On January 16, 2025, the IRS released Notice 2025-08, modifying its prior guidance issued as Notice 2023-38 and Notice 2024-41, for taxpayers seeking to qualify for the domestic content bonus tax credit amounts under the Inflation Reduction Act of 2022 (IRA). The IRA amended §§ 45 and 48 of the Internal Revenue Code and enacted §§ 45Y and 48E of the Internal Revenue Code to provide domestic content bonus tax credits for certain qualified energy facilities or projects.
Notice 2025-08 introduces the First Updated Elective Safe Harbor, providing new tables for solar photovoltaic, land-based wind, and battery energy storage system projects that modify the New Elective Safe Harbor tables provided in Notice 2024-41. Our initial post on the New Elective Safe Harbor is available here.
A summary of many of the modifications introduced by the notice is provided below:
- The safe harbor table for solar PV systems has been split into two separate tables: one for ground-mount and one for rooftop. The Assigned Cost Percentages for module and inverter Manufactured Product Components (MPCs) have generally increased, but the Assigned Cost Percentages for production have generally decreased or remain unchanged. Notably, the Assigned Cost Percentage for production for a ground-mounted system with tracking decreased from 11.5 to 4.7.
- Solar PV projects that install modules with domestic crystalline silicon cells and wafers (only applicable to modules) are valued higher (e.g., with an Assigned Cost Percentage of 51.6 for ground-mounted projects with tracking technology and 66.6 for ground-mounted fixed-tilt projects) than solar PV projects with only domestic cells (e.g., with an Assigned Cost Percentage of 38 for ground-mounted projects with tracking technology and 53.2 for ground-mounted fixed-tilt projects).
- The First Updated Elective Safe Harbor table is significantly restructured for BESS projects, notably with a much higher Assigned Cost Percentage of 52 for cells for grid-scale projects (up from 38).
- The notice adjusts various MPCs and Applicable Project Components (APCs):
- “Steel or iron rebar in foundation” is modified to be “steel or iron reinforcing products in foundation.”
- For PV modules, “Adhesives” have been removed as an MPC, intended to be covered by Edge Seals and Pottants.
- For inverters, the former “Climate Control” is modified to be “Thermal Management System,” and “Enclosure” is modified to be “Enclosure & Skids.”
- For trackers, the former “Slew Drive” is modified to be “Drive System,” and “Motor” is modified to be “Actuator.”
- For wind projects, “Material” is modified to be “Preform.”
- For BESS, “Battery Pack” has been narrowed to “Battery Pack/Module,” now containing only “Cells and Packaging.”
- For BESS, “Inverter” is modified to be “Inverter/Converter.”
- For BESS, the “Battery Container/Housing” APC remains, but is expanded to include what has been excluded from the original “Battery Pack” APC (Battery Management System and Thermal Management System for Battery Container/Housing).
- The notice provides definitions for MPCs and APCs that clarify the classification of equipment and components, providing more certainty for taxpayers seeking to use the safe harbor.
- The notice also expressly permits projects subject to the 80/20 Rule (allowing certain qualified facilities or energy property to be treated as originally placed in service even with some used components) to qualify for the domestic content bonus using the First Updated Elective Safe Harbor.
Taxpayers may rely on the notice for any applicable project beginning construction before the date that is 90 days after any future modification, update, or withdrawal of the notice.
Overall, the First Updated Elective Safe Harbor is likely to provide greater clarity in the interpretation of requirements necessary to obtain the domestic content bonus tax credit pursuant to the IRA.