Federal Incentives Changing in 2026 and Their Impact on Residential, Commercial and Non‑profit Solar and Energy Projects

The IRA and the OBBBA

The Inflation Reduction Act (IRA) signed in August 2022 created a suite of energy‑related tax incentives meant to support decarbonization for decades. These incentives included 30 % tax credits for residential rooftop solar, battery storage and geothermal systems (Section 25D); annual credits for energy‑efficient home improvements (Section 25C); a technology‑neutral investment tax credit (ITC) and production tax credit (PTC) for clean electricity (Sections 48E and 45Y); credits for clean vehicles (Sections 30D and 25E) and charging infrastructure (Section 30C); and a new credit for highly efficient new homes (Section 45L). Many of these programs were scheduled to continue into the 2030s.

In July 2025 the One Big Beautiful Bill Act (OBBBA) dramatically scaled back or repealed many of these incentives. The OBBBA keeps the basic structure of the IRA but accelerates phase‑outs and introduces stringent domestic‑content and foreign‑entity‑of‑concern (FEOC) rules. For individuals and businesses considering solar, battery storage, or other clean energy investments, 2025 and 2026 have therefore become critical years. The sections below explain what changes are scheduled to take effect by 2026 and how they will affect different market segments and financing structures.

Summary of major expirations and deadlines

The table below lists the major federal energy incentives affected by the OBBBA, grouped by the year in which eligibility ends or a project must be placed in service. It illustrates how 2025 and 2026 become the final window for many credits and deductions. Subsequent sections explain each item in detail.

Impact on residential projects

1. Energy‑Efficient Home Improvement Credit (Section 25C)

The 25C credit provides up to $1,200 per year for approved energy‑efficiency upgrades (heat pumps, insulation, windows, exterior doors, electrical panel upgrades, etc.). Under the IRA this credit would have lasted until 2032, but the OBBBA accelerates its sunset. Property must be installed and placed in service by December 31 2025 to qualify. After that date, homeowners no longer receive a federal tax credit for these upgrades. Consequently:

• Purchase or financed installations: Homeowners planning to install heat‑pump HVAC systems, high‑performance windows or other equipment after 2025 will lose the 30 % tax offset. On a $10 000 heat‑pump installation, losing the 30 % credit could add ~$3 000 to net cost, lengthening the payback period.
• PPAs/leases: Many third‑party home energy service companies bundle heat‑pump or efficiency upgrades into subscription models. Without the federal credit, monthly fees would likely increase. Customers should finalize agreements by the end of 2025 to lock in the credit.
• Home sales and renovations: Sellers hoping to improve energy performance before listing a house now have a one‑year window to complete upgrades and benefit from the credit. In 2026 the resale value from improved efficiency may still exist but will not be supported by a tax incentive.

2. Residential Clean Energy Credit (Section 25D) – solar, batteries and geothermal

Section 25D is the familiar 30 % investment tax credit (ITC) for residential clean‑energy systems (rooftop solar panels, battery storage, geothermal heat pumps, small wind and biomass). Originally extended through 2034, the OBBBA terminates the credit for expenditures made after December 31 2025. This change will have major consequences:

• Purchased systems: For homeowners purchasing solar/battery systems outright or through a loan, the credit currently reduces federal tax liability by 30 % of the system cost. For a $25 000 rooftop solar + battery package, the credit yields a $7 500 tax reduction. Without the credit, payback periods will lengthen; the internal rate of return may drop from ~9 % to 5–6 %, depending on electricity rates.
• Third‑party leases or power‑purchase agreements (PPAs): Under the IRA, leased systems were eligible for the 25D credit. The House’s original OBBBA draft attempted to disallow credits for leased panels but the final law retains eligibility for leased solar equipment (not solar water heaters or small wind) as long as installation occurs before the deadline. After 2025, homeowners signing a solar lease will no longer benefit from the federal credit; lease providers will need to recover capital costs without it, raising monthly payments.
• Financing: Many installers use loan products (e.g., 20‑year “solar loans”) that assume the borrower will receive a tax credit and then pre‑pay part of the loan. Without the credit, lenders will require higher down payments or interest rates. Some may restructure loans into traditional unsecured financing.

