Federal Solar Tax Credit 2026: What Replaced the 30%

The 30% credit homeowners counted on for more than a decade is gone. A quieter shift in how solar gets financed has stepped into its place, and it's changing the offers installers put in front of you. TL;DR: The federal Residential Clean Energy Credit (Section 25D) expired on December 31, 2025. Homeowners who buy a system outright in 2026 no longer get a direct 30% credit on their taxes. A separate commercial credit (Section 48E) is still available to system owners through the end of 2027, which is why prepaid solar leases and PPAs have become so common. The financing company claims that credit and passes much of the value through to you. What actually happened to the 30% credit For years the pitch was simple. Buy solar, claim 30% of the cost back on your federal taxes. That was the Section 25D residential credit, and it expired at the end of 2025 under the One Big Beautiful Bill Act. If you installed a purchased system before that date, you can still claim it on your 2025 return. But for a cash or loan purchase placed in service in 2026, there's no direct federal credit anymore. Anyone telling a homeowner that a 2026 cash purchase still earns a personal 30% credit is working from outdated information. That part most people have heard. What gets less attention is the part that didn't go away. Why prepaid leases got popular. There's a second federal credit, Section 48E, written for businesses that own solar equipment. It survived, and it stays available to system owners through the end of 2027. Homeowners can't claim it directly. A solar company can, if the company owns the panels on your roof. That's the whole reason leases, power purchase agreements (PPAs), and prepaid versions of both have surged. In these arrangements the installer or financing company legally owns the system. As a business, it claims the 48E credit, worth roughly 30% of eligible project costs and sometimes more with bonus adders, then passes a portion of that value to you through lower payments or a reduced upfront price. You file nothing. The savings show up in how the deal is built. What a prepaid lease looks like A prepaid lease or PPA flips the usual monthly payment model. Instead of paying down a balance over years, you pay most of the system's cost in a single payment up front, often somewhere around 70% of the retail price. The financing company owns the system for an initial term, frequently about six years, claims the commercial credit during that window, then typically hands full ownership to you. The appeal is that the credit value is built into your price from day one. With a standard monthly lease or PPA it can be hard to see how much of the credit actually reached you. With a prepaid structure the discount sits right there in the upfront number. The deadline shaping the market right now The 48E window doesn't stay open forever. To qualify, a project generally needs to begin construction by the middle of 2026 (the date people cite most often is July 4, 2026) or be placed in service by December 31, 2027. This is a real cutoff written into the law, not a sales tactic. If you're weighing a lease or PPA proposal, ask the provider directly whether their projects qualify under the 48E safe harbor and what their construction timeline looks like. One more wrinkle. Projects claiming 48E have to follow sourcing rules (the Foreign Entity of Concern rules) that limit where certain components come from. That mostly affects the financing company's equipment choices, not your paperwork, though it's a fair thing to ask about when you compare equipment tiers. What this means if you're shopping now The question has changed from "how big is my tax credit" to "which financing structure passes the most value through, and on what terms." Cash, loan, lease, and prepaid PPA all pencil out very differently than they did two years ago. The right answer depends on your tax situation, how long you plan to stay in the home, and the specific terms each installer offers. Whether you personally benefit from any credit depends on your circumstances, so that's a conversation for a tax professional rather than a sales rep. The catch is that you can't compare structures you never see. Getting the same project quoted by several installers is the only way to tell whose math actually favors you.