If you’re thinking about going solar in 2025, you’ve probably heard about the OBBB Section 25D changes. The news has created quite a stir among homeowners, installers, and the solar industry at large.
Here’s the reality: The residential clean energy tax credit (Section 25D) — which has helped millions of families offset 30% of their solar system costs — is being phased out after December 31, 2025. That means unless you qualify for certain safe harbors, you may not get this incentive for projects installed in 2026 or beyond.
This article breaks down exactly what the OBBB changed, what deadlines matter, how this will impact your solar economics, and most importantly, what options remain if you still want to go solar with low or no upfront cost.
By the end, you’ll know how to protect yourself as a homeowner, how to adjust if you’re an installer, and what paths forward exist for solar adoption in a post-25D world.
Under the One Big Beautiful Bill (OBBB), Section 25D is officially terminated after Dec 31, 2025. That means homeowners who want to claim the 30% tax credit must have their solar system fully installed, inspected, and operational before that date.
The language is important: the previous law focused on “expenditures made,” meaning homeowners could qualify if they paid for the system before the deadline. The OBBB shifts this to “placed in service,” which raises the bar. Now it’s not enough to sign a contract or make a payment — the system must actually be generating electricity.
The IRS notes that limited safe-harbor provisions may apply. For example, projects with substantial construction progress or payments made in 2025 could qualify if installation is completed within certain timelines. But the rules are strict, and paperwork will be critical.
The repeal specifically impacts individually owned systems — whether purchased outright or financed with a loan. These homeowners will lose direct access to the 25D credit after 2025.
On the other hand, third-party ownership (TPO) systems — like leases and PPAs — may not be as affected. In these cases, the installer or developer owns the system and can claim the 48E commercial investment tax credit, often passing those savings to the customer through reduced rates (Utility Dive).
To qualify for the 25D credit in 2025, systems must be installed and operational by December 31, 2025, with very limited safe-harbor options based on construction start or substantial payments.
The IRS guidance makes the deadline clear: to claim the 30% residential tax credit, your solar project must be placed in service by December 31, 2025. “Placed in service” means the system has passed inspection, is interconnected, and can legally generate power — not just ordered or paid for (Eide Bailly, IRS FAQs).
What about safe harbors? In past tax credit structures, there were rules allowing eligibility if “construction began” before a certain date. Under OBBB, these safe harbors are far narrower. According to SolarPowerWorld and Eide Bailly, substantial work or payments made in 2025 might preserve eligibility, but only if final installation follows within strict timelines. Simply placing a deposit won’t cut it — the IRS will expect documented proof of real progress.
Payment timing is another point of confusion. While older versions of 25D looked at “expenditures made,” the OBBB shift to “placed in service” means payment alone is no longer enough. Homeowners should work closely with installers to ensure scheduling allows for inspection and interconnection before the cutoff.
Because the rules are strict, documentation is everything. To show your project qualifies under the 25D safe harbor 2025 rules, keep a clear record of:
Solar Insure and other industry experts stress that the IRS may request this proof if you claim the credit after 2025. Having organized records gives you confidence if your eligibility is ever questioned.
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The end of Section 25D increases homeowner solar costs by about 30%, stretching payback periods, complicating loan economics, and making battery pairings more expensive — while also triggering a short-term rush to install before the deadline.
Let’s put numbers to it. Assume a homeowner installs a 7 kW system at $3/W, which is about average in 2025:
That’s a huge shift. Here’s how it plays out across different financing paths (Sol-Ark analysis, industry estimates):
This shift shows the 25D repeal's impact on homeowners is most severe for direct ownership.
Another overlooked hit is storage. Under Section 25D, batteries installed with solar qualify for the same 30% credit. Without it:
That extra $3,000 out of pocket makes batteries less accessible, even though storage is critical for resilience and backup power. For many families, this could push batteries off the table unless state incentives or utility rebates step in (Sol-Ark).
In the near term, the repeal could actually create a surge.
After the deadline, though, the market could face a slowdown in residential ownership projects, unless TPO models, state incentives, or innovative financing options pick up the slack.
Even without Section 25D, homeowners still have viable pathways to make solar affordable — including third-party ownership models, state and local incentives, and programs like community solar.
