What You’ll Learn
- What the One Big Beautiful Bill Act changed for residential and commercial solar
- Which federal tax credits are gone and which are still available
- The specific deadlines that now apply to commercial and third-party-owned solar projects
- How the law affects solar leases, PPAs, and Direct Pay
- What options remain for going solar in 2026 and beyond
What Did the One Big Beautiful Bill Act Do to Solar?
The One Big Beautiful Bill Act, signed into law on July 4, 2025, ended the 30 percent federal residential solar tax credit and accelerated the phase-out of commercial clean energy tax credits. The residential credit under Section 25D terminated on December 31, 2025, with no step-down or transition period. Commercial credits under Section 48E remain available but must meet new construction deadlines and equipment sourcing rules that were not part of the original Inflation Reduction Act.
The law represents the most significant change to federal solar policy since the IRA was enacted in 2022. It affects every homeowner, business, and organization that had been planning to go solar under the original credit timeline, which was supposed to maintain the 30 percent residential rate through 2032.
What Was Repealed: The Residential Clean Energy Credit
Section 25D of the Internal Revenue Code, known as the Residential Clean Energy Credit, allowed homeowners to claim 30 percent of the cost of a solar panel system, including panels, inverters, batteries, and installation labor, as a credit against their federal income taxes. The credit was nonrefundable, meaning it reduced taxes owed but could not generate a refund on its own, and any unused portion could be carried forward to future tax years.
Under the original Inflation Reduction Act timeline, this credit was set to remain at 30 percent through 2032, then step down to 26 percent in 2033 and 22 percent in 2034 before expiring. The One Big Beautiful Bill Act eliminated that entire schedule, terminating the credit for systems placed in service on or after January 1, 2026.
There is no partial credit, no transition period, and no phase-down. Homeowners who installed solar by December 31, 2025 can still claim the credit on their 2025 tax returns. Homeowners who install solar on or after January 1, 2026 receive no federal residential tax benefit.
What Remains: Commercial Credits Under Section 48
The commercial Investment Tax Credit under Section 48E was not repealed but was given an accelerated termination timeline for solar and wind projects specifically. The key deadlines are:
- Begin construction by July 4, 2026: The project qualifies for the full 48E credit with a placed-in-service deadline of December 31, 2030, assuming the four-year continuity safe harbor is met.
- Begin construction after July 4, 2026: The credit is only available if the project is placed in service by December 31, 2027.
- Energy storage technology: Battery projects that are not co-located with solar are not subject to the accelerated solar and wind deadlines and remain eligible under the original IRA timeline through the early 2030s.
This means the 48E credit is effectively available for new commercial solar projects that start within the next five months. After that window closes, the credit becomes extremely difficult to access for any project that is not already in progress.
How the Law Affects Solar Leases and PPAs
The One Big Beautiful Bill Act initially proposed eliminating the ITC for leased residential solar systems. The final version of the law reversed this, preserving eligibility for leased solar electric generating property under Section 48E. This is critical for the residential market.
Because solar leases and PPAs are structured as commercial transactions where a third-party company owns the equipment, the system qualifies for the Section 48E credit even when installed on a residential property. The company claims the credit and reflects the tax benefit in the rate it charges the homeowner.
For homeowners in 2026, this makes leases and PPAs the only path to accessing federal tax benefits for rooftop solar. A cash or loan purchase no longer qualifies for any federal credit, but a lease or PPA can still deliver lower rates because the commercial credit reduces the owner’s cost basis.
👉 Learn how solar leasing and PPAs work in 2026
Direct Pay Is Preserved
The Direct Pay provision under Section 6417, which allows tax-exempt organizations to receive the ITC as a cash payment from the IRS, was preserved by the One Big Beautiful Bill Act. Nonprofits, churches, schools, local governments, and other tax-exempt entities can still use Direct Pay to claim the Section 48E credit on solar installations that meet the same construction deadlines.
