The Solar Tax Credit Is Gone...Kind of.

A lot of homeowners are searching "solar tax credit expired" right now. The 30% federal credit for residential solar ended on December 31, 2025, and it was a significant benefit for nearly two decades.

But there is something most of those search results are missing: the 30% credit did not disappear entirely. It still exists for one category of homeowners. Understanding which category that is, and whether it applies to you, is worth a few minutes of your time.

Here is the straightforward version: what the credit was, how it worked, and how the 30% is still on the table in 2026.

What the Solar Tax Credit Actually Was

The federal solar Investment Tax Credit (ITC) was a dollar‑for‑dollar reduction in your federal tax bill, equal to 30% of the total cost of your solar system.

Here is what "dollar‑for‑dollar" means in practice. If you owed $8,000 in federal income taxes and installed a $25,000 solar system, the 30% credit ($7,500) would reduce your tax bill to $500. You did not receive a check. The credit reduced what you owed.

Three details that confused a lot of people:

It was not a deduction. A deduction reduces your taxable income. A credit reduces your actual tax bill. Credits are worth more, dollar for dollar.

It required federal tax liability. If you owed little or no federal income tax, the credit had limited value. Retirees with modest income, for example, often could not use the full credit in a single year. The IRS allowed unused credits to carry forward, but only while the credit remained active.

It applied to the full installed cost. Panels, inverters, mounting hardware, labor, permits, and qualifying battery storage all counted toward the calculation. The 30% credit on a $30,000 system was $9,000.

A Quick History: 2006 to 2025

The solar ITC has a longer history than most people realize.

2006: The Energy Policy Act of 2005 (signed August 2005, effective January 2006) created the residential and commercial solar tax credit. The original credit was capped at $2,000 for homeowners.

2008: The Emergency Economic Stabilization Act removed the $2,000 cap and extended the credit through 2016. The residential credit became uncapped, making it significantly more valuable for larger systems.

2015‑2016: The Consolidated Appropriations Act of 2016 extended the credit with a planned step‑down: 30% through 2019, dropping to 26% in 2020, 22% in 2021, and 0% for residential by 2022. At that point, many homeowners rushed to install before what looked like a final deadline.

2020‑2021: Congress extended the step‑down timeline again. The credit held at 26% through 2022, with 22% applying in 2023.

2022: The Inflation Reduction Act restored the credit to 30% and extended it through 2032, with a planned step‑down to 26% in 2033 and 22% in 2034. Solar installers, homeowners, and the broader industry planned around a decade‑long credit horizon.

July 4, 2025: Congress passed H.R. 1, which repealed the residential solar ITC (Section 25D) effective January 1, 2026. For homeowners who buy or finance their own system, the 30% credit is gone.

What the Credit Did for the Industry

The numbers are worth understanding.

When the original ITC took effect in 2006, the U.S. had less than 500 MW of installed solar capacity. By 2024, that number reached 236 GW, a roughly 500‑fold increase. The credit did not cause all of that growth. Hardware costs fell more than 90% over the same period. But the ITC made going solar financially accessible to millions of homeowners who would not have installed otherwise.

The average residential system cost roughly $50,000 in 2010. A comparable system costs approximately $25,000 to $30,000 in 2025, before incentives. The 30% credit on a $28,000 system was $8,400. For middle‑income homeowners, that gap between "worthwhile" and "not worth it" was often right around the size of the credit.

The 30% Credit Is Still Available — For One Path

Here is what most coverage has missed.

The residential credit (Section 25D) ended for homeowners who own their system outright, bought with cash or a loan. But a separate commercial solar tax credit (Section 48E) remains active — and it applies to third‑party companies that own solar systems installed on homeowners' roofs.

This is how leases and power purchase agreements work.

When you sign a solar lease or PPA, you do not own the panels. A solar company owns the equipment. You pay a fixed monthly rate (lease) or a per‑kWh rate (PPA) to use the electricity they generate.

Because the company owns the system, they qualify for Section 48E. That is the commercial version of the solar credit, still at 30%, still active for projects that begin construction by July 4, 2026. Some companies using American‑made equipment can also claim a Domestic Content Bonus Credit on top, increasing total savings passed to you.

The company passes that value to you through lower rates. Instead of you claiming the credit on your taxes, the company prices the credit into your contract terms. Your lease rate or PPA rate reflects the 30% savings built in.

