Solar Tax Credit Update – What you need to know

The recently passed budget bill has shaken things up in the solar world. Although it’s not all for the worse, some of it is not great news.

The big news is the Investment Tax Credit, ITC, is going away. This was termed the solar tax credit by some and gave solar customers 30 percent tax credit on all projects and more in certain cases. This news means slightly different things depending on if you’re a commercial or residential customer, but for both it will be eliminated much earlier than was planned from the last administration’s budget.

For all customers, installers, investors, and other interested parties, the other looming factor is that despite pretty clear language in the bill, the President made an executive order that muddied the water. He’s asked his departments to clarify the law and how it will be applied before Aug. 17. Although, again, it’s unclear whether the administration’s guidance will hold up in court, if tested.

Okay, so with those caveats out of the way, here’s the breakdown:

Residential customers

This one seems very clear. The solar tax credit that drove the residential solar market since 1978 will last until the end of the year. All customers who wish to claim the credit must have their system “placed in service” by Dec. 31, 2025. Most agree this means that the power company should have granted PTO, Permission to Operate, before Midnight on Dec. 31, 2025.

Commercial customers

There is some gray area here and the Aug. 17 ruling could affect this greatly, but here are the assumptions many installers are operating under. The tax credit will still be in effect for commercial projects that begin construction before Jan. 1, 2026. Begin construction typically means the project is started and a down payment has been made. These projects must be placed in service before Dec. 31, 2027.

Projects that begin construction after Jan. 1, 2026, must abide by FEOC guidelines. FEOC means Foreign Entity of Concern and applies to product and materials sourced from China, Russia, North Korea, and Iran. Those in the industry are waiting for guidance from the administration on what these terms will be.