Breaking: Congress Moves to End the Residential Solar Tax Credit After 2025

The House Ways and Means Committee is proposing, as part of the budget reconciliation bill, to end the 30% Residential Clean Energy Credit effective Dec 31, 2025.  If the bill is passed into law as currently proposed, this would require homeowners interested in going solar to have their system placed in service by the end of the year in order to qualify for the tax credit.

The federal solar tax credit or “Investment Tax Credit (ITC)” is, in many cases, the most valuable solar and battery incentive available to residential solar owners. Claiming the credit can reduce your federal tax liability by 30% of the total cost of installing solar and/or battery storage. For instance, investing $30,000 in solar would allow you to claim a $9,000 credit on your federal tax return for the year it is installed and inspected.

As part of the Inflation Reduction Act (IRA), the federal solar tax credit is currently scheduled to remain at 30% through 2032 before gradually phasing out by 2035. The House and Ways Committee proposal to eliminate this credit almost 10 years early is not set in stone, as it still needs approval from the House and Senate before heading to President Trump for a signature.

Let’s take a look at what’s next for the reconciliation bill.

What happens next for the residential solar tax credit?

The text released by the Ways and Means Committee is the start of a process to pass the budget reconciliation bill. It will go through edits in the House before it’s put up for a vote, likely by the end of May. Then, it will go to the Senate, where it must pass with a simple majority before going to the President to sign. 

Most pundits think the Senate will pass the budget reconciliation bill before the summer recess in early August, but it’s unclear if an abrupt end to the residential solar tax credit will still be included as currently proposed. The budget reconciliation bill includes cuts to several clean energy tax incentives created by the Inflation Reduction Act—both for businesses and homeowners—many of which have bipartisan support and have boosted manufacturing in Republican-held districts.

There will almost certainly be resistance to IRA cuts from swing-state Senators and changes to the reconciliation bill before it is signed into law. However, homeowners don’t have the luxury to wait and find out if the residential solar tax credit survives. Solar projects typically take several months from design to installation, and starting the process in August puts their project at risk of not being installed by December 31 and losing their tax credit eligibility.

Over the summer, the solar industry and everyone who cares about a consumer’s choice to save money with solar should reach out to their federally elected representatives and let them know that they support the Residential Clean Energy Tax Credit (25D). 

What happens to residential solar without a homeowner tax credit?

While the 30% tax credit for homeowners who purchase and install solar is on the chopping block, some solar tax credits and incentives are likely to be maintained, including the tax credit for businesses that install residential solar through leases and power purchase agreements (PPAs).

If the proposal currently before Congress becomes law and the homeowner tax credit goes away, homeowners who want to go solar will be pushed into a lease or PPA—as businesses claim the tax credit in those deals. This means that a homeowner can still access the tax credit in states that allow PPAs and leases by entering into that type of transaction and, after 5 years, buying out the remaining term of the lease to own their system. This creates extra complications and cost, and while it does still provide value, it’s not as clean, easy, or simple as the current process. 

The other downside is that a lot of smaller solar contractors might not be able to survive the market downturn, putting them out of business. 

How to claim the solar tax credit before it’s gone

If you’ve been thinking about solar, now is absolutely the best time to go forward with your project. Solar projects typically take several months from design to installation. However, as we’ve seen across the country, every time there is a negative change to policy, homeowners rush to grab the last of the incentives, and projects get delayed due to backlogs. So, we expect installation times to grow as the year progresses.

Because the system needs to be placed in service (i.e., installed and inspected), this means projects contracted after the summer are at risk—so don’t delay. Start a project on solar.com today to compare solar quotes quickly and put your project on track for installation in 2025.

We’ll update this article and post new ones as updates are made. 

And finally if you care about small businesses in your community, and the choice to have access to clean energy that you own instead of relying on a bank to sell you power (or buy it from your utility) reach out to your federally elected representatives and let them know you care about the Residential Clean Energy Tax Credit!