Breaking: Congress threatens to kill the residential solar tax credit by year’s end

The House Ways and Means Committee is considering significantly accelerating the phase-out of the residential solar tax credits, potentially setting a new expiration date of December 31, 2025—almost a decade ahead of its originally planned gradual reduction.

According to multiple industry sources, a draft bill in the House Ways and Means Committee would terminate Section 25D of the U.S. Tax Code, the residential solar tax credit, at the end of 2025. The tax credit, known to most as the Investment Tax Credit (ITC), provides homeowners with a credit toward their federal tax bill worth 30% of their full solar installation cost. Other key incentives, like the EV and energy efficiency tax credits, may also be at risk.

The ITC was formerly extended through 2034 as part of the Inflation Reduction Act (IRA), with a gradual phase-down starting in 2033. This proposal dramatically compresses that timeline, giving the industry just seven months to prepare before the tax credit completely disappears.

"If Congress eliminates the ITC without a reasonable phase-down, that's obviously going to cause immediate disruption within the solar industry," Aaron Nichols with Exact Solar told EnergySage. While the abbreviated timeline through 2025 provides some transition period, many industry professionals still consider this an extremely compressed timeframe that will create significant challenges.

The proposal is part of a much larger budget reconciliation bill moving through Congress to extend the expiring Trump-era tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA). The cuts to clean energy tax credits are being considered as a way to help pay for these tax cuts, which would cost about $4 trillion over the next decade. 

The proposal language was released Monday afternoon, with the Committee vote set for Tuesday, May 13. If it passes the Committee vote, the bill would still need to pass the House before going to the Senate for approval. The Senate would then have until its self-imposed deadline of July 4 to amend, reject, or pass the bill as is. 

This is an evolving situation, and nothing’s set in stone. There are still steps homeowners, businesses, and industry advocates can take to extend the life of these tax credits and preserve the path toward American energy independence.

The accelerated phase-out would likely trigger a surge of solar installations as homeowners rush to complete their projects before the end of 2025. Based on EnergySage quote data, for a typical residential solar panel system costing $20,552 after the ITC, losing the tax credit would mean paying an additional $8,978 after the deadline passes, significantly impacting the return on investment and payback period.

Residential systems aren't protected by safe harbor provisions, meaning homeowners must have their systems fully installed and operational by the deadline to qualify.

The proposal follows Trump illegally pausing funds for the IRA earlier this year. The funding was later resumed under court order, but Trump's threats of a full repeal have already created hesitancy among some homeowners.

"The uncertainty in the industry has already caused some people to back out," Nichols said. "Even though we've seen a lot of business with people trying to get it in before whatever happens with the credits, there's also people who are just not sure what's going to happen."

With an end date now potentially on the horizon, the industry expects both a short-term surge and then a potential contraction after the deadline passes.

While residential solar faces a significantly shortened timeline, the commercial and industrial (C&I) solar technology-neutral 30% tax credit, under Section 48E, is set to receive a more gradual phase-out: Under the current bill text, it drops to 80% of the full credit in 2029, 60% in 2030, 40% in 2031, and 0% in 2032. For some solar companies looking to adapt, leaning more into commercial solar may provide a lifeline for the next few years. 

"I think we would invest more in C&I, but I think also everyone's going to do that," said Nichols. He anticipates increased competition in the commercial sector as companies shift resources to pursue more stable tax incentives with longer timelines.

The industry landscape would rapidly transform, with many companies developing new financing models for residential customers. Companies with established leasing or power purchase agreement (PPA) models could continue claiming the technology-neutral credit after 2025, even if those systems are installed on residential properties. 

Under these models, companies retain ownership of the systems and can therefore claim the tax credits themselves. While savings are typically lower for homeowners with leasing arrangements compared to cash purchases or loan agreements, the playing field would even out if the 25D tax credit were no longer available after 2025. That means solar leasing companies will likely gain a competitive advantage once the residential credit expires.

Beyond the solar tax credits, the Section 25C energy efficiency improvements for homes tax credit is also facing a cut by the end of the year under the current draft bill. This credit currently provides homeowners with incentives for upgrades like energy-efficient windows, doors, insulation, and HVAC systems—improvements that not only reduce energy bills but also decrease overall energy consumption.

The tax credit for electric vehicles—which currently offers up to $7,500 for new EV purchases and up to $4,000 for used EVs under Section 30D—also appears to be among the incentives targeted for accelerated phase-out. The used vehicle credit would end starting in 2026. The new vehicle tax credit would end in 2027, but includes a new rule for vehicles placed in service in 2026: If a manufacturer has sold more than 200,000 "covered vehicles" in the U.S. between December 31, 2009, and December 31, 2025, their vehicles won't qualify for the credit in 2026. That means Tesla vehicles wouldn't qualify starting in 2026.

These EV credits have been instrumental in making EVs more affordable for middle-income Americans and driving adoption nationwide.

While the U.S. has made significant strides toward energy independence in recent years, ending the clean energy incentives on such a compressed timeline would slow domestic energy production and increase reliance on foreign energy sources.

The rapid growth of the American solar industry has created a pathway to true energy security—one where energy is both produced domestically and immune to global commodity price fluctuations. It has also created jobs at a rate significantly faster than the overall economy. Ending the tax credit in 2025 threatens this progress.

The incentives have expanded energy choices for homeowners, making energy independence financially accessible across income levels. "These tax credits represent democratization of energy and they represent the ability to own energy for everyday Americans," said Nichols. "A loss of them is a win for heavy industry, but a loss for the American people."

Worldwide, countries are accelerating their transition to clean energy. The incentives at stake were specifically designed to rebuild America's manufacturing base and establish leadership in emerging energy technologies. Dramatically shortening their timeline would risk ceding America's competitive edge in clean technology to international rivals, particularly China.

Industry analysts have identified four members of the Ways and Means Committee who could be influential in determining the fate of the solar tax credit:

• Nicole Malliotakis (R-NY-11) | (718) 568-2870 | Contact form

• Blake Moore (R-UT-1) | (801) 625-0107 | Contact form

• Brian Fitzpatrick (R-PA-1) | (215) 579-8102 | Contact form

• Vern Buchanan (R-FL-16) | (941) 951-6643 | Contact form

If you're concerned about these potential changes, consider taking these actions:

• Contact your representative: Especially if you live in one of the districts above, call your representative's office directly to express your concerns. You can also fill out this form to be connected with your members of Congress, regardless of where you live.

• Highlight local impact: Mention specific impacts on jobs and businesses in their districts.

• Request a longer transition: While the 2025 deadline provides some runway, advocate for maintaining the original timeline or at least extending it through 2026 to allow for better industry planning and adaptation.

If you're considering going solar, the potential 2025 deadline means the clock is now ticking. Speaking with installers sooner rather than later can help ensure your project is completed in time to qualify for the 30% tax credit. 

According to our sources, we still have a shot in the Senate, indicating that even if the House votes to approve this accelerated timeline, there may be opportunities to preserve a more reasonable phase-down in the final legislation.

At EnergySage, we'll continue monitoring this developing situation.