Solar and Battery Equipment in 2026: Domestic Content, FEOC, and Who Actually Gets the Tax Credit

Two federal tests now decide whether solar and battery storage equipment earns a tax credit, and they are not the same test. Domestic content asks where equipment was manufactured and pays a bonus. FEOC rules, short for foreign entity of concern, ask who manufactured it and can wipe out the credit entirely. A rooftop array and the battery bolted to the wall beside it are graded on different curves, on different deadlines, and the answer changes completely depending on whether a homeowner, a business, a non-profit, or a leasing company owns the hardware.

As of July 9, 2026: The Section 25D residential credit is repealed for expenditures after December 31, 2025. Material assistance (FEOC) rules apply to any project beginning construction after December 31, 2025, and the July 4, 2026 beginning-of-construction deadline for solar has now passed.

• Eligibility: A homeowner who buys a system outright in 2026 gets no federal credit at all; Section 25D is repealed and Section 48E is a business credit that requires depreciable property.
• Timing: Solar facilities placed in service after December 31, 2027 lose the credit unless construction began by July 4, 2026. Battery storage is not subject to that termination.
• FEOC gate: A solar facility beginning construction in 2026 needs a material assistance cost ratio of at least 40%. Battery storage needs 55%. Miss it and the credit is gone, not merely reduced.
• Domestic content bonus: Meeting it adds 10 percentage points, taking a 30% credit to 40%. It is optional. FEOC compliance is not.
• No small-project escape: Systems under 1 megawatt skip prevailing wage and apprenticeship rules, but there is no size exemption from the FEOC material assistance rules.
• Depreciation: Commercial owners stack 5-year MACRS and 100% bonus depreciation on top of the credit. Non-profits take cash through direct pay instead, with no depreciation benefit.

What Equipment Choices Actually Determine Your Tax Credit in 2026?

Four equipment layers carry nearly all the tax risk: solar cells, inverters, battery cells, and structural steel. Everything else in a system is either cheap enough not to move the calculation or, in the case of steel, excluded from the FEOC math entirely. The distinction that matters most is one the marketing rarely makes clear: a module assembled in the United States from imported cells is not the same thing as an American-made module.

The United States has enormous module assembly capacity and comparatively little cell capacity. Cells are where the cost concentrates and where foreign sourcing concentrates. As of mid-2026 the manufacturers actually producing solar cells on U.S. soil are a short list: First Solar, whose cadmium telluride thin-film process is vertically integrated and skips the silicon supply chain entirely; Qcells, whose Cartersville, Georgia site began silicon cell production in June 2026 and is the only fully integrated ingot-to-module site in the country; ES Foundry in South Carolina; and Suniva in Georgia. Silfab and T1 Energy have cell lines under construction that are not yet in volume production. Several well-known names assemble modules here using cells made elsewhere.

Where each layer sits

Batteries are the hard problem

Lithium iron phosphate, or LFP, has become the default chemistry for stationary storage because it tolerates heat better, resists thermal runaway, and cycles more times than the nickel-manganese-cobalt chemistry it displaced. It is also overwhelmingly made in China; trade estimates put Chinese production above 90% of global LFP cell output, and the International Energy Agency has put China above 80% of all battery cell production. Domestic LFP cell lines for stationary storage have come online at LG Energy Solution in Holland, Michigan and AESC in Tennessee, with Tesla's Nevada line in early production, but that output is aimed at utility and large commercial systems rather than residential battery packs.

The practical consequence is uncomfortable and worth stating plainly: as of mid-2026, no mainstream residential battery product could be confirmed as shipping U.S.-made cells. Manufacturers generally do not disclose cell suppliers. Domestic content in a residential battery today lives in the enclosure, the battery management system, and the power electronics, not the cells.

What Is the Domestic Content Bonus, and How Do You Reach 40%?

