Residential Clean Energy Credit (25D) Expiration 2026: Final Claims, Carryforward, and What Solar Buyers Do Now

Is the 25D solar tax credit really over, and can you still claim it?

My read is simple: the homeowner credit is closed for new projects, but it is not closed for people who finished in time. The Section 25D Residential Clean Energy Credit paid 30% of the cost of qualifying solar, battery and similar equipment on a US home. The One Big Beautiful Bill Act, signed in July 2025, cut it off for expenditures made after December 31, 2025. Anyone who completed an installation by that date can still claim the credit on their 2025 return, carry any unused amount forward, and amend an earlier return if they missed it.

Anyone whose installer finished in January 2026 or later is in a different place. The federal homeowner credit does not apply, whatever the contract date says. This guide explains the cutoff in plain terms, how the claim and the carryforward work on Form 5695, who still benefits from the credit in 2026 and beyond, and what a household should compare when the credit is no longer in the math.

What exactly did the credit cover?

The 25D credit was broader than rooftop panels, and several of its categories ended on the same day. For most households it meant one of these:

Qualifying property	Notes
Solar electric panels	Includes inverters, wiring, mounting and installation labor
Battery storage	Capacity of at least 3 kilowatt-hours; no solar panels required since 2023
Solar water heating	Must heat water for use in the home, and not for a pool or hot tub
Small wind turbine	Residential-scale systems on or near the home
Geothermal heat pump	Ground-source systems; ended on the same date
Fuel cell	Subject to a per-kilowatt cap that made it rare for homes

The credit applied to the main home or a second home you live in at some point during the year, in the United States. Rental properties you do not live in did not qualify under 25D. That distinction trips up landlords every year, because their solar deductions fall under business rules, not this credit.

The non-solar side matters too. Geothermal heat pumps lost 25D alongside solar. The separate Energy Efficient Home Improvement Credit under Section 25C, which paid for things like insulation and air-source heat pumps, was also ended for property placed in service after 2025. If you were planning an all-in electrification project and priced it assuming both credits, redo the budget.

What does “placed in service by December 31, 2025” mean in practice?

This is where deals were won and lost, and I think it is the most misunderstood piece. Contracts, deposits and delivered panels do not count. Under the 25D rules, an expenditure is generally treated as made when the original installation is completed. For a system being built into a new home, the date is when you move in and use it.

So the practical test is: was the installation finished by the end of 2025? A signed contract in November with panels on the roof in February is a 2026 expenditure. A system finished on December 28 but waiting on the utility’s permission to operate is a closer call that I would put in front of a tax professional rather than guess, because IRS guidance focuses on completed installation and not on interconnection, yet the fact pattern matters.

A short list of what to pull together if you are claiming now:

• The signed contract and every invoice, including the battery as a separate line
• The installer’s completion or commissioning document with a date
• Proof of payment, since the credit is based on what you paid
• Any rebate or utility incentive paperwork, because some of these reduce the qualifying cost

How do you claim it on Form 5695, step by step?

For a 2025 expenditure, the claim is made on the 2025 return. The mechanics are less frightening than the form looks.

1. Add up the qualifying costs by category. Solar electric, battery storage and the rest each have their own line on Part I of Form 5695.
2. Subtract any portion that is not a qualifying cost, such as a rebate treated as a reduction in cost or non-qualifying roof work.
3. Multiply the qualifying total by 30% to get the credit for the year.
4. Compare it with your tax liability on the limit worksheet, since the credit cannot create a refund.
5. Carry the allowed amount to Schedule 3 of Form 1040, then to the main form.
6. Carry any unused credit forward on the line provided for the following year.

If the return is already filed and you left the credit out, amend with Form 1040-X and attach Form 5695. The usual window to amend is three years from the original filing date, or two years from the date you paid the tax, whichever is later. Amended refunds can take months, so file once the documents are clean.

How does the carryforward work, and who still benefits?

The credit is nonrefundable, which means it can zero out your income tax but not produce a check from the IRS. Many homeowners find this out the hard way. A household with a $24,000 system earns about a $7,200 credit, yet a family owing $4,000 in federal income tax gets only $4,000 of benefit in the first year. The remaining credit carries to the next year, and then the year after that, until it is gone.

That is the important detail for 2026 and later. The deadline closes new claims, not the use of credit you already earned. Here is how I see the different households sitting right now:

Household situation	What it means
Finished in 2025, tax bill larger than credit	Claimed in full on the 2025 return; nothing left over
Finished in 2025, tax bill smaller than credit	Use what you can in 2025; carry the rest into 2026 and beyond
Finished in 2025, did not claim yet	Amend the 2025 return or file late, and track carryforward from there
Finished in 2026 or later	No federal homeowner credit
Own a rental property with solar	Not eligible under 25D; check business-use rules with a preparer

The carryforward is only as useful as your future tax bill. Keep a one-page tracker with the credit earned, the amount used each year and the remaining balance. When the return changes hands between preparers, that tracker is what saves the credit from being forgotten.

