Does a solar lease or PPA still get a federal tax credit after 2025?

Two credits, two taxpayers

The credit that ended on the household side is Section 25D, the residential clean energy credit. It applied to an expenditure by a homeowner for solar electric property used at a dwelling the homeowner lived in. When you buy a system, you are that taxpayer. When you lease one or sign a PPA, you are not buying anything that qualifies: you make payments for use of equipment, or for electricity, and a company you never see on a tax return owns the panels.

That company is the taxpayer under a different section. Section 48E, added by the Inflation Reduction Act in 2022, gives a clean electricity investment credit equal to an "applicable percentage" of the taxpayer's qualified investment in a qualified facility. IRS Notice 2025-42, section 2.01, summarizes the mechanics: a qualified facility generates electricity, is placed in service after December 31, 2024, and has a greenhouse gas emissions rate not greater than zero, and the qualified investment is the taxpayer's basis in qualified property that the taxpayer placed in service as part of that facility. The notice reports that the Treasury table lists solar facilities at zero. A rooftop array owned by a leasing company fits that description on its face: it generates electricity, it is new, and the company holds the basis.

The rate is where the system size matters. Under 26 U.S.C. 48E(a)(2)(A), the base applicable percentage is 6 percent, and it becomes 30 percent for a qualified facility with a maximum net output of less than 1 megawatt measured in alternating current, among other routes. A rooftop system is far below that line: 8 kilowatts is 0.008 megawatts. So the owner of a home system does not need to satisfy the prevailing wage and apprenticeship tests to reach the 30 percent rate; the size alone gets it there. (Those tests are in subsection (d) and are not the subject here.) Energy-community and domestic-content increases exist in subsection (a)(3), but neither is something a household can see or verify, so this page does not count them.

Nothing in the statute routes any of the owner's credit to the household. The credit reduces the owner's taxes, and whether it shows up in your monthly payment is a pricing decision, which is why the last section treats it as a question to test. The IRS page for the homeowner credit says homeowners can claim it for a main home "whether you own or rent it," and says nothing about leased equipment.

The leasing clause in the 2025 law, and what it leaves alone

Congress did address leasing in the same law that ended the homeowner credit. Section 70513(c) of Public Law 119-21 inserted a new subsection (i) into Section 48E. The codified text reads: "No credit shall be determined under this section for any qualified investment during the taxable year with respect to property described in paragraph (1) or (4) of section 25D(d) (as applied by substituting 'lessee' for 'taxpayer') if the taxpayer rents or leases such property to a third party during such taxable year."

Everything turns on which paragraphs of Section 25D(d) are named. Reading the codified definitions at Cornell's Legal Information Institute, paragraph (1) is qualified solar water heating property, paragraph (2) is qualified solar electric property, and paragraph (4) is qualified small wind energy property. The new clause names (1) and (4). It does not name (2). Panels that generate electricity for a home are paragraph (2) property.

• Leased solar water heaters: the owner gets no 48E credit if it rents the heater to the household. Section 25D(d)(1) defines this as property that heats water for a dwelling when at least half the energy comes from the sun.
• Leased small wind turbines: the same denial applies to turbines that generate electricity for use with a dwelling.
• Leased rooftop solar electric systems: not named in the denial. This is a reading, not an IRS statement: the clause names the paragraph before this one and the one after it in the same list, and skips solar electric property.

Three cautions keep that reading honest. First, absence from a denial clause is not an affirmative IRS ruling that every residential lease qualifies; it means this particular bar does not apply to panels. Other 48E conditions still apply, including the foreign-entity rules discussed below. Second, the clause applies to taxable years beginning after July 4, 2025, because section 70513(g)(1) of the Act sets that general effective date for the section's amendments. Third, a state may treat leased systems differently for state incentives, a separate question that the state solar tax credits table works through state by state.

The clause also explains a common sales claim. "Leasing is the only way to keep the credit" is stated as fact in marketing, and the statute is consistent with part of it: the household cannot claim 25D after 2025, while the owner of a leased solar-electric system is not barred. But "keep the credit" implies the household keeps it. The statute does not say that. The credit belongs to whoever owns the facility and is paid for through whatever the contract charges.

Two deadlines, one calendar

The same 2025 law added a sunset for wind and solar under the owner's credit. New Section 48E(e)(4)(A) says the section "shall not apply to any qualified property placed in service by the taxpayer after December 31, 2027, which is part of an applicable facility." An applicable facility is one that uses solar energy to produce electricity (or wind). Storage is carved out by subparagraph (C), so a battery installed at a solar site is not subject to this cutoff.

