Financing
The federal 30% residential solar tax credit ended for cash and loan buyers on December 31, 2025 — but the commercial credit survived, which quietly changes the math on leases and PPAs. Here's the 2026 framework, plus the two traps to avoid.
Updated June 30, 2026 · 11 min read
Short answer: In 2026, if you buy a home solar system with cash or a loan, your federal tax credit is $0 — the 30% Residential Clean Energy Credit (Section 25D) ended for systems placed in service after December 31, 2025. The commercial credit (Section 48E) survived, so lease and PPA companies — which own the panels as a business — can still claim it and may build some of that value into the price they quote you.
That single change reshuffles the decision. The framework now turns on three things: how much upfront cash you have, how long you'll stay in the home, and which path you can actually get a fair price on. If you have the cash and a long time horizon, owning is still usually the cheapest over the system's life. If you want zero upfront and can't use a tax credit anyway (which is now true for most homeowners at the federal level), a well-priced lease or PPA is competitive again — but only if you control for two traps: solar-loan "dealer fees" and lease/PPA escalators.
Below is the plain-English version of each path, the two traps in detail, and a checklist for comparing any two offers fairly.
For more than a decade, the federal government gave homeowners who bought solar a credit worth 30% of the cost. That credit — the Residential Clean Energy Credit, Section 25D — is gone for new installs. The IRS states it plainly: the credit "is not available for any property placed in service after December 31, 2025" (IRS — Residential Clean Energy Credit).
One detail trips people up: what matters is when the system is placed in service (installation completed), not when you signed or paid. The IRS is explicit that "if installation is completed after December 31, 2025, the expenditure will be treated as made after December 31, 2025, which will prevent the taxpayer from claiming the section 25D credit" (IRS — FAQs on OBBB modifications to sections 25C, 25D, etc.). Signing a contract in late 2025 didn't lock in the credit if the panels went live in 2026.
One caution: the live IRS 25D page contradicts itself. It states the operative December 31, 2025 cutoff and also still carries old boilerplate saying you can claim the credit "until the credit begins to phase out in 2033." That 2033 line is stale — it reflects the pre-2025 schedule that has since been repealed. The operative rule is the 2025 end date. (For the full picture of what's alive, dead, or paused in 2026, see our 2026 solar incentives guide.)
There are really only four ways to put solar on your roof. The first two mean you own the system; the last two are third-party ownership (TPO) — a company owns the panels and you pay to use the power.
The key 2026 wrinkle: with a lease or PPA, the provider owns the equipment as a business, so the provider — not you — claims the surviving commercial tax credit. More on why that matters below.
| Path | Upfront cost | Who owns the system | Who gets the federal tax credit | Monthly cost shape | Best for |
|---|---|---|---|---|---|
| Cash | High (full price) | You | Nobody (25D ended) | None | Long-term owners with capital |
| Loan | Low/none | You | Nobody (25D ended) | Fixed loan payment + interest | Owners who want equity without paying all upfront |
| Lease | None/low | Provider | Provider (Section 48E) | Fixed payment, often with annual escalator | No upfront cash, want predictable payment |
| PPA | None/low | Provider | Provider (Section 48E) | Pay per kWh produced, often with escalator | No upfront cash, want to pay only for power |
If you can afford it and plan to stay put, paying cash is almost always the lowest lifetime cost. There's no interest, no financing markup, no annual escalator, and you own a real asset that adds resale value. You also capture the full benefit of any state or local incentives and your utility's net-metering policy directly.
The downsides: it ties up a meaningful chunk of capital, and — unlike in years past — there is no longer a 30% federal credit to soften the bill. That's a real change to the payback math, and you should run your own numbers rather than rely on old "pays for itself in X years" rules of thumb that assumed the credit.
One thing cash buyers should not overlook: state, local, and utility incentives plus net-metering rules still vary enormously by state, and those can make or break the case for ownership. Check what applies where you live before you decide — our best states for solar page and state-by-state breakdowns are a place to start.
A solar loan lets you own the system without paying everything upfront — but it carries a trap that the federal consumer regulator has flagged directly.
It's called a dealer fee: a markup that gets baked into the financed loan principal, so the amount you borrow is larger than the system's true cash price. The CFPB found these fees "often increase the loan cost by 30% or more above the cash price of a solar project" — and that lenders "frequently bake these fees into a loan's principal without including them in the stated annual percentage rate (APR)" (CFPB — Report on solar financing, Aug. 7, 2024).
The insidious part: a salesperson can advertise a very low APR — sometimes near 0% — while the markup hides in the principal. A low rate on an inflated balance can cost you more than a normal rate on the real price.
How to defend yourself:
(For what these comparisons should include, see our disclosures.)
Here's the counterintuitive part of 2026. Because the 30% federal credit disappeared for buyers, the tax advantage of owning shrank for most households. Meanwhile, the lease/PPA provider can still claim the surviving commercial credit — Section 48E, the Clean Electricity Investment Credit. Its base rate is 6% of the qualified investment, "increased by up to 5 times or up to 30% for facilities meeting prevailing wage and registered apprenticeship requirements," with a "10-percentage point" bonus for domestic content and another "10-percentage point" bonus for siting in an energy community (IRS — Clean Electricity Investment Credit). Notably, facilities under roughly 1 MW — which includes residential rooftop systems — generally qualify for the increased rate without meeting the prevailing-wage and apprenticeship rules (IRS — Prevailing wage and apprenticeship FAQ).
A provider that captures that credit may pass some of the value through to you in the price it quotes. That's the mechanism that makes TPO competitive again for people who couldn't have used a tax credit anyway.
