On July 4, Republicans applauded President Donald Trump for signing the large, attractive bill, which they said will lower energy prices. However, homeowners who intended to install solar panels faced a short window of opportunity to collect tax credits worth thousands of dollars.
The roughly 900-page law abolished the solar tax credit that homeowners could receive for putting solar panels on their properties, and it also cut federal support.
What you should know about the solar tax credit changes and how they will probably impact everyone, including those without solar panels, is provided here.
What is the solar tax credit?
The domestic renewable energy credit, sometimes referred to as the solar tax credit, lowers homeowners’ taxes when they install eligible solar equipment. In essence, it permits homeowners to construct solar energy systems using funds that they would have otherwise paid in taxes. When installing new clean energy systems on their properties, taxpayers can deduct up to 30% of the installation costs.
Americans have saved a significant amount of money thanks to the incentive, which frequently lowers the upfront expenses of moving to renewable energy for households. The U.S. Treasury Department reports that during the 2023 tax year, over 1.2 million taxpayers claimed $6.3 billion in the residential energy tax credit. Of those claims, 60% were related to rooftop solar electricity systems.
What s changed for the solar tax credit?
As part of the Inflation Reduction Act of 2022, which extended a tax credit for homes who installed solar panels through 2034, former President Joe Biden established the current iteration of the solar tax credit. Instead of ending the credit suddenly, the IRS intended to phase it out beginning in 2033.
Trump’s bill, however, eliminates the solar tax credit on December 31, 2025, depriving consumers who were thinking about purchasing specific renewable energy systems of nine years of possible savings. The time frame for scheduling qualifying installations is also significantly shortened by the end-of-year deadline.
According to Hector Castaneda, a certified professional accountant and president of Castaneda CPA and Associates, homeowners who wish to claim the solar tax credit for the 2025 tax year must complete a financial transaction prior to the new December 31 deadline. This entails financing the purchase before the due date or making a cash payment.
What this means for consumers
Customers, even those who had no intention of switching to solar panels, may experience significant consequences if the solar tax incentive is discontinued.
More expensive solar installations
EnergySage, an online solar marketplace, reports that in early 2025, the average cost of installing solar panels was $27,720. Homeowners saved an average of $8,316 thanks to the federal solar tax credit, which reduced the cost to $19,404.
However, after 2025, the only way for homeowners to save money on solar panels for their homes would be through state-based incentives. States offer different incentives; some save money up front with exemptions from sales taxes, while others save money over time with exemptions from property taxes. However, state incentives won’t compensate for the thousands of dollars in savings homeowners will lose after 2025, especially when paired with municipal tax credits and solar installation rebates.
To make things more difficult, before Trump sounded the death knell for the solar tax credit, prices for solar panels were already fluctuating.Earlier this year, tariffs on imported solar equipment and components started to have an impact on the industry, raising concerns about the affordability and dependability of the supply chain.
The tariffs sparked a volatile market for solar enterprises, according to Cal Morton, owner of EasTex Solar, a solar installation that serves the East Texas area. According to Morton, it was already the most bizarre year he could recall.
The consequences of an unstable market soon became apparent to consumers. According to a Wood Mackenzie analysis released in June 2025, the average cost of residential solar energy systems rose by 3% between the first quarters of 2024 and 2025. Without the solar tax credit, prices will probably keep rising, making the solar sector more unstable.
Longer payback periods for new systems
The cost of solar panels will probably be greater for homeowners who don’t take advantage of the solar tax credit. This results in a lengthier payback period—also referred to as the time between installing solar and breaking even with system savings.
According to EnergySage, in early 2025, solar customers’ average payback period was little over seven years. However, homeowners in some places were already anticipating that it would take them more than 20 years to recoup their investment. Those payback periods will probably be extended by price increases and the elimination of the tax credit.
Lease, PPA and battery trends
According to Chris Hopper, co-founder and CEO of Aurora Solar, a software platform that simplifies the solar array design process for installers, businesses that provide leases and power purchase agreements (PPAs) are expected to emerge as the main rivals as homeowners become less interested in purchasing solar panels.
By leasing solar panels or signing a PPA before July 4, 2026, when solar businesses’ tax incentives change, homeowners may still be able to save money after 2025. Through these agreements, homeowners can produce solar energy without having to buy the equipment, while the businesses that hold the equipment benefit from tax breaks. A business can reduce the system’s overall cost if it transfers that tax benefit to the customer.
Furthermore, solar battery purchases are exempt from the deadline modifications. Up to 50% of the cost of batteries can be deducted from homeowners’ taxes if they buy them to be used as storage systems, such as in conjunction with an existing or new solar energy system. The credit will expire on December 31, 2035, after starting to taper out in 2034.
Less solar power and higher electricity bills
According to Hopper, the removal of the solar tax credit coincides with an increase in the demand for electricity in the US energy market. That demand has been met in part by solar energy. According to the June 2025 Wood Mackenzie research, it accounted for 69% of the new electricity-generating capacity that utility companies added to the U.S. power system in the first quarter of 2025.
Commercial solar projects often take longer to install, but they can continue to receive tax benefits for longer than residential systems. Because of the long timescale, less solar energy will be produced to meet the increasing demand for electricity in the interim.
According to Energy Innovation, a nonpartisan think organization that focuses on energy, climate research, and policy analysis, consumers’ electricity costs would increase as a result of the increased energy being lost.
ReVision Energy, a solar company situated in New England, has Janice DiPietro as its chief integration and customer officer, who concurs. She lists the loss of the solar tax credit, increasing rates, and rising electricity demand as the main causes.
According to DiPietro’s email, this will cause electricity rates to rise more quickly than usual.
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NerdWallet is written by Whitney Vandiver. [email protected] is the email address.
NerdWallet first published the article, “The Solar Tax Credit Is Ending: What That Means for Homeowners.”
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