If you lease your solar panels, you can’t claim the solar tax credit

One of the best incentives for going solar today is the federal solar tax credit, which allows you to claim 30% of the total cost of your solar installation from your owed income taxes. As a dollar-for-dollar reduction of your income tax bill, the solar tax credit significantly reduces the cost of installing renewable energy in your home.

However, time is running out for homeowners to take advantage of this valuable incentive. On July 4, President Trump signed the "One Big Beautiful Bill" into law, which terminates the residential solar tax credit after December 31, 2025—nearly a decade ahead of its original expiration date.

This means if you spend $20,000 on a solar panel system and have it installed by the end of 2025, you'll save $6,000 claiming the credit when you file your taxes—signifcantly lowering your tax bill. But if you wait until 2026, that $6,000 savings disappears entirely thanks to Trump eliminating so many clean energy tax credits.

But if you go solar by December of this year and can still claim the credit, there's a key element to making sure you receive the tax credit: You must own your solar panel system. It doesn’t matter whether you pay upfront in cash or finance your solar panels with a loan – as long as you are the owner, you can benefit from the tax credit.

You won’t be so lucky if you lease your solar energy system, however.

If you lease your solar panels, you are not eligible to claim the solar tax credit. That's because the 30% tax savings will instead go to the leasing company who owns the panels. Whether you sign a lease or a power purchase agreement (PPA), as long as another company is the owner of your solar panel system, that company will reap the tax benefits of going solar rather than you, negating one of the biggest financial benefits of using renewable energy in your home.

However, there's been an important development for solar leases and PPAs thanks to the OBBBA. While homeowners can no longer claim the residential solar tax credit (Section 25D) after 2025, the commercial solar tax credit (Section 48E) remains available through 2027 for third-party owned systems that meet certain requirements. This means solar leasing companies can still claim some tax credits through 2027, potentially passing some of those savings on to homeowners through lower lease payments or buyout options.

Taxes aside, another issue with leasing is that if you move out of your house before your lease term is over – typically anywhere from seven to 20 years – you’ll have to find a buyer who is ok with taking over your lease payments. If the new homeowner isn’t interested in your solar lease, you’ll still be on the hook for those monthly payments until your lease expires, despite the fact that you're not the one benefiting from the solar panels anymore. 

Even though you can’t benefit from the available tax credits, there are some circumstances when a solar lease may make sense. When interest rates for financing a solar loan are relatively high like they are now, the benefit of a lease over a loan is that the monthly payment may be slightly lower. However, as a general rule of thumb, it’s typically better to own your solar panels than lease them because of the financial upside of the federal solar tax credit and the potential to have a shorter payback period if you can pay off the loan faster.

With the residential solar tax credit ending after 2025, the financial gap between owning and leasing solar panels will narrow. After 2025, homeowners who lease solar panels won't be missing out on the federal tax credit because it will no longer exist for residential systems. This may make solar leases more attractive for homeowners who don't want to take on the upfront costs or maintenance responsibilities of ownership.

As with any type of lease or financing, beware of companies promoting offers that seem too good to be true or that claim you’ll qualify no matter how low your credit score. You can get stuck with hefty fines or have additional fees tacked onto your contract if you don’t read the fine print carefully – and end up with an expensive solar agreement you can’t get out of.

With the residential solar tax credit ending after December 31, 2025, the financial landscape for solar is changing dramatically. For homeowners who want to go solar in 2025, buying equipment like solar panels outright or taking out a solar loan is still the best option to maximize savings, as you'll be able to claim the full 30% federal tax credit before it disappears.

If you're considering solar but can't complete an installation by the end of 2025, the decision between buying and leasing will be something to weigh carefully. Without the federal tax credit available to homeowners after 2025, one of the financial advantages of owning—the 30% tax credit—will no longer exist. This means leasing may become a more viable option for homeowners who prefer lower monthly payments and don't want to deal with system maintenance.

In order to set yourself up to receive the most favorable loan terms possible, one of the best things you can do is work on improving your credit score.

“If you do decide to finance, make sure that your credit score is in a good place because that's going to have a dramatic effect on what interest rates lenders are willing to lend to you at,” said Jordan Naffa, director of financial planning at Arista Wealth Management. “The better your credit, typically the lower the interest rate is. So you want to make sure that you're building up your credit to ensure that you're getting the best deal possible.”

For homeowners considering solar in 2025, the clock is ticking. As current IRS guidance stands, systems must be fully installed and operational by December 31, 2025 to qualify for the 30% federal tax credit. Installation timelines typically run two to four months, and the solar industry expects a significant rush of installations in the second half of 2025, which could lead to longer wait times for homeowners who delay their decision. So if you know you’re ready to go solar, don’t wait.