That is not the whole rule, and this is where the explainers diverge. Section 70513(g)(5) of the Act applies the sunset only "to facilities the construction of which begins after the date which is 12 months after the date of enactment." The Act was signed July 4, 2025, so the cutoff applies to a facility whose construction begins after July 4, 2026 (IRS Notice 2025-42 states the same date in its opening section). A facility that began construction on or before that date is outside the new sunset and falls under the credit's ordinary schedule. So there are two ways to qualify, and one way not to.

As of this page's check date, October 23, 2026, the first date has passed, which turns the question from "can a lessor still start" into "did this particular system's owner already start, and can it prove it." The table sets out the cases.

The household can control one thing here: timing. A signed lease with an installation date inside 2027 is a lease whose in-service condition is likely to be met no matter what the owner did before July 2026. A signed lease with an installation date in 2028 depends entirely on the owner's earlier construction start. Installation delays, interconnection queues and permit backlogs can push a project from one row to another, and the contract should say who bears the price effect if they do. The installation process guide maps the stages that tend to slip.

One marketplace page we read states the cutoff as systems installed through December 31, 2027 and does not mention the July 4, 2026 construction branch, which understates what an owner can qualify under. The statute has two conditions. They are alternatives, tested against the owner, not the household.

The court ruling on how construction "begins"

Whether construction "begins" is not obvious for solar. The historic IRS notices gave taxpayers two tests: physical work of a significant nature, or spending at least 5 percent of total cost, the Five Percent Safe Harbor. IRS Notice 2025-42 changed that for wind and most solar by making the physical work test the only method for facilities beginning construction on or after September 2, 2025 (section 3.01 and the effective-date section 7). It also kept the 5 percent method for "low output solar facilities," defined in section 6.02 as applicable solar facilities with a maximum net output of not greater than 1.5 megawatts in alternating current.

On June 6, 2026, Judge Colleen Kollar-Kotelly of the U.S. District Court for the District of Columbia ruled in Oregon Environmental Council v. Internal Revenue Service, Civil Action No. 25-4400, that Notice 2025-42 was arbitrary and capricious. The conclusion of the opinion reads that the court shall "VACATE Notice 2025-42, and REMAND this matter to the IRS for further administrative action," and the court rejected the government's request to limit the vacatur to the plaintiffs. The opinion also warned that "market participants will need to await the outcome of an appeal before they will have certainty about the legal effect of the Notice."

Where the ruling stands

For a household the fact to keep is narrow: a lease on a home-sized system remains an eligible arrangement for the owner, and the vacated notice had already left the 5 percent method open to anything at or below 1.5 megawatts. With the notice vacated, law-firm summaries of the ruling say the earlier beginning-of-construction notices govern again.

On appeal status we found only secondary reporting. A law-firm briefing dated September 4, 2026 states that the 60-day appeal window ran out on August 5, 2026 and that the government had not filed a notice of appeal as of that briefing, noting that a motion to extend the deadline remained possible. We could not see the court docket, so we cannot say whether anything was filed afterward; the D.C. Circuit docket or a tax professional can.

The foreign-entity rules that began January 1, 2026

The same section of the Act added restrictions that start with the 2026 calendar year, and they apply to the owner, not to the household. Under new Section 48E(b)(6), the terms "qualified facility" and "qualified interconnection property" do not include a facility "the construction, reconstruction, or erection of which begins after December 31, 2025, if the construction, reconstruction, or erection of such facility or property includes any material assistance from a prohibited foreign entity." A parallel exclusion for energy storage sits in subsection (c)(3). New subsection (d)(6) bars the credit for any year in which the taxpayer itself is a specified foreign entity or a foreign-influenced entity.

These tests fall on the owner, and a household cannot audit either one. IRS Notice 2026-15, released in February 2026 as interim guidance, explains the material assistance cost ratio and three interim safe harbors, and says Treasury intends to put the rules into proposed regulations. We read it for structure and did not test any product against it. The practical question for a household is contractual: if an owner priced in a credit it did not get, does the contract say who absorbs the loss?

