The 30% federal solar tax credit (also known as the Residential Clean Energy Tax Credit) has been a key instrument in pushing the solar industry forward for many years.
But it might be going away soon.
Last month, the House of Representatives passed a bill to end this federal solar tax credit. The bill is currently being evaluated in the Senate with a decision expected to come out by July.
If passed (as it currently stands), anyone thinking of installing solar panels on their property in 2026 would no longer be eligible for this financial incentive. Any system installed and inspected before December 31st, 2025 however, would still qualify for the credit.
In this article, we’ll explore the history of the residential energy solar tax credit as well as how the solar industry could be affected if it were to go away.
A brief history of the federal tax credit
The federal solar tax credit has gone through many changes over the years. Here is a brief summary of its evolution over the last decades:
1978– President Jimmy Carter establishes the Residential Energy Credit to promote energy conservation and renewable energy adoption amongst American homeowners.
1980– The credit is updated to 40% and now includes solar thermal and photovoltaic systems.
1985-Under the Reagan administration, the tax credit expires with no renewal. Solar system installations decrease nationwide.
2005–President George W. Bush signs the Energy Policy Act of 2005 which includes the Residential Energy Efficient Property Tax Credit (the current version of the national solar tax credit) with the goal of reducing the country’s dependence on foreign oil. The credit is now equal to 30% of installation costs (up to $2000) and is set to expire in 2007.
2006– The Tax Relief and Health Care Act of 2006 extends the credit for one more year.
2008– President Bush’s Emergency Economic Stabilization Act of 2008 extends the tax credit for 8 more years.
2015– Under the Obama administration, the credit is extended for 6 more years and is set to be phased out over that period.
2020– the first Trump administration reduces the credit to 26%.
2022– The Biden administration passes the groundbreaking Inflation Reduction Act of 2022 which raises the credit back to 30% and extends it until 2035.
2025– The fate of the federal solar tax credit is currently being decided in the Senate under the new Trump administration.
How does the federal solar tax credit help the solar sector?
- It provides immediate savings for residential solar owners
By claiming the 30% federal tax credit, new solar owners immediately start saving on their solar installation costs. This is in addition to the long-term bill savings that their system will bring them which makes going solar that much more appealing to them.
- It promotes renewable energy adoption
The federal tax credit has made solar energy more affordable and accessible to anyone interested in going solar. With the help of state initiatives to promote clean energy, it has helped to raise awareness about the perks of solar energy and increase the rate of solar adoption across the country.
- It boosts private investment in clean energy
Private investors like solar developers or companies get an immediate tax break from the credit and a faster return on investment. This makes them more likely to invest in solar energy.
If passed, how would this bill affect future solar installations?
The federal solar tax credit helps homeowners gain access to solar energy at a reduced cost and makes it easier for them to save long-term on unpredictable energy prices. But if the credit is cancelled, future rooftop solar owners could rethink their solar adoption plans given the higher price tag of going solar. Additionally, the payback period on a residential solar system would be extended which would make it difficult for solar panel owners to see a quick return on their investment. Going solar would become a lot less financially attractive.
On the other hand, the impact on community solar would be a bit more moderate but still present. For one, community solar projects depend on outside funding. If the federal tax credit is terminated, less investors would be interested in funding these projects given the unclear timeline for them to recoup their investment. Moreover, if project development becomes more expensive, developers would have to pass those added costs on to subscribers—many of whom live in low- to medium-income households and are trying to save money with community solar, not pay more for it.
Nevertheless, other financial incentives from state programs could help cushion this blow. Given that various states, like New Jersey and Massachusetts, are committed to promoting clean energy through programs like the The New Jersey Successor Solar Incentive Program (SuSI) and The Solar Massachusetts Renewable Target (SMART) Program , community solar programs in those areas may not feel the full effect of the federal tax credit being removed since they would still have the support of local financial incentives.
Final Note
As mentioned above, net billing is a slightly modified version of net metering so it is still an incentive to go solar. It just does so at a lower extent. Whereas with regular net metering, customers get a maximized return and savings on their solar investment thanks to their net metering credits (evaluated at the retail rate), with net billing, they are still compensated for their excess energy but at a lower rate so their return and savings are lower.
However, although net billing provides less value for solar energy credits, it also promotes cost equity and battery storage, which helps solar owners further increase their energy independence.
If you are interested in going solar, now is the time to get set up. Reach out to us for a consultation so you can take advantage of the federal solar tax credit while it is still available!
Learn how you can help by joining the movement
Written By Alfreda Adote | Edited By Lauren McGregor