Big shifts are happening in the world of solar tax credits across the U.S. The One Big Beautiful Bill, signed into law on July 4th, 2025, cuts off the 30% federal solar tax credit for homeowners at the end of 2025—way earlier than anyone expected. That’s not exactly what most folks had planned for, and it’s bound to shake things up for homeowners thinking about solar installations.
There are new restrictions and deadlines for clean energy tax perks, especially for solar and wind. Residential solar incentives are on their way out, and commercial projects have to deal with updated rules under Sections 45Y and 48E. If you’re thinking about solar, it’s honestly time to pay attention—these policy changes mean the window for getting the best incentives is closing fast.
Major Legislative Changes to Solar Tax Credits
Congress has changed up the rules for federal solar tax credits. There are new timelines, tighter eligibility, and more hoops to jump through for both residential and commercial solar projects.
Expiration and Phase-Out Timelines
The One Big Beautiful Bill Act, signed on July 4, 2025, put an accelerated phase-out in place for many energy tax credits that the Inflation Reduction Act had expanded. Section 25D—the one that gives homeowners the residential solar tax credit—is now set to expire for systems installed after December 31, 2025.
Section 48E, which helped commercial and utility-scale solar projects via investment and production tax credits, is also sunsetting ahead of schedule. That means the 30% tax credit for homeowners is done after 2025, and benefits for commercial projects are dropping off even faster.
Key expiration dates:
| Credit Type | Last Eligible Install Date | Applicable Sections |
|---|---|---|
| Residential (30%) | Dec 31, 2025 | Section 25D |
| Commercial/Utility | Various, but generally | Section 48E, PTC, |
| by 2026-2027 | ITC |
The new law also strips out transferability for many tax credits, so it’s a lot harder for third parties to use these incentives.
Impacts on Residential Solar Tax Credit
For homeowners, the headline is simple: the 30% residential solar tax credit is gone after December 31, 2025. If your system is up and running before then, you’re still in under Section 25D. But after that? No more federal residential solar credits for new projects.
It’s a sharp break from what the Inflation Reduction Act had planned. The old law was going to phase things down gradually, but now, the credit just ends for new residential installs starting in 2026.
So, if you’re hoping to claim the residential clean energy credit, you’ll need to move fast. This might mean a rush of installs in 2025, but after that, there’s no direct federal help on the table for homeowners.
Restrictions on Commercial and Utility-Scale Solar Credits
Commercial and utility-scale solar projects are now dealing with tighter deadlines and new qualification rules for the investment tax credit (ITC) and production tax credit (PTC). The phase-out is happening faster, and the window to qualify for key credits is closing by 2026 for a lot of projects.
Transferability of these credits has been mostly eliminated. In most cases, you can’t sell or transfer your credits anymore, which makes things less flexible financially.
There are also new rules clamping down on credits for projects using certain foreign materials or involving certain foreign entities. The idea is to keep federal support away from solar projects that get their parts from countries the government doesn’t want to support.
If you’re a developer, you’ll need to double-check your supply chain and make sure your project meets all the new requirements under Section 48E or any related credits.
New Eligibility Criteria, Compliance Rules, and Restrictions
The latest law brings some serious changes to solar tax credits, with a focus on stricter eligibility and more detailed compliance requirements. There are now more restrictions on foreign involvement, new safe harbor guidance, and more attention on credit transfers.
Prohibited Foreign Entities and Material Assistance
A big update: no credits for projects tied to prohibited foreign entities (PFEs), foreign entities of concern (FEOCs), or specified foreign entities. If there’s any significant involvement or material assistance from these groups, your project could be out of luck. The law uses something called a Material Assistance Cost Ratio (MACR) to set hard limits.
If you get financial support or key components from PFEs, you’re risking your credits. The IRS can now go back and disallow credits for up to six years after you file, so you’ve got to keep a close eye on every foreign transaction and supplier.
Ownership and control limits for these entities are strict, too. For existing projects, it’s essential to vet your suppliers and partners—retroactive reviews could mean you lose credits if you’re not careful.
Safe Harbor and Guidance Updates
The IRS has put out new guidance, like Notice 2025-08, with updated safe harbor tables to help projects figure out how to stay compliant with all these new rules. Safe harbor provisions let you lock in eligibility if you hit all the requirements at key milestones, like when construction starts or when you order equipment.
Section 45X now wants detailed documentation at every step to keep your safe harbor status. That means supply chain disclosures, emissions reports, and pretty granular accounting for energy storage—something the new safe harbor tables really get into.
Project sponsors have to follow IRS guidance closely, checking compliance with emissions and domestic content rules. Safe harbor isn’t a get-out-of-jail-free card anymore; you’ve got to actively prove you’re meeting the requirements, especially if there’s any chance PFEs are involved.
Transferability and New Compliance Obligations
Even with these tighter rules, the transfer of energy credits is still possible—just with a few more hoops to jump through. Now, if you’re thinking about transferring credits to specified foreign entities or PFEs, you’ll need to be extra careful. Some transfers are flat-out not allowed, so it’s on us to double-check who we’re dealing with in any credit transaction.
We’ve got to keep thorough records for every transfer and make sure each party actually qualifies. The IRS isn’t shy about auditing these transfers, and they can pull credits back later, especially if there’s any sign of foreign involvement or if the material assistance rule gets crossed.
Oh, and the compliance period? It’s officially stretched out to six years when PFEs or material assistance are in the picture. That means our due diligence doesn’t stop after the initial claim—we’ll have to keep all those supply and ownership docs handy for the long haul.
