physical work test; they can't safe harbor by the 5% rule." So the executive order tried to take the 5% option away from larger projects, anything over 1.5 megawatts (MW), and force them onto the harder physical work test.
For utility-scale and large commercial developers, that's a serious problem. "That makes it very hard for a 70-megawatt solar farm to get off the ground," Caleb notes. Lining up real construction on a project that big, on a compressed timeline, is a much heavier lift than incurring 5% of the cost.
What the court ruled, and why the fight isn't over
The administration got sued over the order, and the case went to the courts. "A couple weeks ago a judge ruled that wasn't allowed," Caleb says, "so a project over a megawatt and a half could still safe harbor with the 5% rule by July 4th." The court rejected the order's attempt to force large projects onto the physical work test and restored the 5% option for projects over 1.5 MW, at least for now.
That "for now" is the part to watch. This isn't settled. "I'm not too excited about it," Caleb cautions, "because the administration is appealing, there's going to be another ruling, so even if you follow this guidance in good faith, you're running into how the courts will ultimately decide."
That's the real risk for anyone leaning on the ruling. You could read the current decision, safe harbor a large project under the 5% rule, act entirely in good faith, and still be exposed if an appeals court reverses it. Right now, the legal ground under a 5%-based start on a big project is provisional.
Who this affects, and who it doesn't
The ruling only bites on projects of 1.5 MW or larger, and as Caleb points out, "most of those already had a lot moving on them." Large developers usually have construction, procurement, and financing well underway before a deadline like this, so a swing in the safe-harbor rules touches fewer projects than the coverage implies.
The bread-and-butter commercial market, rooftops, canopies, and smaller ground-mounts, mostly sits under 1.5 MW and was never the target. Those projects can use the 5% rule the way they always have. That's why Caleb's read is so measured: "It got a lot of press, but in my opinion it's kind of a nothing burger because it doesn't affect too many projects."
None of that means ignore it. It means know whether it applies to you. If your project is under 1.5 MW, the drama is mostly background noise, so keep planning your safe-harbor strategy toward the July 4, 2026 begin-construction date. If your project is over 1.5 MW and you're thinking about leaning on the 5% rule, treat the current ruling as helpful but unsettled, and confirm the live status with qualified tax and legal advisors before you build a timeline around it.
The bottom line
- OBBBA set the clock: begin construction by July 4, 2026 (which preserves a multi-year window to finish) or place the project in service (PTO) by December 31, 2027.
- The executive order tried to push projects over 1.5 MW onto the physical work test and remove the 5% rule as a safe-harbor option for them.
- A judge recently ruled the order wasn't allowed and restored the 5% rule for large projects, but the administration is appealing, so another ruling is coming.
- This mainly affects large projects over 1.5 MW. Most commercial work is under 1.5 MW and can use the 5% rule as usual.
- Don't build a large project's plan on the ruling alone. Even good-faith reliance carries risk until the appeal is resolved, so confirm current status before you act.
How SunSmart Engineering can help
Safe-harbor decisions sit where tax strategy meets real-world engineering, and the timeline pressure makes getting the design and documentation right more important than ever. SunSmart Engineering provides full-service engineering for solar and storage nationwide, helping you scope, design, and document projects so your begin-construction and placed-in-service paths hold up. For the tax and legal side of safe harbor, pair us with a qualified advisor and confirm where the litigation stands. Visit sunsmartengineering.com or call 866-786-8655.
Educational information only, not tax, legal, or engineering advice. Rules referenced (credits, FEOC, safe-harbor litigation, and the July 4, 2026 / December 31, 2027 dates) were current as of the June 2026 webinar and continue to change. Confirm current requirements with a qualified professional before acting.
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