Strategies that interact with carryforward are worth a look if you are in this position. A Roth conversion or a year of large capital gains raises your tax liability and lets you absorb more credit, a topic I cover in the stock capital gains tax guide. Conversely, an aggressive charitable year, such as the structures in the charitable remainder trust tax strategy guide, lowers current liability and slows how fast the credit is used. Neither is wrong, but the order matters.

What are the common mistakes?

Counting the contract date. I have seen this one more than any other. Homeowners sign in the fall, the panels go up after New Year’s, and they assume the credit applies. It does not.

Forgetting the battery. Storage often appears as a separate invoice line or is bundled with the panels and missed. A battery of at least 3 kilowatt-hours qualifies on its own, so a home that added storage after an earlier solar install in 2025 has a credit to claim.

Claiming more than the qualifying cost. Items such as a roof replacement are generally not eligible unless the roof is built into the solar equipment itself, such as solar shingles. Overclaiming invites a notice. If the IRS letter does arrive, the process in the tax debt relief attorney guide is a useful picture of how an exam escalates and when professional help earns its fee.

Forgetting the carryforward after year one. The balance lives on a line of the previous year’s Form 5695. If you change software or preparers and the worksheet is not carried over, the credit quietly disappears.

Treating a rental as a home. A property you rent out all year does not qualify for 25D. Business property is a different set of rules, and one worth studying if you own commercial buildings, which the cost segregation study guide walks through.

Skipping the basis adjustment. Your home basis goes down by the credit claimed. It will not matter for most families, but it does when you sell a long-held home at a large gain.

Here is a worked example of the first mistake. A couple in Arizona signs a $28,000 solar and battery contract in October 2025, expecting a credit of $8,400. Permitting and supply delays push completion to February 2026. The system works beautifully, but the expenditure is treated as made in 2026, after the cutoff, and the credit is zero. Their only recourse was earlier completion, so the lesson is to ask the installer for a written completion date before the contract is signed, not after.

What are the options after the credit, and do leases and PPAs still make sense?

With the homeowner credit gone, the question becomes how to pay. There are three broad paths, and the best one depends on your tax appetite, your credit profile and how long you will stay in the home.

Option	Who owns the system	Federal credit angle	Main trade-off
Cash purchase	You	None for new 2026 installs	Highest upfront cost, full ownership and savings
Solar loan	You	None for new 2026 installs	Interest cost, sometimes dealer fees baked in
Lease	The solar company	The owner may claim commercial credits, subject to the new deadlines	Fixed monthly payment, escalators, transfer at sale
Power purchase agreement (PPA)	The solar company	Same as lease	Pay per kilowatt-hour produced, contract length of 20 years or more

A lease or PPA is a third-party ownership arrangement. The company owns the equipment and may be eligible for commercial clean energy credits under a different section of the tax code. The 2025 law narrowed those credits too, with deadlines tied to when construction begins and when the property is placed in service, so the economics that supported low monthly payments may shrink over time. Whether any of that savings reaches you is a function of the contract, not a rule of law.

My honest take: third-party ownership is a better deal than many people expect when the credit goes away, if the contract is clean, but it is a worse deal than the ads imply. Check the escalator, the length, what happens to the contract when you sell, and whether a lien or fixture filing will appear on your title. Buyers and lenders often balk at a transfer, and I have seen sales slow down because of one.

For homeowners who do buy, the cash-versus-loan decision becomes more ordinary. Without the credit, a solar system is judged on payback from avoided electricity cost, which varies by state utility rates and net metering rules. A household paying high rates with a good roof can still see an attractive payback. State credits, property tax exclusions and utility rebates may exist where you live, so check them before you sign.

If you finance anything, pay for it in a way that does not wreck your cash flow. Using a rewards card for the deposit can add a little value, and the best cashback credit cards guide covers which cards pay on large purchases, but never carry a balance on it; the interest erases the rewards in a month or two.

Where does this leave the market, and what should buyers do?

Installers are leaning on leases, PPAs and prepaid lease structures to keep monthly costs competitive, and that pricing is less transparent than a simple purchase because the savings now depend on the installer’s own tax position.

For a buyer in late 2026, I would work through it in this order:

1. Get your electricity usage for the last twelve months. Savings come from avoided kilowatt-hours, and nothing else.
2. Ask for a cash price, a loan price and a lease or PPA quote on the same system.
3. Calculate the break-even year for each, and compare it with how long you will stay.
4. Ask each installer for the contract’s escalator, the transfer terms, the warranty length and who handles the monitoring.
5. Look up state and local incentives, and check whether your utility has changed its net metering rules, since those changes can move payback more than any tax credit.

A short checklist before you file or sign anything

• Confirm the completion date of your installation, and keep the paper
• Pull the invoices for panels, battery and any other qualifying property
• Complete Part I of Form 5695 and run the limit worksheet
• Record any carryforward and reduce your home basis by the credit claimed
• If you missed the credit on a 2025 return, amend within the three-year window
• If you are buying now, compare cash, loan and lease or PPA on the same system with the real break-even year

This article is general information, not tax, legal or investment advice. Tax law, IRS guidance, deadlines and individual circumstances change, and the rules summarized here are simplified. Confirm your situation with a CPA or enrolled agent before filing, amending a return or signing a solar contract.