HR1 alters most solar-related tax credits from the Inflation Reduction Act, but residential solar cuts are the most abrupt. The law ends the 30% homeowner-collected investment tax credit (25D) for rooftop solar + storage installations at the end of 2025.
- Requires installations to be completed by December 31, 2025, to receive 30% ITC
- Ends the residential solar and standalone storage ITC after Dec. 31 with no phase-down
- Projects may not necessarily need to be interconnected to the grid by Dec. 31 to collect the credit
- Unused residential ITC credits can be carried forward into future tax years beyond 2025 if applicable
- Third-party-owned residential solar leasing companies can still collect 48E credit for longer term
The fine print changes the former IRA text to end the credit for projects “placed in service after December 31, 2034,” to “any expenditures made after December 31, 2025.” While at first glance that change appears to focus on payment, Christopher McLoon, tax lawyer at Cozen O’Connor, says this actually means the entire installation must be completed by Dec. 31, 2025.
“IRS guidance on this question (in Notice 2013-47) states that ‘expenditures made’ means expenditures paid or incurred for property installed. Expenditures are treated as ‘made’ when the property is installed, not before,” he said.
Taxpayers can carry forward any unused incentives into future tax years as needed even after the credit expires.
All the same terms apply to incentives for standalone residential storage projects, which also end on December 31, 2025.
One gray area could give residential solar and storage projects slightly more runway. The law does not specify that the project must be interconnected by year’s end, so projects that can be fully installed by December 31 but can’t interconnect to the grid until after that date could still potentially collect the ITC.
“The law states that the credit is available for expenditures made for property that is ‘placed in service.’ The term ‘placed-in-service’ means to be in a condition of readiness and availability for a specifically assigned function. It seems reasonable to say that, as a general rule, if a property is ready to be used for its intended purpose subject only to a PTO (permission to operate), that it has been placed in service. This question can only be answered based on the facts of a particular case,” McLoon said.
All of the above applies to the ITC collected by homeowners who invest in solar and storage projects through cash or loans. Third-party-owned residential solar companies that lease projects to customers can still collect the 48E ITC, and could then potentially pass that savings down to customers via cheaper installs. 48E projects have a longer runway — they must start construction by July 4, 2026, or must be placed in service before December 31, 2027, to collect the credits.
The residential ITC has been on the brink of expiring many times but has always been extended. Now, with a hard stop and three more years of President Donald Trump’s presidency, federal home solar incentives may be gone for a while.
“The only lasting change would be one made with strong support from Democrats and Republicans,” McLoon said. “Without support from both of those parties, any change by Democrats could be undone, as it was in OBBB, through a budget reconciliation process.”
Updated on July 28 to reflect that 48E projects must start construction by July 4, 2026, or be placed in service by December 31, 2027, to collect credits.
I have read from experienced tax credit professionals, that if the expenditures are made and work has started, the Fed credit will apply. Installation can be finished in 2026. This is a better interpretation of a law that was foisted on an industy with extremely short notice.
The lawyer interviewed here as well as Keith Martin with Norton Rose Fulbright say the physical installation must be completed by EOY 2025, but could potentially be “placed in service” past then.
You are correct. Nowhere in Notice 2013-47 does it state that ‘expenditures made’ means expenditures paid or incurred for property installed. Nor does it state expenditures are treated as ‘made’ when the property is installed, not before. In fact Notice 2013-47 specifically states… “The notice defines qualified expenditures for residential energy efficient property based on the definitions in § 25D(d)”. § 25D(d)(2) Qualified solar electric property expenditure definition is, “qualified solar electric property expenditure” means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence by the taxpayer.” Therefore as long as the project has been paid for in full and work has started before 12/31/25 they will qualify for tax credit even if the work isn’t completed before the end of the year.
Hi Rick, I checked in again with a tax lawyer who pointed to the definition of “expenditures made” under 25D. Still appears installation must be completed by Dec. 31, 2025 to get credit.
26 USC 25D(e)(8)
(8)When expenditure made; amount of expenditure
(A)In general
Except as provided in subparagraph (B), an expenditure with respect to an item shall be treated as made when the original installation of the item is completed.
(B)Expenditures part of building construction
In the case of an expenditure in connection with the construction or reconstruction of a structure, such expenditure shall be treated as made when the original use of the constructed or reconstructed structure by the taxpayer begins.
If only what Gary wishes for would come true. It would mean ending the subsidies for the fossil fuel industry. Globally, fossil fuel subsidies were $7 trillion in 2022 or 7.1 percent of GDP. Explicit subsidies (undercharging for supply costs) have more than doubled since 2020 but are still only 18 percent of the total subsidy, while nearly 60 percent is due to undercharging for global warming and local air pollution. Differences between efficient prices and retail fuel prices are large and pervasive, for example, 80 percent of global coal consumption was priced at below half of its efficient level in 2022. Full fossil fuel price reform would reduce global carbon dioxide emissions to an estimated 43 percent below baseline levels in 2030 (in line with keeping global warming to 1.5-2oC), while raising revenues worth 3.6 percent of global GDP and preventing 1.6 million local air pollution deaths per year. Accompanying spreadsheets provide detailed results for 170 countries.
Hopefully the government subsidies will come to a complete halt. If we can’t operate a business, and survive without taxpayer money infusions, we need to find another profession. What does it say about those of us who depend on taxpayer money to “do business”? Who among us believe our industry has any real integrity, if it can’t survive like any industry that doesn’t need taxpayer money?
“One gray area could give residential solar and storage projects slightly more runway. The law does not specify that the project must be interconnected by year’s end, so projects that can be fully installed by December 31 but can’t interconnect to the grid until after that date could still potentially collect the ITC.
Interesting, there is a ‘conundrum’ and perhaps a paradigm shift in consumer perceptions when considering residential bundled electric bills, systems complexity and costs from say 2026 on. Example online forums there are comments from folks in California’s PG&E territory where their average energy is something on the order of $0.25/kWh to $0.35/kWh and during TOU rate spiking up to $0.53/kWh. The consideration mutates from ITC, upfront costs and “when will the system pay for itself in energy savings”, to a realization some price point per kWh will trigger the, “I can NOT afford to do this, I need to install solar PV and BESS sooner than later.” The answer is more personal and “subjective”, how much tolerance do YOU have for price gouging, usury, control of your daily energy costs from electricity to “gasoline”. An article several years back from Barry Cinnamon in California, spent some $85K upgrading his electrical, insulation, appliances and adding solar PV to his home. His considered payback period in energy savings on electricity and gasoline as he was going to use a BEV as transportation was something on the order of 8-10 years.
Take away, the long game isn’t as long as it was twenty years ago, when solar PV didn’t have an ITC and cost some $8/watt installed to today and from $2.75 to $3.50/watt installed, without the ITC. Today the “what’s the ROI” of 20 years ago at $0.11/kWh to todays average of $0.25-$0.35/kWh is a considerable change in monthly household budget recurring expenses.
Over many years of selling and installing solar, I’ve found that 1- years or less is a likely sale. 10-12 – maybe a 50/50 chance, and beyond 12 years only the hard chargers go for it. So I consider a project to “pencil” if it is 10 years or less. I do expect price per kW to drop to around $2 per watt within 18 months of the moronic bill’s passage – making up most of the 30%. But that will involve a *lot* of consolidation to the big guys, as you can only get that low via volume.