But be skeptical of the pitch. The pass-through is variable — it is not a fixed percentage, and no government source publishes a "homeowner share." Treat any claim of a "30% discount" or a guaranteed pass-through as marketing, not math. The comparison that matters is total cost over the full 20–25 year term, not the headline number.
One more reason to move thoughtfully: the commercial credit for solar hinges on a "begin construction" timing rule written into the 2025 tax law (the One Big Beautiful Bill Act). Under that statute, wind and solar facilities generally must begin construction by July 4, 2026 (or be placed in service by the end of 2027) to stay eligible. The detailed IRS guidance on what counts as "beginning construction" — Notice 2025-42 — was vacated by a federal court on June 6, 2026, and an appeal is expected, so the mechanics are genuinely in flux as we write this (IRS — Notice 2025-42). The statutory deadline itself still stands. Practically, that means provider availability and terms may tighten as 2026 goes on — so don't assume today's lease/PPA offer will be on the table indefinitely, and don't take a salesperson's read on the deadline as the final word.
Most lease and PPA contracts include an annual escalator — a clause that raises your payment a set percentage every year. On a 20–25 year term, a small annual bump compounds into a much larger payment late in the contract.
The escalator is fine if it stays below how fast your utility's rates actually rise. It becomes a problem when it outruns utility-rate growth — at which point your "savings" shrink and can flip negative in the back half of the term.
How to sanity-check it: compare the contract's escalator to actual electricity-price history. The EIA's most recent residential average was 18.83 cents/kWh in April 2026, up from 17.55 cents/kWh a year earlier — roughly a 7% year-over-year change at that snapshot (a preliminary monthly estimate) (EIA — Electric Power Monthly, Table 5.3). Rates do keep climbing, but year-to-year moves are often modest and vary widely by state — so an escalator set well above recent utility growth is a red flag. Always ask the provider for a flat (0%) escalator quote alongside the escalating one, and compare both over the full term.
(A note for farm and rural readers who might be hunting for grants: USDA's REAP grant funding opportunity was rescinded in April 2026 pending new rules, though guaranteed loans remain open. REAP is a farm and rural-business program — not a residential financing option — so don't count on a federal grant for a home install. If you farm, see our farm solar track for the details.)
Use this as a guide, not a verdict — your state's incentives and net-metering rules can override any general leaning.
| Question | "Yes / long" leans toward | "No / short" leans toward |
|---|---|---|
| Do you have upfront cash to invest? | Cash (lowest lifetime cost) | Lease, PPA, or loan (low/no upfront) |
| Could you have used federal tax liability? (largely moot now — 25D is gone for buyers) | Doesn't change the federal math in 2026 | Lease/PPA can still indirectly tap 48E |
| How long will you stay in the home? | Cash or loan (you build equity) | Lease/PPA (lower commitment, but read the transfer terms) |
A short checklist that works regardless of which path you're leaning toward:
If you want the steps laid out in order, our how it works page walks through the process.
The 2026 picture: paying cash is usually the lowest lifetime cost if you have the capital and plan to stay; a well-priced lease or PPA is genuinely competitive again for people who want zero upfront and can't use a tax credit anyway — provided you control for the escalator; and a loan can be a good middle path only if you've nailed down the cash price and confirmed you're not financing a hidden dealer fee.
For homeowners buying with cash or a loan, the federal residential credit is gone in 2026 — and be wary of any offer promising a 30% federal credit for a 2026 installation, since the credit ended for systems placed in service after December 31, 2025. That's not a reason to skip solar; it's a reason to compare offers carefully on total cost.
Ready to see real numbers for your home? Run a free estimate on our residential calculator. And remember: this is general information, not tax or financial advice — for your specific situation, talk to a tax professional and review our disclosures.
Educational content, not tax, financial, or legal advice. Figures are current as of the update date above; verify with a qualified professional before acting.
No. The federal Residential Clean Energy Credit (Section 25D) ended for systems placed in service after December 31, 2025. If you buy your system with cash or a loan in 2026, your federal credit is $0. The IRS page still shows old "phase-out 2033" wording, but the operative rule is the December 31, 2025 cutoff — and what counts is when installation is completed, not when you paid.
Because the company owns the system as a business, so it claims the commercial credit (Section 48E), which survived in 2026 — not the residential credit (25D), which ended. The provider may build some of that value into the price it offers you, but how much is variable and isn't a fixed percentage, so compare the total 20–25 year cost rather than any headline "discount."
A dealer fee is a markup baked into the financed loan principal, so you borrow more than the system's actual cash price. The CFPB found these fees often raise the loan cost by 30% or more above the cash price and frequently aren't clearly disclosed in the stated APR. Protect yourself by asking for the cash price in writing and comparing it to the loan principal — that gap is the fee. A low advertised APR can hide a large markup.
Not necessarily, but the escalator is the thing to check. Most lease/PPA contracts raise your payment a set percent every year. If that escalator outpaces how fast your utility's rates actually rise, your savings shrink over a 20–25 year term. Compare the contract's escalator to electricity-price history — EIA data shows recent year-to-year increases of roughly 7% but varying widely by state — and ask for a flat 0% escalator quote to compare.
If you have the cash and plan to stay in the home long-term, paying cash is usually the lowest lifetime cost: no interest, no dealer fee, no escalator, and you own the system. With the federal residential credit gone for buyers, a well-priced lease or PPA is competitive again for homeowners who want no upfront cost — provided you control for the escalator. Run your specific numbers, because the right answer depends on your cash, time horizon, and your state's incentives and net-metering rules.
Free, no obligation, and sourced from the IRS, USDA, and EIA.