OBBBA Tax Credit Changes: What Multifamily and Commercial Developers and Lenders Need to Know

The recently enacted One Big Beautiful Bill Act (OBBBA) significantly accelerates the phase-out of several clean energy tax incentives. These changes have immediate implications for multifamily housing (garden-style, mid-rise, and high-rise), townhomes, and commercial properties such as office and retail buildings.

For developers, investors, and lenders, understanding these deadlines is critical to ensuring projects maximize available federal benefits before the window closes.

45L Energy-Efficient Home Credit (Multifamily & Townhomes)

The § 45L Energy-Efficient Home Credit applies to builders and developers of energy-efficient residential properties. While often associated with single-family homes, this credit also covers multifamily properties, including garden-style, mid-rise, and high-rise apartments, as well as townhomes.

Credit Amounts

Credit amounts per dwelling unit (2023–2026 acquisitions):

• $500–$1,000 base credit

• $2,500–$5,000 enhanced credit (requires compliance with prevailing wage and apprenticeship rules)

  
  

Eligibility Requirements

Eligibility requirements:

• Each unit must be certified under the ENERGY STAR New Construction or Zero Energy Ready Home (ZERH) program.

• Certification must be complete before the unit is sold or leased.

  
  

Deadline

Deadline: All qualifying units must be built, certified, and sold/leased before June 30, 2026. Units acquired after that date are not eligible. For large multifamily developments, this can amount to hundreds of thousands of dollars in credits—but only if leasing or sales occur before the cutoff.

Commercial & Multifamily Solar – § 48E / § 45Y (Tech-Neutral Credits)

The OBBBA also impacts the clean energy credits that replaced the traditional solar Investment Tax Credit (ITC) and Production Tax Credit (PTC). The § 48E Investment Credit and § 45Y Production Credit apply to commercial-scale solar systems (including multifamily rooftops, offices, and retail properties).

Key Timing Rules

Key timing rules:

• Construction begins by July 4, 2026: Projects may be placed in service as late as December 31, 2030.

• Construction begins after July 4, 2026: Systems must be online by December 31, 2027. Projects that miss this deadline lose eligibility.

  
  

The IRS now requires the “physical work test” to establish a start date. This means tangible construction activity—such as installing racking, foundations, or manufacturing components under a binding contract—must begin before the deadline. Merely signing contracts or purchasing equipment is not enough.

179D Commercial Buildings Deduction (Alternative Path)

The § 179D deduction remains available for energy-efficient commercial buildings, including offices, retail, and multifamily common areas. It provides a per-square-foot deduction for meeting energy efficiency benchmarks.

Deadline

Deadline: Projects that begin construction after June 30, 2026 will no longer be eligible. While not as lucrative per unit as 45L, this deduction can still provide meaningful tax benefits, particularly for projects that miss the accelerated 45L or solar timelines.

LIHTC and Solar ITC Twinning

One important consideration for affordable multifamily developers is the ability to twin the Low-Income Housing Tax Credit (LIHTC) with solar Investment Tax Credits (ITCs) under § 48 and § 48E.

Key Insights

Key insights:

• No basis reduction: Twinning does not reduce LIHTC eligible basis.

• Adders remain intact: +20% for low-income projects, +10% for domestic content, +10% for energy communities.

• Elective pay and transferability: Still allowed, giving flexibility in monetization.

• Domestic content thresholds increase: 45% before 2026 → 50% in 2026 → 55% in 2027.

• FEOC restrictions: Projects tied to China, Russia, Iran, or North Korea (via ownership or supply chain) risk full ITC recapture for 10 years.

• Audit window extended: IRS may review projects up to 6 years after filing for compliance.

  
  

For affordable housing projects, twinning LIHTC and solar remains valuable, but supply chain diligence and ownership structuring will be critical to preserve benefits.

The Start Construction Test

Another major change is how the IRS defines “Start Construction” for solar and wind projects. OBBBA tightened requirements and Notice 25-42 (August 2025) clarified the rules.

Two Methods (Projects ≤1.5MW AC)

Two methods (projects ≤1.5MW AC):

• Physical Work Test: Requires significant on-site or off-site work integral to the project (e.g., racking installation, excavation, manufacturing components under binding contracts). Preliminary steps like permitting or site clearing do not qualify.

• 5% Safe Harbor: At least 5% of eligible project costs must be incurred. Costs must be tied to tangible components (modules, inverters, racking, etc.). Developers are encouraged to exceed 5% to avoid dilution if costs increase.

  
  

Projects >1.5MW AC: Must use the Physical Work Test only.

Continuity Requirement

Continuity requirement: Projects starting before July 3, 2026 have a 4-year safe harbor (in service by end of fourth year). Delays beyond this window are evaluated case by case, but must show continuous construction.

New Restriction

New restriction: Projects starting after July 3, 2026 must be placed in service by December 31, 2027 to qualify.

Documentation

Documentation: Developers must maintain invoices, contracts, and construction logs. For multi-site projects, IRS rules on aggregation may treat multiple facilities as a single project, which affects compliance.

What This Means for Developers and Lenders

• Accelerate timelines: Multifamily projects scheduled for delivery in 2026–27 should confirm whether units can be sold or leased before June 30, 2026 to qualify for § 45L.

• Plan solar now: Commercial and multifamily solar installations must begin substantial physical work before July 2026 to keep flexibility through 2030.

• Evaluate prevailing wage: Higher-value 45L credits ($2,500–$5,000 per unit) are only available if prevailing wage and apprenticeship requirements are met.

• Use alternatives: If these windows cannot be met, explore § 179D or state/local utility incentives as fallback options.

• Document everything: Strong recordkeeping on construction start and compliance with FEOC/domestic content rules will be essential for preserving credits.

  
  

Final Thoughts

The OBBBA has condensed the timeline for claiming federal clean energy credits that were originally expected to run much longer. For multifamily and commercial developers, this makes project planning and financing schedules more urgent than ever.

Early planning for certification, prevailing wage compliance, and solar installation start dates can make the difference between capturing substantial tax credits—or missing out entirely.

If you’d like to discuss how these changes may affect your pipeline, our team can help walk through eligibility requirements, certification processes, and financing considerations.

For more information, visit One Big Beautiful Bill Act.