Solar Tax Credits Remain Available Under OBBBA: Key Deadlines and Opportunities for Solar tax credits for New Jersey taxpayers

The One Big Beautiful Bill Act (“OBBBA”), while accelerating the phase out of many clean energy incentives, preserved the 30% investment tax credit (“ITC”) and other bonus credits. For taxpayers evaluating solar tax credits in New Jersey, it is important to note that qualifying solar facilities must begin construction by July 4, 2026, and be placed in service by December 31, 2027. Such installations can take advantage of both federal and state incentives, including potential bonus credits available in New Jersey, which are expected to continue after the expiration of certain OBBBA incentives.

Solar Tax Credits New Jersey: OBBBA Rules and Deadlines

If construction of solar facilities begins on or before July 4, 2026, the facilities are not subject to a 30% ITC termination date (and some bonus credits remain available), provided that the facilities are placed in service by December 31, 2027, though even this date can be extended if certain safe harbor rules are met.  Conversely, if construction begins after July 4, 2026, and the placed-in-service date is after December 31, 2027, the facilities will not be eligible for the ITC and bonus credit increases, and no extension of the latter deadline is available. 

For most solar facilities, the sole method to establish that construction has begun on or before July 4, 2026, is the “physical work test,” which requires "physical work of a significant nature" (not preliminary activities) to have begun, either on-site (e.g., installation of racks or structures to affix PV panels) or off-site (e.g., manufacture of components under a binding contract).  For solar facilities with a maximum net output of not greater than 1.5 megawatts, a taxpayer may establish that construction has begun before on or before July 4, 2026, by either the physical work test, or through a percentage safe harbor by incurring at least 5% of total project costs.

Projects that start on or before July 4, 2026 generally have four years to be completed under continuity safe harbor rules, which provide that if the facilities are placed in service by the end of the fourth calendar year after the year in which construction began, the continuity requirement is deemed satisfied.  If not, whether the requirement is met is determined by facts and circumstances, with certain excusable delays permitted.  The four-year continuity safe harbor is not a requirement, but an optional means to automatically satisfy the continuity requirement.  There is no rule that requires the facilities to be completed within four years because the four-year period is a safe harbor and not a strict deadline.  By contrast, projects beginning construction after July 4, 2026 must be fully operational by December 31, 2027 to qualify for the 30% ITC and certain bonus credit increases.

Federal Tax Benefits for Solar Property

For property placed in service after December 31, 2024, the federal tax code provides a 30% ITC for the basis of qualified property that is part of a "qualified facility," which is one used for the generation of electricity with zero or negative greenhouse gas emissions, or of energy storage technology.  The base rate is 6% and increases to 30% if prevailing wage and apprenticeship requirements are satisfied, or if the project is under 1 megawatt or begins construction by July 4, 2026.  Furthermore, bonus tax credits ranging from 1% to 10% are available for projects that use U.S.-manufactured products, are in designated communities (e.g., brownfields, areas with fossil fuel employment, etc.), and those in low-income communities.  Stacking available credits may allow for a total rate up to 70% for certain projects. 

Taxpayers may also depreciate the cost of solar property under the Modified Accelerated Cost Recovery System during the first year it is placed in service if certain requirements are met, which reduces taxable income and facilitates cash flow.  Also, for some projects, the expenses for qualified interconnection property can be included in the basis for the 30% ITC, and qualifying taxpayers can further elect to receive the ITC as a direct payment or transfer the credit by sale to another taxpayer (except to specified foreign entities). 

New Jersey Tax Benefits for Solar Property

Significantly, New Jersey provides a property tax exemption for certain qualifying renewable energy systems, including solar panels.  The exemption is equal to the increase in assessed property value resulting from the installation of the renewable energy system (i.e., the installation will not increase the property tax assessment due to the system’s value), and to qualify, the system must be certified by the local construction code official.  Additionally, the state grants a full exemption from state sales and use tax for the purchase of solar energy equipment, and its net metering rules allow taxpayers to receive credit on their utility bills for excess electricity generated by their solar panels and exported to the grid. 

Indeed, New Jersey’s Renewable Portfolio Standard (“RPS”) requires electricity suppliers to include a minimum percentage of renewable energy in their sales, and that RPS continues to increase, with specific obligations for solar energy that are set as a percentage of retail electricity sales.  Taxpayers with qualifying solar installations can in turn generate and sell solar energy renewable certificates (“RECs”), and the current state schedule, showing increasing requirements for solar and other renewables through at least 2032, ensures ongoing demand for solar-generated RECs.

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Len Sprishen, J.D., LL.M.

Len Sprishen is a Partner at Schulman Lobel Advisors, LLC, where he advises individuals, families, businesses, and investors on tax planning, compliance, and emerging legislation. With advanced degrees in law and taxation, Len helps clients navigate complex tax matters and identify opportunities created by evolving federal and state tax laws.

Questions About Solar Tax Incentives Under OBBBA?

The One Big Beautiful Bill Act has created important planning considerations for taxpayers evaluating solar energy investments. While valuable federal and New Jersey incentives remain available, eligibility may depend on meeting specific construction and placed-in-service deadlines.

Whether you are considering a residential installation, commercial solar project, or evaluating available tax credits and bonus incentives, understanding the changing rules is essential to maximizing potential benefits.

Contact Len Sprishen or your Schulman Lobel advisor to discuss how these solar tax incentives may apply to your specific situation.

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