The domestic content bonus adds 10 percentage points to the investment tax credit, turning a 30% credit into a 40% credit. Section 48E(a)(3)(B) imports the mechanics of Section 48(a)(12)(C), which sets "the applicable credit rate increase" at "10 percentage points" for a project meeting prevailing wage and apprenticeship requirements, and only "2 percentage points" for one that does not. Because systems under 1 megawatt are deemed to satisfy those wage requirements, a small project that meets domestic content collects the full 10 points.

Qualifying means passing two separate tests, not one. Notice 2023-38 states the first flatly: the steel or iron requirement "is met if... all manufacturing processes with respect to any steel or iron items that are Applicable Project Components take place in the United States," and it applies to components "that are construction materials made primarily of steel or iron and are structural in function." That is a 100% test, not a percentage. The second test is a cost percentage. You divide the cost of U.S.-made manufactured products and U.S.-made components by the total cost of all manufactured products, and the result, the Domestic Cost Percentage, must equal or exceed an "adjusted percentage" that climbs over time.

The adjusted percentage schedule

Note the June 16, 2025 hinge. The One Big Beautiful Bill Act moved the step from 40% to 45% off January 1 and onto that mid-June date, so projects that began construction in the first half of 2025 kept the easier 40% target. Offshore wind runs on a lower parallel ramp. Battery storage uses the same standard schedule as solar; there is no separate storage table for the bonus.

What the IRS says each component is worth

Rather than force every developer to audit supplier invoices, the IRS publishes an elective safe harbor assigning a fixed cost percentage to each component. The current table lives in Notice 2025-08. Two columns matter for sub-megawatt work, and they explain at a glance why cells dominate the conversation.

Read the battery column carefully, because it contains good news. Cells are only 26.9% of a distributed battery system's assigned cost, while the container, enclosure, battery management system, and thermal management together account for 46.1%. Domestic content on a battery is therefore reachable without domestic cells. The FEOC test, as the next section explains, is not nearly so forgiving.

What Are the FEOC Rules and the Material Assistance Cost Ratio?

The FEOC rules deny the credit outright to projects that take too much value from a prohibited foreign entity. Section 7701(a)(51)(A)(i) defines the term simply: "The term 'prohibited foreign entity' means a specified foreign entity or a foreign-influenced entity." The covered nations, borrowed from Title 10 of the U.S. Code, are China, Russia, Iran, and North Korea.

An entity does not have to be foreign to be caught. A U.S. company becomes a foreign-influenced entity if a specified foreign entity can appoint one of its officers, owns at least 25% of it, or, together with others, owns at least 40%. The same is true if at least 15% of the company's debt was issued to specified foreign entities, or if it has paid one under an arrangement granting "effective control" over production. That last branch reaches licensing deals and exclusive operating agreements, which is why technology-licensing arrangements with Chinese cell makers have drawn so much scrutiny.

How the ratio works

The material assistance cost ratio, or MACR, is deceptively simple:

Total direct costs of all manufactured products, minus the direct costs of those manufactured products made by a prohibited foreign entity, divided by the total direct costs of all manufactured products.

The ratio runs backwards from intuition. A higher MACR is better, because it measures the share of cost that is not traceable to a prohibited entity. Your MACR must be at or above the threshold. Fall below it and, in the words of Section 48E(b)(6), the terms qualified facility and qualified interconnection property "shall not include any facility or property the construction, reconstruction, or erection of which begins after December 31, 2025, if [it] includes any material assistance from a prohibited foreign entity." Section 48E(c)(3) says the same for energy storage. This is not a reduced credit. The property stops being eligible property.

Steel and iron are excluded from this calculation entirely, because the ratio counts only manufactured products. That is a meaningful reprieve for ground-mount work, where structural steel is a large share of the bill.