Homeowners who cannot install before the end of 2025 may still find state or utility rebates, but the 30 % federal subsidy will no longer be available. Companies such as PowerLutions Solar (the top regional solar installer mentioned for context) may see a surge in demand in late 2025 as customers rush to qualify; scheduling availability will likely tighten.

3. New Energy‑Efficient Home Credit for builders (Section 45L)

The 45L credit allows developers to claim $2 500 or $5 000 per unit depending on energy‑efficiency performance. Homes meeting ENERGY STAR certification earn a $2 500 credit per dwelling; those meeting the more stringent Zero Energy Ready Home standard qualify for $5 000. These amounts can dramatically improve project economics for builders of single‑family homes, townhouses or multi‑family units.

The OBBBA shortens the eligibility period. According to a real‑estate law firm analysis, the 45L credit terminates for homes or units closed (sold or leased) after June 30 2026. In other words, builders must complete and sell or lease energy‑efficient homes by mid‑2026 to claim the credit. The compression of this window has several implications:

• Builders and developers must accelerate design and permitting; projects that would have closed after mid‑2026 may no longer justify the cost of meeting ENERGY STAR or Zero Energy Ready requirements without the credit.
• Supply chain constraints – meeting ENERGY STAR or zero‑energy standards often requires heat‑pump water heaters, high‑efficiency HVAC, air sealing and continuous insulation; supply chain lead times may lengthen as many developers compete for equipment before the deadline.
• Impact on homebuyers – some developers may market energy‑efficient homes as limited‑time offers in 2025–26, encouraging buyers to sign contracts earlier.

4. Electric vehicle and charging incentives

The OBBBA not only trims building‑related incentives but also ends credits for electric vehicles and charging. The LSL CPAs article notes that new and used clean vehicle credits (Sections 30D and 25E) expire on 30 September 2025 and that commercial clean vehicle credits (45W) end the same day. It also specifies that the alternative fuel refueling property credit (30C)—which provides up to $100 000 per item for commercial projects—is unavailable for property installed after 30 June 2026.

For homeowners and property owners considering EVs and chargers:

• EV purchases: Without the federal credit, EV prices effectively rise by $3 750–$7 500 (depending on battery size and content). This may slow the adoption of electric vehicles after September 2025, diminishing cross‑sales of solar and battery systems.
• Home and workplace charging: The 30C credit currently subsidizes 30 % of installed cost for EV chargers, up to $1 000 for residences and $100 000 for commercial properties. Ending this credit after June 30 2026 raises the cost of home EV charging, affecting the total cost of electrification.

5. Miscellaneous residential provisions

Other relevant changes include:

• Residential energy‑storage eligibility: Under the IRA, standalone battery storage qualifies for the 30 % 25D credit. That eligibility now ends after 2025. Homeowners installing batteries solely for back‑up power after 2025 will not receive a federal tax credit, though some states (e.g., New York) may continue offering incentives.
• Domestic content implications: Starting in 2026, meeting domestic‑content rules becomes more challenging. White & Case notes that the OBBBA amended the applicable domestic content percentages under Section 48E. For residential systems financed through leases, failure to meet domestic content requirements may reduce or eliminate ITC adders, making projects less economical.

Impact on commercial projects

1. Technology‑neutral Investment and Production Credits (Sections 48E and 45Y)

The IRA created technology‑neutral credits that award either a 30 % investment tax credit (ITC) or a 2.75 ¢/kWh production tax credit for any power plant with zero greenhouse‑gas emissions. Under the OBBBA, these credits still exist but with strict deadlines for wind and solar. According to a summary by Fust Charles & Company, the Section 48E investment credit is terminated for wind and solar facilities that do not begin construction within one year of the law’s enactment (i.e., by 4 July 2026) or that are not placed in service by 31 December 2027. Energy storage projects (battery systems) and other technologies continue to follow the original phase‑out schedule beginning in 2032.