One of the strongest alternatives to 25D is third-party ownership (TPO). Instead of buying the system outright, homeowners can sign a solar lease or power purchase agreement (PPA). In these cases, the installer or developer owns the system and can claim the 48E commercial investment tax credit (ITC).
Here’s why this matters: under third-party ownership, solar 48E explained by Utility Dive, installers can use that commercial credit to lower project costs, then pass those savings on to customers through lower monthly lease payments or reduced PPA rates. The homeowner doesn’t directly get the credit, but they still benefit from cheaper solar power compared to their utility bills.
For families with limited tax liability or credit challenges, TPO may actually become the go-to option once 25D expires.
While the federal credit may disappear for residential ownership, state and local incentives remain a critical part of the picture. According to SEIA and state Public Utility Commissions (PUCs), homeowners may still be able to combine:
The stackability of these benefits means that even after 25D, many projects can still reach attractive payback periods if homeowners leverage all available local programs.
Another way forward is through financing and participation in shared programs. Options include:
Each of these approaches helps fill the gap left by 25D — and in some cases, such as community solar, they provide flexibility and savings without the need for rooftop ownership.
The end of Section 25D means solar companies must adjust fast. For installers, the challenge is clear: how to respond to 25D repeal installers without losing momentum in sales and customer trust. Here’s a streamlined playbook.
Homeowners losing the 30% ITC changes the conversation. Installers should rework proposals to show side-by-side comparisons of ownership versus third-party ownership (TPO). Even if homeowners can’t claim the credit, they’ll see the value in savings passed through from the 48E ITC when installers own the system.
With solar design software like Arka360, installers can instantly reprice projects, run owned vs TPO scenarios, and simulate cash flows in client-friendly proposals. One EPC in Texas used it to show a customer the contrast between a loan and a PPA, leveraging 48E — closing the deal in minutes.
Expect a short-term rush to finish projects before deadlines, followed by recalibration. That means:
Proactive planning will help installers maintain trust and minimize disputes.
Long-term, companies should diversify offerings:
The repeal of Section 25D leaves a lot of unanswered questions for both homeowners and installers. While the statute is clear about the sunset, the details around IRS guidance 25D 2025 and state-level actions will shape how the industry navigates the transition.
The Internal Revenue Service has already updated parts of its renewable energy FAQ, but stakeholders expect further clarification in late 2025 as the effective date draws closer. Key issues likely to be addressed include:
Based on precedent, the IRS tends to issue technical guidance within 6–12 months of statutory change, meaning additional updates could arrive by mid-to-late 2025. Until then, installers must rely on existing IRS FAQs and private letter rulings for compliance.
Even if federal relief is unlikely in the short term, policy levers remain. According to the Tax Foundation, Congress could revisit residential incentives if political pressure rises, especially in swing states with high solar adoption. The possibility of a reinstatement or extension of 25D cannot be ruled out if adoption slows sharply.
At the state level, some governments may act faster. The SEIA has highlighted how states like California, New York, and Illinois already layer strong rebates and performance incentives on top of federal policy. Other states could respond to the loss of 25D by boosting their own subsidies or creating targeted credits for residential solar-plus-storage.
Does my system need to be paid for by Dec 31, 2025, or installed?
The IRS requires systems to be installed and placed in service by December 31, 2025. Payments or deposits alone don’t qualify. Safe-harbor rules may apply in limited cases.
Can dealers/owners still use 48E to pass on savings?
Yes. Installers can claim the 48E commercial ITC on TPO systems. Savings can be passed to homeowners via leases or PPAs.
What paperwork proves my system was installed on time?
Keep final invoices, permits, interconnection approvals, and date-stamped photos. These documents prove the system was operational before Dec 31, 2025.
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The end of Section 25D under the OBBB is a wake-up call for both homeowners and installers. Acting now can protect savings and keep solar projects viable.
For homeowners, three immediate actions are important as follows:
Installers must also adapt quickly. Three key steps include:
For installers, Arka360 makes this transition easier. You can model, reprice, and deliver fast 25D vs 48E scenarios, generate professional proposals, and simulate client cashflow — all in this solar design software.
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