Three restrictions, three different dates

How to document it before the tables exist

Treasury must publish safe harbor tables for the FEOC calculation no later than December 31, 2026. They do not exist yet. Notice 2026-15, issued February 12, 2026, provides interim guidance and worked examples. Until the final tables arrive, a taxpayer may use the Notice 2025-08 cost tables and rely on supplier certifications. Those certifications are serious instruments:

1. Obtain a certification from the supplier you purchased from, stating the item was not produced by a prohibited foreign entity and that the supplier does not know, or have reason to know, of any prohibited entity upstream in the chain.
2. Confirm it carries the supplier's taxpayer identification number and is signed under penalties of perjury.
3. Retain it for at least six years. Your supplier must do the same.
4. Do not rely on a certification you know, or have reason to know, is inaccurate. Knowledge overrides the certification and forces you to treat the entire cost of that item as prohibited-entity cost.
5. Recheck sourcing before construction begins, because the ratio is measured against the year construction starts, not the year you signed the contract.

The penalties are calibrated to make this stick. The assessment window for a MACR error runs six years rather than the usual three. The accuracy-related penalty threshold for overstating a MACR is tightened by substituting 1% for 10% in the substantial-understatement test. And a supplier that knowingly provides a false certification faces a penalty of the greater of 10% of the resulting underpayment or $5,000. Suppliers have responded: ES Foundry, for one, publishes a public FEOC attestation covering its ownership, board, financing, and its commitment to contracted non-prohibited wafer and silicon suppliers from 2026 onward.

How Is Non-FEOC Domestic Content Different From Domestic Content?

Domestic content asks where a product was made; FEOC asks who made it. Those are different questions, and a component can answer one well and the other badly. The percentages in the two regimes look similar enough that they are routinely confused, but they measure different quantities against different denominators, and the resemblance is coincidence.

The four combinations are worth mapping, because equipment now sells against this grid. Industry shorthand has settled on "non-FEOC domestic content" for the top-left cell: equipment that is both American-made and free of prohibited-entity involvement. It commands a premium for a reason.

The bottom-left quadrant is where projects get hurt. A U.S. plant majority-owned by a specified foreign entity, or operating under a licensing agreement that hands a Chinese partner effective control over production, can produce a module stamped "Made in USA" that still counts entirely against the material assistance ratio. Ownership structure, debt, and licensing terms have become supply-chain diligence items, not just corporate trivia. Developers and installers that maintain documented, screened supply chains, Powerlutions among them, now collect certifications before specifying hardware rather than after.

The top-right quadrant is where the practical answers usually live. A Korean-owned cell plant is not a prohibited entity. Its output helps the ratio without earning a domestic content bonus. For storage in particular, where the FEOC threshold is 55% and the domestic bonus is optional, sourcing from non-prohibited foreign suppliers is frequently the only way to clear the gate at all.

Who Can Actually Claim the Credit: Homeowner, Business, Non-Profit, or Lease/PPA?

Ownership structure now determines the answer more than the equipment does. The Section 25D residential credit, the one that paid homeowners 30% of the cost of a system they bought themselves, is repealed for expenditures made after December 31, 2025. Section 25D(e)(8) treats an expenditure as made "when the original installation of the item is completed," so paying in 2025 for a system finished in 2026 does not preserve it.

A homeowner cannot simply fall back on Section 48E. That credit is a component of the general business credit and its qualified property must be depreciable, which requires use in a trade or business or held for the production of income. A system on an owner-occupied roof is personal-use property. It is not depreciable, so there is no Section 48E and no MACRS. This is precisely why a separate residential credit existed in the first place, and why its repeal leaves nothing behind.

The leasing rule that did not happen

Third-party ownership survived, and the detail matters. Section 48E(i) denies the credit for leased property "described in paragraph (1) or (4) of section 25D(d)." Those two paragraphs are solar water heating property and small wind energy property. Rooftop solar electric property is paragraph (2), and battery storage is paragraph (6). Neither is listed. Leased rooftop solar and leased residential storage remain fully eligible for Section 48E, claimed by the commercial entity that owns the system. With Section 25D gone, a lease or PPA is now the primary route by which federal value reaches a residential rooftop at all.

