Senate Proposes New Deadline for Solar Tax Credit Phaseout

On June 16, as part of the Budget Reconciliation process (aka the “One Big Beautiful Bill”), the Senate Finance Committee is proposing changes to clean energy credits created by the Inflation Reduction Act. This includes an abrupt phase out of the 30% solar tax credit claimed by homeowners (known as the 25D Residential Clean Energy Credit).

Jump to a section:

• June 17 update
• Impacts on Residential Solar Tax Credits
• Impacts on Non-Residential Solar
• Will there be more changes?

Update June 17: After spending an evening with the text and listening to some expert analysis, we wanted to provide a few updates to this article:

• The ending of the 25D consumer tax credit 180 days after the bill is signed changes the language from “Placed in Service” to “Expenditure” incurred. The IRS defines Expenditures in the context of the Corporate tax code, but we’re unaware of the definition under the individual tax code. While there could be some liberal interpretations of Expenditures incurred, the recommendation for the time being is to plan on having the system installed within 180 days of the bill being signed into law. 
• Solar leasing remains on the sidelines after the end of 2025, with no known provisions for “safe harboring” to preserve 2025 tax rules. Power Purchase Agreements (PPAs) may be allowed, but that is still to be determined at the moment. 
• Battery-only systems appear to retain the qualification for the tax credit, which would be good news for homeowners looking to retrofit systems. It is important to note, however, the FEOC restrictions may make this challenging given the high value of material sourced from Chinese companies in the energy storage systems space. 
• Another nuance that we missed in the first reading is that the manufacturing tax credits, which make it economically viable to reshore manufacturing, appear to not be stackable. This means companies that have invested in vertical integration may now lose the full value of the tax credit, which puts these investments in economic peril and will create bankability issues for those that attempted to reshore US manufacturing. 

It’s important to remember that the language released yesterday is only a draft from the Senate Finance Committee. It must still be passed by the Senate before it goes back to the House for their review and vote. Both chambers must approve the language before going to the President for signature, at which time it becomes law. There will undoubtedly be changes between now and when that occurs. 

Original text as follows: The solar.com team has been tracking the political landscape closely, especially proposals in the “One Big Beautiful Bill” that call for phasing out the solar tax credits. After the House passed its version a few weeks ago, the bill moved to the Senate, where the text gets reviewed and potentially changed by the Senate Finance Committee before being voted on by the entire Senate.

Today, we saw a draft released from the Senate Finance Committee, which contains the provisions below. We’ll update this article in the upcoming hours and days with a more thorough reading and analysis of the text. 

Impacts on Residential Solar Tax Credits

There are two key parts of today’s draft that impact homeowners who want to go solar and claim a 30% tax credit.

1) The 25D residential solar tax credit goes away 180 days after the bill is signed.

This is the 30% tax credit claimed by homeowners who install solar. In the House version, projects would need to be placed in service (aka installed) by December 31, 2025. Today’s draft from the Senate may extend that deadline by a few weeks, assuming the One Big Beautiful Bill is signed into law sometime in July.

The Senate also tweaked the bill text to say “expenditure” incurred instead of  “placed in service” as the milestone a project needs to reach before it can qualify for the tax credit. We are still searching for clarity on the significance of this language change, but, for now, our guidance remains that residential solar systems should be installed by the new deadline in order to qualify for the tax credit.

The good news is that most residential solar projects can be built in 180 days—but that means customers interested in going solar should start their project today to secure an installation date before this deadline.

Notably, it appears that battery-only systems will remain eligible for a 30% tax credit. However, restrictions on Foreign Entities of Concern may limit the battery options available.

2) The tax credit lease exclusion proposed by the House remains in the Senate bill.

The House version of this bill closed off a path for homeowners to indirectly access the 48E tax credit through a leased solar system at the end of 2025. Today’s draft from the Senate Finance Committee retains this language, although there is no mention of Power Purchase Agreements (PPAs), so those might be able to maintain access to the tax credit. 

Impacts on Non-Residential Solar

While the 25D tax credit is seemingly headed for an abrupt end in early 2026, the 48E tax credit for non-residential solar installations (and possibly residential PPAs?) will phase out over time. We’ll expand on this phase-out schedule as the details become clearer.

Also, the restrictions on Foreign Entities of Concern remain, although if projects don’t otherwise qualify for tax credits, those restrictions are meaningless. 

Will there be more changes to the One Big Beautiful Bill?

Yes, we believe so. On Monday, we were already hearing rumblings about changes needing to be made to key provisions of the bill (not solar specific). This means that things could change positively or negatively for the solar industry. 

Given the variable nature of timelines to install residential solar projects, consumers considering going solar should start their project quickly to ensure it’s placed in service by the end of the year. 

What’s Next for the OBBB and the Solar Tax Credit?

The release of the text today is an important but incremental step in the process. Next, the Bill must be voted on and approved by the Senate. Given the differences that exist between the Senate and House versions of the bill, the House then needs to pick it up and either approve or counter the Senate draft. Once the two sides are “reconciled” and passed by both chambers, the bill can be sent to the President for his signature.

The solar industry will continue to advocate for itself and its future, and until the bill is signed into law, will continue to fight for the jobs, investments, and consumer choice in energy that solar represents.