The Residential Solar Tax Credit is Ending: What You Need to Know
The One Big Beautiful Bill Act, signed into law on July 4th, 2025, will dramatically change the Federal solar Investment Tax Credit (ITC) for both homeowners and businesses. The impact to the Residential ITC (Section 25D) and the Commercial ITC (Section 48E) were revised multiple times before passing. Details of these changes are included below.
Updated august 18th, 2025 | 6-minute read | ITC, Solar Investment Tax Credit
General Overview
The provisions of this bill will end the 30% Residential ITC (Section 25D) after December 31, 2025, and significantly limit the availability of the Commercial ITC (Section 48/48E) starting in 2026.
Here’s what both homeowners and commercial property owners need to know as we approach a major shift in Federal clean energy tax policy.
Residential Solar (Section 25D): Hard Deadline Coming
The Residential ITC will end for systems not placed in service by December 31st, 2025.
- Systems must be installed, inspected, and operational by the cutoff — not just contracted.
- There is no phase-down. The 30% credit is eliminated entirely after the deadline.
- This reverses the 10-year credit extension passed under the 2022 Inflation Reduction Act.
- Third Party Owned (TPO) or lease/PPA systems will remain eligible under section 48E rules.
If you’re considering home solar, 2025 is likely your last chance to capture the full Federal incentive.
Battery Storage: Still Eligible, But Also on the Clock
The 30% Residential ITC also applies to standalone battery systems (≥3 kWh). Here are the details:
- The battery must be installed and operational by the ITC cutoff date to qualify.
- No solar panels are required.
- IRS Form 5695 still applies for claiming the credit.
This is especially important for homeowners seeking backup power, grid independence, or energy management — even if they’re not ready for solar yet.
Commercial Solar (Section 48/48E): Stepdown & Restrictions Coming
This bill does keep the 30% ITC available after 2025 for commercial projects, but they will need to be started and placed in service by a specific deadline, and comply with certain foreign entity rules:
- Projects started by the end of 2025 will be eligible, so long as the tax filer is not a Specified Foreign Entity (SFE), but does not need to comply with Prohibited Foreign Entity (PFE) rules
- Projects started before July 4, 2026 will be eligible, so long as the tax filer to not an SFE, and the project complies with Prohibited Foreign Entity (PFE) rules, and follows certain completion timelines
- Projects started on or after July 4, 2026 will be eligible, so long as the tax filer to not an SFE, the project complies with Prohibited Foreign Entity (PFE) rules, and is placed in service by the end of 2027
This gives commercial developers slightly more breathing room — but still requires moving quickly and avoiding the inclusion of SFE's and PFE's.
Storage Exception
Unlike solar, commercial energy storage projects remain eligible for the full 30% credit through 2033, assuming the project complies with the SFE and PFE rules listed above.
Foreign Component Restrictions Explained
This bill introduces Specified Foreign Entity (SFE) and Prohibited Foreign Entities / Foreign Entities Of Concern (PFE/FEOC) rules that could disqualify commercial projects using components made in, or by companies from, China, Russia, and other designated countries.
- If any component or source material is made in China or by a Chinese company, the entire system is ineligible.
- These rules apply to all projects starting construction after 2025.
This has major implications for procurement strategies and global supply chain reliance — especially for commercial and utility-scale developers.
What This Means for Solar + Storage Customers
For Homeowners:
- You must have your system installed and operational by December 31, 2025 in order to qualify for the 30% tax credit.
- This includes standalone batteries, even without solar.
- After that, the residential tax credit disappears entirely.
For Businesses and Developers:
- Start construction before the end of 2025 to lock in the full 30% ITC, with only the requirement of not having the filer be an SFE.
- Start construction before July 4, 2026 to qualify for the credit, with PFE requirements.
- Ensure supply chain compliance with FEOC rules to avoid disqualification.
Final Take
If you’re planning a solar or battery storage project — at home or commercially — the time to act is now.
- Residential systems face a deadline of December 31, 2025 for the full tax credit.
- Commercial projects should begin construction by year-end to avoid being subject to PFE rules.
- Supply chain decisions now carry policy-level risk starting in 2026.
We’ll continue tracking updates and will share key changes as they happen. Need help preparing client communications or project plans based on this proposal? Just ask.
Boden Energy Solutions
A dedicated community member known for his extensive volunteer work throughout the town, Tyler founded Boden Energy Solutions with a clear mission: to empower homeowners with personalized solar solutions. Leveraging a decade of specialized experience in photovoltaic solar and energy storage, Tyler's approach goes beyond simple sales, prioritizing a consultative process that ensures clients understand and benefit from their investment.