Prepaid options apply the discount upfront. If you pay for a lease in full at signing, that 30% credit value is applied as a discount at that moment rather than spread across monthly payments. Some homeowners prefer this approach because it mirrors the economics of buying without requiring the tax liability.

The result: if you go the lease or PPA route, you can still access the economic value of the 30% credit in 2026. The mechanism is different. The savings are real.

Who Benefits Most from This Path

Leases and PPAs are not the right fit for everyone. But for certain homeowners, they deliver more value than a purchased system even did before the credit expired.

Homeowners with low federal tax liability could never fully use the 30% residential credit. Retirees, lower‑income households, and anyone with significant deductions often found the credit only partially useful. Under a lease or PPA, the company claims the credit regardless of your tax situation. You benefit whether or not you owe federal taxes.

Homeowners who prefer no upfront cost get a system on their roof for $0 down. There is no loan to qualify for, no debt to carry, no upfront cash required.

Homeowners who want simplicity get one monthly bill. The company handles maintenance, monitoring, and production guarantees. If something breaks, it is their problem, not yours.

The trade‑off is ownership. A purchased system is an asset. You build equity in it, and it increases your home value. A lease or PPA keeps the company as the owner. When you sell your home, the lease typically transfers to the new buyer, which some buyers welcome and others do not.

Neither path is objectively better. They have different economic profiles depending on your tax situation, your timeline, and your financing goals. What matters is understanding which one matches your situation before you sign anything.

The July 4, 2026 Window

Section 48E has two pathways depending on when construction begins.

If a company begins construction before July 4, 2026, they fall under a four‑year continuity safe harbor — meaning the system must be placed in service by December 31, 2030. If construction does not begin until after July 4, 2026, a harder deadline applies: the system must be fully placed in service by December 31, 2027.

This matters for homeowners considering a lease or PPA. The pre‑July 4 path is the more favorable one, and solar companies are building their installation pipelines now to ensure they qualify. A system installed in late 2026 or 2027 may still qualify if the company can demonstrate that physical construction work of a significant nature began before the deadline. Confirm with any installer or solar company that their qualifying method meets current IRS guidance under Notice 2025‑42.

If you are considering a lease or PPA, getting your proposal in hand sooner gives you more runway. Companies pricing their 2026 portfolios around the 48E credit have every incentive to move quickly. Homeowners who wait may find less favorable terms as the deadline approaches.

What This Means for You

If you installed before December 31, 2025, you qualify for the 30% credit on your 2025 tax return. Nothing retroactive changed.

If you are deciding now, you have two paths:

Buy or finance your own system. The 30% federal credit is gone, but state tax credits, net metering, SRECs, and rising electricity rates still make the math work in most markets. The payback period is longer than it was. The 25‑year savings are largely intact.

Sign a lease or PPA. You access the 30% value through the company's pricing. No federal tax liability required. $0 down. One monthly bill. The economics work best for homeowners who could not have fully used the residential credit anyway, or who prefer not to own the system outright.

The question worth answering is which structure fits your situation. A proposal that shows you both options side by side is the clearest way to make that call.

Terawatt designs your system from your address and shows you real pricing from verified local installers, with financing options laid out clearly alongside purchase options. Your contact information stays private until you decide to move forward.

Get my proposal

Sources

• SEIA: "Solar Investment Tax Credit (ITC)" (seia.org)
• SEIA: "Solar Market Insight Report 2024 Year in Review" — 236 GWdc cumulative capacity (seia.org)
• Department of Energy: "Solar Investment Tax Credit: What Changed"
• SolarReviews: "The History of Tax Credits and Their Impact on Residential Solar"
• Electrek: "The 30% home solar tax credit is dead — long live the 30% home solar tax credit" (January 2026)
• Bodhi Solar: "Top residential solar questions about the One Big Beautiful Bill" (2026)
• Stoel Rives LLP: "The One Big Beautiful Bill Modifies Renewable Energy Tax Credits" — Section 48E construction/placed‑in‑service deadlines
• GreenLancer: "Residential Solar Tax Credit Going Away in US After 2025" (greenlancer.com)
• Straight Up Solar: "New Commercial Solar Tax Credit Law" — Section 48E overview
• NuWatt Energy: "NJ SuSI/ADI Program 2026: SREC‑II Rates"
• IRS Notice 2025‑42: "Sections 45Y and 48E Beginning of Construction" — safe harbor rules and Physical Work Test guidance