Non-profits, and the trap in direct pay

Tax-exempt organizations, schools, municipalities, and tribal governments cannot use a credit against tax they do not owe, so Section 6417 lets them elect direct pay and receive the credit as cash. Section 48E(d)(5) then imports a rule from Section 45Y(g)(12) that catches people off guard: for a direct-pay entity that fails the domestic content requirement, the credit is multiplied by 100% for construction beginning before 2024, 90% in 2024, 85% in 2025, and 0% for construction beginning after December 31, 2025. The exceptions are the whole ballgame. The multiplier stays at 100% if the project meets domestic content, or if it has "a maximum net output of less than 1 megawatt (as measured in alternating current)."

How Do MACRS and Bonus Depreciation Change the Real Cost?

Depreciation adds roughly 17 cents of federal value per dollar of equipment for a taxable owner, on top of the credit. Solar energy property and energy storage technology are both five-year MACRS property under Section 168(e)(3)(B), and the One Big Beautiful Bill Act made 100% bonus depreciation permanent for property acquired after January 19, 2025, so a commercial owner generally writes off the entire depreciable basis in year one. Acquisition date, for this purpose, is normally the date of the written binding contract.

The basis is not the full cost. Section 50(c) reduces basis by the amount of the credit, but Section 50(c)(3) softens it: "only 50 percent of such credit shall be taken into account." A 30% credit therefore cuts basis by 15 points, leaving 85% depreciable. A 40% credit cuts it by 20 points, leaving 80%.

These figures are illustrative, assume a 21% federal corporate rate and the full bonus deduction taken in the first year, and ignore state taxes and the time value of money. Real projects vary. A non-profit taking direct pay receives the $30,000 or $40,000 and nothing more, because it has no tax liability to shelter, which is why the credit is worth proportionally more to a taxable owner than the headline percentage suggests.

Do Projects Under 1 MW Get Easier Treatment Than Larger Ones?

Yes for labor rules and direct pay, no for FEOC. Three separate thresholds sit near one megawatt and they are constantly conflated, so it is worth separating them precisely.

The first is the prevailing wage and apprenticeship exemption. Section 48E(a)(2)(A)(ii)(I) grants the full 30% rate, rather than the 6% base, to a facility "with a maximum net output of less than 1 megawatt (as measured in alternating current)." For storage the parallel provision speaks of "a capacity of less than 1 megawatt." Note the unit: megawatts of power, not megawatt-hours of energy. Treasury Regulation 1.48E-3 confirms the measure is nameplate power in alternating current, and even converts thermal storage into megawatts to apply it. A 13.5 kilowatt-hour home battery is nowhere near the line.

The second is the direct-pay domestic content exemption described above, which uses the same "less than 1 megawatt" alternating-current measure.

The third sits at 1.5 megawatts and concerns how you prove construction began. Notice 2025-42 defined a "low output solar facility" as one with "maximum net output of not greater than 1.5 megawatt (MW) (as measured in alternating current)," and preserved the long-standing 5% cost safe harbor only for those facilities, forcing everyone else onto the physical work test. That notice was vacated in full by the U.S. District Court for the District of Columbia on June 6, 2026 on administrative-procedure grounds, which on paper restores the 5% safe harbor for all wind and solar. A government appeal is expected and a reversal could operate retroactively, so the position should be treated as unsettled rather than as settled relief. Separately, Notice 2026-15 confirms that Notice 2025-42's construction-start rules do not govern the beginning of construction for FEOC purposes at all.

One more timing point governs everything above. The credit for solar facilities terminates for property placed in service after December 31, 2027 unless construction began within twelve months of the Act's enactment, that is, by July 4, 2026. That window has now closed. Battery storage was never subject to that termination and remains on its own, much longer schedule, which is a large part of why storage economics look increasingly attractive relative to generation.

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Frequently Asked Questions About Domestic Content and FEOC Rules for Solar and Storage

Does the federal solar tax credit still exist for a homeowner who buys a system in 2026?

No. The Section 25D residential clean energy credit was repealed for expenditures made after December 31, 2025, and an expenditure counts as made when the original installation is completed. A homeowner who purchases a solar system outright in 2026, with cash or a loan, receives no federal credit. Section 48E cannot substitute, because it requires depreciable business property. Federal value can still reach a residential roof through a lease or power purchase agreement, where a commercial owner claims the credit.

