You’ve probably seen the headlines by now: the 30% federal tax credit for residential solar installations is set to expire at the end of 2025. If you’re a homeowner wondering whether it’ll still make sense to go solar in 2026 (or 2027), here’s the short answer:
Yes, it can — as long as the system is set up under the right structure.
Here’s what you need to know.
Beyond 2025: The Tax Credit Nobody’s Talking About
The solar tax credit that you’re already familiar with — the one that’s going away — is called the Residential Clean Energy Credit (Section 25D). It allows homeowners to claim a 30% tax credit on the cost of purchased solar and battery systems. This credit is set to expire on December 31, 2025.
There’s also another solar tax credit called the Investment Tax Credit (Section 48, or the “ITC”). Unlike 25D, this credit doesn’t expire until the end of 2027 — and in some cases, it can provide even greater benefits. Here’s how it works…
From a homeowner’s perspective, the key difference between the two credits is that 25D (the one that’s expiring) applies only to residential systems you purchase outright. By contrast, the ITC is designed for commercial solar installations. So why bring up commercial rules when we’re talking about your home? The connection comes through something called Third Party Ownership (TPO) models, such as prepaid Power Purchase Agreements (or prepaid PPAs).
So what does all this mean for homeowners? Even after 25D expires, there’s still a pathway to capture the 30% credit in 2026 and 2027 — if the system is set up under the right structure.
That’s where prepaid PPAs come in.
What is a “Prepaid PPA”?
A prepaid PPA is a type of agreement that lets homeowners enjoy the benefits of owning a solar system — including the 30% tax credit — while the system itself is technically owned by a third party.
Here’s how it works: with a prepaid PPA, you don’t own the system outright. Instead, you make a one-time upfront payment that covers 20–25 years of solar production. Unlike a loan or traditional lease, this means there are no ongoing monthly payments for the system itself. A third party — usually your solar provider or their financing partner — owns and maintains the system during that time. Because they are the legal owner, they claim the tax credit under Section 48, but they pass a portion of those savings back to you in the form of lower overall cost. After six years, ownership of the system is transferred to you at no additional cost.
The exact discount a homeowner receives through a TPO model depends on how much of the federal incentive the financing partner can capture. That value increases if the project qualifies for “adders” under the commercial Investment Tax Credit — specifically, when it uses Domestic Content materials or is installed in an Energy Community. In those cases, the total credit available to the financier can exceed 30%, allowing a larger portion of the savings to be passed through to the homeowner.
Here’s how the different incentive types affect your out-of-pocket cost:
| Incentive Type | 25D Residential Tax Credit (30%) | Prepaid PPA “Standard” (23–30%) | Prepaid PPA with “Bonus Adders” (35–39%) |
| Gross Project Cost | $50,000 | $50,000 | $50,000 |
| Incentive / Discount | Up to $15,000 | $11,500 to $15,000 | $17,500 to $19,500 |
| Net Cost to Homeowner | $35,000 | $35,000 to $38,500 | $30,500 to $32,500 |
There’s a lot of flexibility in how prepaid PPAs can be used to pay for residential solar. They can be structured as part of a cash deal, making it feel almost identical to an outright purchase. Or they can be paired with a traditional loan, where the amount you borrow is reduced by what the prepaid PPA covers — resulting in a much lower monthly payment.
What This Means for Homeowners in 2026 & 2027
If you’re planning to go solar after the 2025 deadline, here’s what you need to know:
- You still have viable
- The solar tax credit is still within reach through a TPO structure like a prepaid
- Solar is still a strong financial investment — structure just matters more than
A Clear Path Forward
We understand that shifting solar policies can feel overwhelming. Deadlines, acronyms, and financing options all add layers of complexity — making it hard to know what’s best for your home. That’s where our team comes in.
At Vital Energy, our team is here to simplify the process and help you make a clear, informed decision about whether solar is the right fit for your home.
Reach out today to connect with one of our energy consultants and explore the path that makes the most sense for your home.