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Definition
The federal residential solar Investment Tax Credit (ITC) — the Residential Clean Energy Credit under IRC §25D — let homeowners deduct 30% of their total solar system cost directly from their federal income tax liability, dollar-for-dollar. However, §25D expired for homeowner-purchased systems installed after December 31, 2025, so a 2026 cash or loan purchase no longer earns this federal credit. The 30% benefit can still reach third-party-owned systems: when you sign a solar lease or Power Purchase Agreement (PPA), the installer/owner may claim the 30% commercial credit under IRC §48E (IRS) and often passes the savings through as a lower rate — subject to construction beginning before July 4, 2026 or the system being placed in service by December 31, 2027. When the §25D credit applied, it covered panels, inverters, battery storage, mounting hardware, permits, and installation labor, and any unused portion carried forward to future tax years; only system owners — not lessees — could claim it. This is general information, not tax advice.
Also Known As
ITC
solar ITC
federal solar tax credit (note: the residential §25D credit expired for purchases after December 31, 2025; the commercial §48E credit may apply to leased/PPA systems — consult a tax professional)
Residential Clean Energy Credit
IRC §48E credit
Used in Context
- On a $25,000 solar installation in Arizona, the 30% federal Investment Tax Credit under §48E (IRS) could reduce the federal tax bill by $7,500 for an eligible third-party owner such as a leasing company or PPA provider — effectively bringing the net cost to $17,500 before any additional state incentives. Homeowners who purchase a system outright in 2026 or later may not claim a federal residential credit, as the §25D Residential Clean Energy Credit expired for systems installed after December 31, 2025. Arizona state incentives remain unaffected. This is general information, not tax advice.
- A homeowner who purchased and installed a qualifying solar system prior to the December 31, 2025 expiration of the §25D Residential Clean Energy Credit (IRS) and owed only $4,000 in federal taxes the year of installation could claim $4,000 of their $9,000 credit in year one and carry the remaining $5,000 forward to subsequent tax years. For systems purchased and installed in 2026 or later, the §25D credit is no longer available to homeowners; however, third-party-owned systems under a lease or PPA may still qualify for the 30% commercial credit under §48E (IRS), subject to construction and placed-in-service deadlines. This is general information, not tax advice.
- The installer clearly explained that a solar lease would save about $25/month on electric bills. Under a lease, the homeowner does not own the system and therefore cannot claim the residential §25D credit (IRS) — which in any case has expired for homeowner-purchased systems installed after December 31, 2025. However, the lease arrangement is not without federal tax benefit: the installer/owner may claim the 30% commercial credit under §48E (IRS) and often passes those savings through as a lower rate. Whether a solar loan or a lease is economically superior depends on individual circumstances, and this is general information, not tax advice.
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