You cannot claim a federal tax credit for leased solar panels, and you never could. The Residential Clean Energy Credit under Section 25D of the tax code was only available to the person or business that owned the solar equipment, so lease and power purchase agreement customers were excluded by design. That distinction now matters less than it used to: Congress ended the credit for any expenditures made after December 31, 2025, so no homeowner can claim it on a new system regardless of how the installation is financed.1Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
Why a Lease or PPA Never Qualified
Under a solar lease, an installer puts panels on your roof and you pay a fixed monthly fee to use them. Under a power purchase agreement, you pay for the electricity the panels produce rather than renting the hardware. Either way, the solar company holds legal title to the equipment. That ownership point was the whole game for the federal credit.
Section 25D allowed a credit of 30% of qualified solar expenditures, but only for the taxpayer who actually made those expenditures as an owner.2Office of the Law Revision Counsel. 26 USC 25D Residential Clean Energy Credit When the installer kept ownership, it was the company that spent the money on equipment and installation. You were a customer buying a service, not an investor buying an asset, so the company claimed the credit on its own return and you had no legal basis to claim it on yours. The IRS also required that the equipment be new and placed in service for the first time by the person claiming the credit, which independently ruled out lease and PPA customers.3Internal Revenue Service. Residential Clean Energy Credit
This wasn’t a loophole or a paperwork problem. The credit was built to offset the upfront cost of buying solar, so it belonged to whoever bore that cost. If you leased panels at any point between 2006 and 2025 and are now wondering whether you missed something on your taxes, you didn’t. The company’s credit should already be reflected in the price you were quoted.
The Credit Is Now Closed to New Installations
The Inflation Reduction Act of 2022 extended the 30% Residential Clean Energy Credit through the end of 2025. Then Public Law 119-21, commonly called the One Big Beautiful Bill, added a hard cutoff. Section 25D now states that the credit “shall not apply with respect to any expenditures made after December 31, 2025.”1Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
The IRS has clarified that the trigger is when installation is completed, not when you paid a deposit. Sign a contract and put money down in 2025, finish installation in January 2026, and the expenditure counts as made in 2026. No credit. The same termination applies to battery storage, geothermal heat pumps, small wind turbines, and every other technology that lived under Section 25D.1Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
For anyone shopping for residential solar in 2026 or later, the lease-versus-own question no longer affects your personal federal tax bill. Neither path produces a homeowner tax credit.
How a Lease Still Lowers Your Solar Costs
The homeowner credit is gone, but leases and PPAs remain financially competitive because of a separate credit that goes to the solar company. Section 48E of the tax code provides a clean electricity investment tax credit for businesses that own and operate qualifying energy equipment. Solar companies claiming this credit on third-party-owned residential systems can pass the savings along through reduced monthly payments or lower per-kilowatt-hour rates.
The practical effect is that you won’t see a line item on your tax return, but the economics of the offer already reflect the company’s tax benefit. When you evaluate a lease or PPA proposal, the honest comparison is your projected monthly payment against what you currently pay the utility. The credit you were never eligible for is already baked into the pricing. That was true before the 25D credit expired, and it’s still true now.
One caveat worth knowing: P.L. 119-21 also added new restrictions on the Section 48E business credit, including requirements tied to equipment sourcing. Those rules may affect which solar companies can still claim 48E, which in turn can influence pricing and availability of lease and PPA offers. If a provider’s own costs rise, your monthly payment may reflect that.
Buying Out a Lease Doesn’t Restore the Credit
Some lease agreements include a buyout clause that lets you purchase the panels outright at a reduced price after a set number of years. It seems logical that this would make you eligible for the credit, since you’d now own the equipment. It doesn’t work that way.
Even while Section 25D was active, the credit applied only to new, previously unowned clean energy property.3Internal Revenue Service. Residential Clean Energy Credit Panels that have been generating electricity on your roof under a lease for several years are used equipment by the time you buy them out. They fail the original-use requirement regardless of who holds the title. With 25D now terminated for expenditures after 2025, the question is doubly settled for future buyouts, but anyone who exercised a buyout in 2025 or earlier should not have claimed the credit either.
State and Utility Incentives Are a Separate Question
Many states continue to offer their own solar incentives that operate independently of the federal credit, and the end of Section 25D doesn’t automatically end those programs. Some of them are structured in ways that reach lease and PPA customers even when the federal credit does not, though eligibility rules vary widely. If you’re weighing a lease in 2026, ask your installer to itemize any state tax credit, state rebate, or utility rebate that would apply to your specific arrangement, and confirm whether the benefit flows to you or to the company.
If You Owned a System Installed Before 2026
If you owned a solar system that was fully placed in service on or before December 31, 2025, you may still have credit to work through even though you can no longer earn new credit. The Residential Clean Energy Credit was nonrefundable, meaning it could reduce your federal tax bill to zero but never generated a refund for any excess.3Internal Revenue Service. Residential Clean Energy Credit For owners whose 30% credit was larger than their tax liability in the installation year, the unused portion carries forward.
The carryforward has no expiration. You can apply leftover credit to your federal return year after year until it’s fully used. P.L. 119-21 did not change these carryforward rules, so credits earned before the termination date remain intact.1Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21 Owners in that position report the credit and any carryforward on IRS Form 5695, Residential Energy Credits, which feeds into Schedule 3 of Form 1040.4Internal Revenue Service. About Form 5695, Residential Energy Credits None of that helps a lease or PPA customer, though. Without ownership at the moment of installation, there was no credit to earn in the first place, and there’s nothing to carry forward.