The Senate summary of the law further notes that wind and solar facilities beginning construction after one year from enactment must be placed in service by December 31 2027 to receive production credits. If construction starts after July 4 2026 and the project is not operational by the end of 2027, no credit is available. This effectively compresses the development timeline to ~18 months.

Implications for commercial developers and financiers include:

• Rush to commence construction: Projects not yet under construction should expedite development to meet the July 4 2026 deadline. Long‑lead items such as interconnection agreements and permitting must be fast‑tracked.
• Shortened placed‑in‑service window: Projects started in mid‑2025 but experiencing delays may not meet the December 2027 placed‑in‑service deadline. Without credits, returns may no longer meet investor hurdles.
• Effect on PPAs and leases: Many commercial solar projects use tax equity financing and power‑purchase agreements. The compressed timeline reduces the availability of tax equity and may discourage tax‑equity investors from committing to new solar deals after 2025. PPA rates could rise to compensate for lost tax benefits.
• Energy storage projects: Because energy storage technology is not subject to the placed‑in‑service deadline, standalone battery projects may become more attractive relative to solar‑only projects.

2. Energy‑Efficient Commercial Building Deduction (Section 179D)

Section 179D allows building owners to deduct up to $5.00 per square foot (indexed) for installing high‑efficiency HVAC, lighting or building envelope systems. The KJK article summarizing the OBBBA states that the 179D deduction “ends for properties beginning construction after June 30 2026”. This means that commercial building owners must commence construction (not just place in service) by this date to claim the deduction.

Loss of this deduction will affect decisions about comprehensive energy retrofits:

• Building owners may accelerate planned lighting and HVAC upgrades to break ground before July 2026.
• Multifamily developers who use 179D in combination with Low‑Income Housing Tax Credits may re‑evaluate capital stacks; some deals may not pencil out without the deduction.
• Design firms still receive the 179D allocation from government and non‑profit building owners, but this arrangement will vanish for projects starting after June 2026; engineering firms may face a pipeline cliff.

3. Alternative Fuel Vehicle Refueling Credit (Section 30C) and EV fleet incentives

Commercial EV adoption ties closely to solar because many fleet operators plan on-site solar and battery systems to offset charging. The LSL summary lists that 30C credits for charging equipment expire for property installed after June 30 2026 and that commercial clean‑vehicle credits (45W) terminate after September 30 2025. Without these credits, the economics of electrifying fleet vehicles shift; businesses may delay EV purchases or choose hybrid vehicles instead.

4. Advanced Manufacturing Production Credit (Section 45X)

The IRA introduced this credit to encourage domestic manufacturing of clean‑energy components. The OBBBA retains the credit but imposes FEOC restrictions and accelerates phase‑outs for certain components. White & Case notes that no credit is available for the sale of integrated components after December 31 2026 and no credit for wind components produced and sold after December 31 2027. For critical minerals (e.g., lithium), the credit phases out after 2033. Developers relying on domestic modules must ensure suppliers are not subject to these phase‑outs.

5. Carbon capture, clean hydrogen and clean fuel credits

While wind and solar credits expire early, some industrial credits survive. The White & Case table indicates that clean hydrogen production (45V) receives no credit for facilities beginning construction after December 31 2027 and that carbon‑capture credit (45Q) remains but is subject to FEOC restrictions and updated base rates from 2025. The clean fuel production credit (45Z) is extended through December 31 2029 but disallows projects using foreign feedstock after December 31 2025. Although these technologies fall outside typical solar projects, they highlight a broader shift: incentives are shifting from widespread renewable deployment toward targeted industrial decarbonization.

Impact on non‑profit and tax‑exempt organizations

1. Direct Pay (Section 6417) retained but limited

One of the IRA’s most transformative provisions was elective pay, or “direct pay,” allowing tax‑exempt entities (schools, houses of worship, municipalities, etc.) to receive cash payments for credits they would otherwise be unable to use. The Fust Charles article notes that the OBBBA “retained the direct pay mechanism under Section 6417” for tax‑exempt organizations and state, local, and tribal entities. Under direct pay, a school or municipal utility building a solar installation can file for a refund equal to the value of the ITC or PTC.