Recapture: why the first five years of ownership matter to the contract

A credit that the owner claims at the start is not permanent. Under 26 U.S.C. 50(a)(1), if investment credit property is disposed of, or stops being investment credit property for the taxpayer, before the end of the recapture period, the taxpayer's tax rises by a percentage of the credit. The statute's table sets that percentage at 100 within one full year after placement in service, then 80, 60, 40, and 20 percent in each of the next four years, so the exposure lasts five years.

The household event this touches is the early buyout. Recapture is part of the owner's economics in years one to five, one reason early buyout prices can differ from the plain present value of the remaining payments, though the contract sets the price by its own formula and the statute sets none. The lease buyout guide works the household side, and the guide to selling a house with leased solar covers a sale that forces the question. Section 50(c)(3) also means only 50 percent of the credit reduces the property's basis, which affects the owner's depreciation and not what you pay.

Reading the clauses against a lease price

The statute cannot say how an owner's 30 percent could show up in the price you are quoted, so the test has to be run on the quote itself.

The illustration below is deliberately stripped down. It is an owner-side capital recovery calculation with stated inputs, not a prediction of any real lease, and it leaves out depreciation, financing structure, operations, insurance, margin and the contract's annual escalator. It uses 8 kilowatts at the U.S. Department of Energy's Q1 2025 residential benchmark of $2.95 per watt DC (modeled market price for an 8 kW system, 2024 dollars, checked October 30, 2026; a comparison line and not a quote), so the system cost is 8,000 watts times $2.95, or $23,600. It then asks what level monthly payment recovers that amount over 25 years at three required returns, with and without a credit equal to 30 percent of cost, which is $7,080 on this system.

What the owner's capital recovery looks like with and without a 30 percent credit

Level monthly payment to recover the amount over 300 months, computed by the standard amortization formula. All figures are our arithmetic on the stated inputs, rounded to the cent; the credit is treated as arriving at the start, as an offset to the amount to be recovered.

• Required return 6 percent: $152.06 a month on $23,600; $106.44 on $16,520; a difference of $45.62.
• Required return 8 percent: $182.15 a month on $23,600; $127.50 on $16,520; a difference of $54.65.
• Required return 10 percent: $214.45 a month on $23,600; $150.12 on $16,520; a difference of $64.33.

How to use the illustration without being fooled by it

Two things stand out. First, in every row the payment falls by exactly 30 percent when the credit is counted. A credit paid up front at 30 percent of cost can be worth at most 30 percent of the capital-recovery part of a payment, and no more, whatever the owner's required return. That is a ceiling on the credit's influence on the price, not a measure of what any owner passes on. Second, the dollar gap grows as the owner's required return grows, because the cost of capital is the larger part of the payment; a credit is a smaller lever than the required return, the term, the escalator and the owner's margin.

So a household cannot back out whether a credit was passed through by looking at the payment. Three tests are available instead. Ask for the system's cash price and divide by the system watts; compare that number to the benchmark line as the cost per watt guide does for any quote. Ask for the full payment schedule including the annual escalator, then discount it at your own rate, as the lease, buy or PPA comparison shows. And compare the total with a loan or cash purchase priced credit-free, which is the test the break-even guide applies. EnergyBS runs the same comparison for 2026 in its buy or lease solar math, with its own inputs. If the lease payment stream, discounted, is below the credit-free alternative, the owner has either passed some value on or accepted a thin margin; if it is above, the pitch about the credit is not supported by the price.

Contract language matters because the owner's credit can change after signing. Owners that fail or are acquired are a separate risk, covered in the guide on what to do if your solar company closes, and the financing and ownership hub collects the contract-level guides for the wider choice among cash, loan, lease and PPA.

Change-in-law and adjustment clauses to find before you sign

Ask for the whole agreement, not the summary page, and look for these terms by name. Each one decides who carries the owner's credit risk, which is the risk this page has described.

• Change-in-law or adjustment clause. Does it let the owner raise the monthly payment or the per-kilowatt-hour rate if a tax rule, notice or ruling alters its credit? A clause that allows an increase moves the risk onto you after signing; a silent contract usually fixes the price you signed.
• Annual escalator. A stated percentage increase each year changes the 25-year total far more than the credit does. Put it in the discounting, not beside it.
• Early buyout schedule for years one to five. Ask for the dollar figure year by year, since the owner's recapture exposure is highest then.
• Representations about the credit. If the salesperson says the price is low because of the credit, ask for that statement in the contract. If it will not go in writing, treat it as a sales claim.
• Assignment and transfer. Leases and PPAs are often sold to another company; the clause on assignment tells you whether your terms travel with the contract.