A big federal tax credit for homeowners who get solar panels will end this year, meaning a window for significant savings on going solar is closing fast.
The 30% credit has long been the biggest single incentive for residential solar panel adoption, and its expiration is a significant blow for what has been a fast-growing industry. For homeowners, its elimination significantly changes the calculus of whether solar panels make financial sense compared with paying utility electrical rates. “It’s clear that as a result of this bill that we’re going to see electricity bills spike all around the country,” Emily Walker, director of insights at EnergySage, said in an interview.
The residential clean energy credit, which provided taxpayers who bought solar panels using cash or a loan with a credit of up to 30% of the system’s cost, expires at the end of 2025. It had previously been expected to run for nearly another decade, but congressional Republicans voted to end it early in a major tax and spending bill President Donald Trump signed this month.
For now, the end-of-year deadline means there will be a rush by consumers who want to go solar to get their systems installed and operational before 2026. Considering it can take months to get a system installed and connected to the grid — and that installers will likely see a rush of clients that could drag things out — experts suggested acting quickly if the tax credit is a must-have.
“If a homeowner is interested in going solar, they need to start the process right now,” Walker said.
What happened to the solar tax credit?
The residential clean energy credit, which covers things like home batteries and geothermal heat pumps in addition to solar panels, has been around in some form or another since George W. Bush was president. The latest extension and expansion of it came in 2022 when President Joe Biden signed the Inflation Reduction Act. Congressional Republicans and President Trump saw the credit and other spending authorized by the IRA as a target for elimination this year to help pay for an extension of 2017’s tax cuts in what Trump called the One Big Beautiful Bill Act.
This credit and a few others will be eliminated effective 2026, but other credits, including one that applies to companies that offer residential solar leases and power purchase agreements, will be phased out over the following years.
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Walker said the energy policy changes in the latest legislation will likely lead to higher electric bills, because it discourages the development of clean energy like wind and solar — the easiest and fastest way to get power on the grid. This comes at the same time that data centers for artificial intelligence are sucking up more and more energy.
With the current energy environment and the need for more generation, more energy efficiency and more energy independence, now isn’t the time to scale back incentives, said Zach Pierce, head of policy at the nonprofit Rewiring America. “This preemptive phasedown of these common-sense tax credits is a self-inflicted setback,” he told me. “These are the exact investments we should be leaning into, not preemptively eliminating.”
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Should you rush to get solar panels before the tax credit expires?
A solar panel system can cost you tens of thousands of dollars, even with 30% off, thanks to the government. Don’t feel like the disappearance of the credit is reason enough to go solar. But if you were already considering getting solar panels and you weren’t sure whether you’d do it this year or next year, the credit’s expiration may mean you want to act sooner.
One unanswered question is exactly what constitutes having a system installed by the end of the year. Does that mean panels are on the roof and sending electrons to an inverter and battery, or does it mean the system has been approved to interconnect to the grid? Waiting on interconnection can add more time, meaning it’s even more important to act quickly, Walker said. Until more guidance on the tax change comes from the Internal Revenue Service, that’s probably what you should assume, she said.
“Our best guidance right now is to have your system interconnected by the end of the year because that’s the safest bet,” she said.
There are also leases and PPAs, in which a third-party company owns the panels on your house and you either pay a monthly payment or a per-kilowatt-hour rate for the energy, respectively. For those systems, the credit expires in 2028, but it’s the company that claims those credits, not you. Walker said those companies often have not been passing those savings down to consumers anyway.
The most important thing is not to rush too much. The solar industry has a problem with bad actors and questionable companies, and a brief gold rush like this might bring more out of the woodwork. Even though there is urgency, Walker said homeowners shouldn’t rush and should still get multiple quotes and read the fine print.
What other tax credits are changing?
Other energy-related tax credits are also being eliminated sooner than planned.
The energy-efficient home improvement credit, which covers things like insulation and heating and cooling systems, also expires after this year. Rewiring America has resources available with details on how the credits are changing and how to take advantage of them.
States and utilities also have similar rebate programs, so the hit to your wallet from losing the federal credit is mitigated a bit. Still, if you’re in the market for home energy efficiency changes, consider moving quickly. “If you’ve been thinking about upgrading an appliance, now is the time as we get into the fall,” Pierce said.
Energy efficiency incentives and programs can insulate you not just from the heat and cold, but from rising energy costs. “Energy efficiency and insulation in the home, if you can afford it and find ways to overcome that up-front cost barrier, is pretty much a no-regrets thing,” Pierce said.
The new clean vehicle credit and used clean vehicle credit provide $7,500 for new electric vehicles and $4,000 for used EVs. These expire at the end of September.