However, the same article warns that the act “curtailed and eliminated many of the clean energy credits”. Since direct pay only applies when a credit exists, the elimination of 25D, 25C, 45L, 30C and early phase‑out of 48E/45Y drastically narrows the opportunities for non‑profits. The article summarises some key affected credits:

• Alternative fuel vehicle refueling property credit (30C) unavailable after June 30 2026.
• Qualified commercial clean vehicle credit (45W) not available for vehicles acquired after September 30 2025.
• Clean electricity investment credit (48E) terminated for wind and solar if construction begins after July 4 2026 or facility enters service after December 31 2027.
• Transferable deduction for energy‑efficient property in government or tax‑exempt buildings (179D) no longer available for property beginning construction after June 30 2026.

Tax‑exempt entities must therefore act quickly to claim direct pay on projects still eligible, especially solar or wind installations that can break ground before July 4 2026. After that, direct pay remains available primarily for industrial credits such as advanced manufacturing (45X) and clean hydrogen (45V).

2. Penalties for disallowed credits

The Senate summary points out a new risk for entities using direct pay. White & Case explains that if a taxpayer claiming direct pay under Section 6417 overstates its material assistance cost ratio (i.e., uses equipment from a prohibited foreign entity), and the IRS disallows the credit, the payment becomes an “excessive payment” subject to a 20 % penalty. Tax‑exempt organizations, unfamiliar with complex supply‑chain rules, must therefore conduct careful due diligence on suppliers to avoid accidentally incurring this penalty.

3. Interplay with public financing

Many non‑profit energy projects use tax‑exempt bond financing, philanthropic grants or power‑purchase agreements. Direct pay allowed these organizations to monetize credits without a taxable partner. With credits disappearing, non‑profits may shift to leases or PPAs with for‑profit developers who can claim whichever credits remain. However, the shortened windows mean some projects may not be viable unless they are already in planning stages.

Domestic Content and FEOC requirements

The OBBBA emphasizes domestic manufacturing and supply‑chain security. White & Case notes that domestic content percentages under Section 48E were amended, implying that projects must source a higher share of steel, iron and manufactured products from the United States to avoid a 10 % reduction (haircut) on the credit. This is effects the cost of New Jersey solar projects or elsewhere in the U.S. For wind and solar projects beginning construction after Dec 31 2025, FEOC restrictions apply:

• Projects cannot receive material assistance from entities identified as “foreign entities of concern” (mainly certain Chinese manufacturers). Material assistance covers financial or technological support that the IRS deems significant.
• The assessment period for determining FEOC compliance extends to six years, meaning developers may face IRS audits years after claiming a credit.
• Overstating the cost of compliant materials by more than 1 % can trigger an accuracy‑related penalty.

These rules heighten compliance risk. Developers must vet supply chains and may need to restructure procurement to use domestic or allied‑country components. For rooftop solar, this may favor panels made in North America, though manufacturing capacity could limit supply and increase costs.

Financing and contracting implications

1. Residential PPAs and leases

Third‑party ownership models rely on capturing federal credits and passing some of the savings to the customer. Under the IRA, solar leasing companies monetized the 30 % ITC and offered zero‑down contracts with monthly rates lower than utility bills. From 2026 onward, with no 25D credit, these companies either:

• Shift to state or utility incentives (e.g., New York’s NY‑Sun rebates), raising reliance on local subsidies;
• Increase monthly payments to compensate for lost federal benefits; or
• Pivot to battery leasing if energy storage becomes the primary asset eligible for credits under 45Y/48E (though only until 2032). The Fust Charles summary clarifies that energy storage continues to qualify for credits when installed as stand‑alone or paired with other technology.