This is particularly important for organizations that had been planning solar projects under the original IRA timeline. While the credit itself has a shorter window, the mechanism for accessing it remains intact.
👉 Read our guide to Direct Pay for nonprofits and government entities
New Equipment Sourcing Rules: FEOC Restrictions
The law introduced Foreign Entity of Concern restrictions for all clean energy credits, including Section 48E. Projects that begin construction after December 31, 2025 must certify that manufactured components do not exceed a threshold of material assistance from entities connected to designated foreign countries, primarily China.
The material assistance threshold starts at 40 percent for projects beginning construction in 2026 and tightens each subsequent year. Projects that began construction before January 1, 2026 are exempt from these rules.
For most commercial and TPO residential solar projects in 2026, this means working with an installer who sources panels, inverters, and racking from FEOC-compliant manufacturers and can provide the documentation needed to support the credit claim.
What Options Remain for Going Solar
Despite the loss of the residential tax credit, solar remains financially viable in 2026. Here is a summary of the paths that still work:
- Solar lease or PPA: $0 upfront, immediate savings, indirect federal tax benefits through the commercial credit. Best for homeowners who want simplicity and guaranteed savings.
- Cash purchase: No federal credit, but highest lifetime return for homeowners with capital who plan to stay 15+ years. SRECs and net metering still apply.
- Loan purchase: Longer payback without the credit, but still pencils out in areas with high utility rates. Monitor loan rates and dealer fees carefully.
- Commercial purchase: Full Section 48E credit plus MACRS depreciation available for businesses that begin construction by July 4, 2026.
- Direct Pay: Full 48E credit as a cash refund for tax-exempt organizations that meet construction deadlines.
The most important takeaway is that the law did not make solar uneconomical. It changed the financial structure. The incentives shifted from direct homeowner tax credits to commercial credits that flow through third-party ownership, state programs that continue to provide real value, and long-term electricity cost avoidance that only becomes more valuable as utility rates rise.
How Sunwise Can Help
Sunwise Energy helps homeowners and businesses navigate the post-OBBBA landscape with clear guidance on which programs still apply, which payment structure makes the most sense, and how to move forward with confidence.
One Big Beautiful Bill Act and Solar FAQs
Did the One Big Beautiful Bill Act eliminate all solar tax credits?
No. The law ended the residential solar tax credit under Section 25D as of December 31, 2025, but the commercial Investment Tax Credit under Section 48E remains available for projects that begin construction by July 4, 2026. Direct Pay for tax-exempt organizations is also preserved.
Can homeowners still benefit from federal solar incentives in 2026?
Yes, indirectly. Homeowners who go solar through a lease or PPA benefit from the Section 48E commercial credit because the third-party system owner claims the credit and passes the savings through in the form of a lower rate. Cash and loan purchases no longer qualify for any federal credit.
When was the One Big Beautiful Bill Act signed into law?
The One Big Beautiful Bill Act was signed into law on July 4, 2025. The residential solar tax credit termination took effect on December 31, 2025, and the July 4, 2026 construction deadline for commercial solar applies one year after enactment.
Is solar still worth it without the federal tax credit?
Yes. Solar remains a strong financial investment in 2026 because state incentives like SRECs and net metering still apply, utility rates continue to rise, and lease and PPA structures provide immediate savings with $0 upfront cost. The payback period for cash purchases is longer, but the lifetime return is still positive.
What is the deadline for commercial solar tax credits?
Commercial solar projects must begin construction by July 4, 2026 to qualify for the Section 48E Investment Tax Credit with a placed-in-service deadline of December 31, 2030. Projects that begin construction after July 4, 2026 must be placed in service by December 31, 20
The information in this guide is for informational and educational purposes only and does not constitute legal, financial, or tax advice. We are not licensed tax advisors or financial professionals. The tax laws and regulations discussed are complex and subject to change and interpretation. Consult with a qualified tax professional to understand how these provisions apply to your organization’s specific circumstances.