What is the difference between domestic content and FEOC compliance?

Domestic content measures where equipment was manufactured and awards a bonus of 10 percentage points for clearing the threshold. FEOC measures whether equipment came from a prohibited foreign entity and denies the credit entirely for failing. One is an upgrade, the other is a gate. A solar component made in Korea by an unaffiliated manufacturer helps your FEOC ratio and does nothing for domestic content, while a module assembled in the United States by a company 25% owned by a specified foreign entity may do the reverse.

Does battery storage face a higher FEOC threshold than solar?

Yes. Energy storage technology must reach a material assistance cost ratio of 55% for construction beginning in 2026, against 40% for a solar or wind facility. Storage climbs to 60%, 65%, and 70% for 2027 through 2029 and reaches 75% after 2029, while generation facilities top out at 60%. The gap reflects how concentrated battery cell manufacturing is in covered nations.

Is there a small-project exemption from the FEOC material assistance rules?

No. Projects under 1 megawatt are exempt from prevailing wage and apprenticeship requirements and from the direct-pay domestic content reduction, which leads many people to assume the FEOC rules also have a size floor. They do not. The relief that exists is timing-based: a binding written contract entered into before June 16, 2025 can exclude certain costs from the ratio, and there is a cost-assignment convenience for manufactured products under 10% of total direct costs.

Can a non-profit still receive cash for a solar project through direct pay?

Yes, through the Section 6417 elective payment election, which survived the 2025 legislation. The catch is the domestic content reduction imported by Section 48E(d)(5). For construction beginning after December 31, 2025, a project that fails domestic content receives a 0% multiplier, meaning no payment at all, unless its maximum net output is under 1 megawatt in alternating current. Most non-profit rooftop projects fall under that line and are unaffected; larger ground-mount projects must plan for domestic content deliberately.

Do residential solar leases and PPAs still qualify for the investment tax credit?

Yes for rooftop solar and battery storage. The 2025 law added Section 48E(i), which denies the credit for leased residential property described in paragraphs (1) and (4) of Section 25D(d), namely solar water heating and small wind. Rooftop solar electric property, in paragraph (2), and battery storage, in paragraph (6), were left out of that denial. The third-party owner claims the credit and the depreciation, and typically reflects that value in the lease or PPA rate.

What happens if a supplier's FEOC certification turns out to be wrong?

Both parties are exposed. A supplier that knowingly, or with reason to know, provides an inaccurate certification faces a penalty equal to the greater of 10% of the resulting underpayment or $5,000. The taxpayer faces a six-year assessment window for material assistance errors instead of the usual three, and an accuracy-related penalty that is easier to trigger, because the substantial-understatement threshold is tightened from 10% to 1%. A taxpayer may not rely on a certification it knows or has reason to know is inaccurate, so genuine diligence, not paperwork alone, is the protection.

Choosing Equipment That Still Qualifies in 2026

The federal rules have quietly reorganized around a single question: who owns the system, and can they document who made it. A homeowner writing a check gets nothing. A business, a non-profit, or a leasing company owning the same hardware can capture 30% to 40% of its cost, plus depreciation if it pays tax, provided the bill of materials clears a ratio that gets stricter every January and is strictest of all for batteries.

That makes equipment selection a tax decision made early, not a procurement detail settled late. Racking is straightforward. Inverters have real domestic options. Modules increasingly do, now that domestic cell production has finally arrived. Battery cells remain the genuine constraint, and any storage project counting on the credit should confirm cell provenance and hold a signed certification before construction begins, because the ratio is fixed by the year construction starts and cannot be repaired afterward.

If you are scoping a commercial, non-profit, or third-party-owned solar and storage project and need the equipment specified around what will actually qualify, Powerlutions can walk through the ownership structure and the supply-chain documentation with you before anything is ordered. Call or email for a quote, and bring your timeline; on these rules, the calendar does more damage than the hardware.