Customers who can access low‑interest home‑equity loans or cash may prefer outright purchase before the credit expires; otherwise, monthly lease rates in 2026 may erode savings relative to utility rates.

2. Commercial PPAs and tax equity structures

Commercial solar projects typically rely on tax equity investors, who purchase tax credits and depreciation benefits from project developers in exchange for cash contributions. With the 30 % ITC for wind and solar scheduled to vanish for projects beginning construction after July 2026, tax‑equity investors may concentrate on projects that can start quickly. The compressed timeline could lead to:

• Higher tax equity pricing in 2025 (investors competing to place capital before deadlines) and a collapse of the tax‑equity market for solar after 2026.
• Increased use of debt financing or cash equity. Without tax benefits, PPAs might need to be priced higher to achieve target returns, which could make onsite solar less attractive to commercial offtakers.
• Greater interest in technologies still eligible for credits, such as energy storage and carbon capture. Developers may pivot to these markets.

3. Non‑profit financing strategies

Non‑profits previously could avoid tax equity entirely by electing direct pay. With many credits expiring, non‑profits will need alternative funding sources. Options include:

• Energy service agreements (ESAs) or performance contracting, where a third‑party developer finances and owns the system and sells energy or efficiency savings to the non‑profit. The developer retains any remaining credits. This may remain viable until mid‑2026.
• Grants and donations. Charitable contributions may decline because the OBBBA introduces a 0.5 % floor for individual charitable deduction and a 1 % floor for corporations. Tax‑exempt organizations should plan for reduced donations and seek institutional grants.
• Green bonds or PACE financing. Property assessed clean‑energy (PACE) loans and municipal green bonds do not rely on federal tax credits, so they may become more prominent financing tools.

Strategic timing and planning

Because the OBBBA retains some credits and eliminates others on different timelines, energy stakeholders should adopt a phase‑down strategy. Key considerations include:

• Finish residential projects by 2025. Homeowners and small businesses should schedule solar and efficiency upgrades to ensure installation by December 31 2025 for 25D and 25C credits.
• Commence commercial solar construction by July 4 2026. Developers must secure interconnection, financing and procurement quickly. Projects that slip into late 2026 may not receive any federal credit.
• Sell or lease 45L homes by June 30 2026. Builders should expedite closings or consider pre‑selling units to capture credits for buyers.
• Install EV chargers by June 30 2026. Businesses planning to electrify fleets should accelerate infrastructure deployment while the 30C credit remains.
• Conduct supply‑chain due diligence. To avoid penalties and haircuts, developers should ensure equipment meets domestic‑content requirements and does not involve FEOC support. Contracts should include representations from suppliers.
• Explore state and utility programs. After federal incentives expire, state rebates, solar renewable energy credits (SRECs) and demand‑response payments will become more important. In New York, for example, the NY‑Sun program offers per‑watt incentives for residential and commercial solar; these may continue beyond 2025.

Solar Bottom Line: a shifting landscape

The One Big Beautiful Bill Act accelerates the transition from broad‑based renewable incentives to more targeted industrial and domestic‑content policies. By 2026 most residential solar and energy‑efficiency tax credits (25D, 25C, 45L) will be gone. Commercial solar and wind projects must begin construction by July 4 2026 or risk losing the technology‑neutral credits. Non‑profit entities retain access to direct pay, but the pool of eligible credits shrinks dramatically. Foreign‑entity‑of‑concern rules and domestic‑content requirements add compliance burdens and penalties. EV incentives also end in 2025–26.

For homeowners, businesses and non‑profits in Copiague, New York and across the United States, the next 12–24 months represent a last call for generous federal support. Companies like PowerLutions Solar will likely experience a surge of customers racing to install solar and storage systems before deadlines. Those who miss the window may still benefit from declining technology costs and state‑level incentives, but the federal landscape will look very different by 2026. Careful planning, due diligence and accelerated timelines are critical to maximize the remaining incentives and navigate the new rules.

You can find an updated version of this article: 2026 Federal Solar Incentives: What’s Changing and How It Affects You (Updated)