This is part one of a two-part blog series. Part one discusses the residential solar tax credit for homeowners. Part two details impacts to the solar tax credit for businesses, municipalities, and schools.
Trump’s “One Big Beautiful Bill Act” (OBBBA), or what we like to call the “Bad Budget Bill”, is more than just a budget overhaul; it also marks a sharp pivot away from the nation’s recent momentum on climate action and clean energy. Rolling back major provisions of the 2022 Inflation Reduction Act (IRA), the OBBBA eliminates or weakens many policies that were driving the U.S. clean energy transition and workforce growth while reducing the cost of electricity for people and communities.
Devastating Impacts to the Residential Solar Tax Credit
First on the chopping block: the federal Residential Clean Energy Credit (25D), a key driver behind the adoption of rooftop solar by American homeowners. Since 2006, the federal Residential Clean Energy Credit has offered homeowners up to a 30% tax break on the cost of solar panel installations. For everyday people and small businesses to benefit from solar, incentives like tax credits are vitally important.
But under the OBBBA, that residential credit is now officially set to expire on December 31, 2025, years ahead of the originally-planned phase out starting in 2032. Homeowners who want to claim the 30% federal tax credit must have their solar systems installed and paid for by the end of 2025. Read more about the solar tax credit for businesses and communities in part two of this blog series.
What Should Those Interested in Solar Do Now?
If you’re even remotely considering solar for your home, now is the time to act. Get quotes from local installers, ask about installation timelines, and make sure your system will be installed and paid for by year-end. Most solar installers will offer free quotes, and you can ask to see the cost breakdown and payback period both with and without the 30% federal tax credit.
Illinois is a solar-friendly state, with incentives available for projects in addition to the federal tax credit. For example, your residential solar project is likely eligible for the Illinois Shines Program, which provides “Renewable Energy Credit” (REC) payments – an incentive that can cover up to 30% of project costs. Your solar installer will work with an “Approved Vendor” to ensure you receive these REC incentives for your project. Additionally, the utilities Ameren Illinois and ComEd have rebate programs for solar that your solar installer can help you navigate.
If you are considering solar, you should also consider energy efficiency (EE) upgrades for your home, including insulation and window sealing. Unfortunately, a tax credit for home EE upgrades is also now slated to end on December 31, 2025, thanks to the OBBBA, so time is of the essence.
What Options Are Available After December 31st, 2025?
If it turns out you can’t move fast enough to meet the December 31 deadline, you still have solar options! Depending on your situation, purchasing solar may still make sense financially, even without the federal tax credit, especially with the Illinois Shines and Utility cash incentives. If it doesn’t pencil out, you can explore community solar, lease, or power purchase agreement (PPA) options.
Community Solar – Community solar allows you to subscribe to a shared solar array, usually located off-site, and receive bill credits for the energy it produces. It’s always been a great option for renters, condo owners, or anyone who can’t install panels on their roof. While you won’t own the panels, you’ll still benefit from lower electricity bills and the environmental perks of solar. Illinois has a robust community solar program supported by state policy and recent capacity expansions, and more projects are expected to come online in the next few years. Learn more about community solar with our friends at Citizens Utility Board.
Lease and Power Purchase Agreements (PPAs) – Solar leases and PPAs are financing options that allow homeowners to go solar with little or no upfront cost. In a lease, you pay a fixed monthly fee to use the solar system. In a PPA, you pay for the electricity the system generates at a set per-kWh rate (usually at or lower than your utility rate). Under these systems, the developer (third party) owns the system and claims the commercial tax credit, which isn’t set to expire until 2027. Carefully review contract terms and understand the long-term obligations of lease and PPA options.
State Action on Clean Energy and Climate
The clean energy transition continues on despite the OBBBA— we’re just taking a really long detour that will cost ratepayers money and precious time toward climate mitigation. Luckily, Illinois’ detour is already not as long as other states, and we can work to shorten it.
Illinois policy makers should consider solutions that will help shore up state solar incentives and bring the cost of solar down, including:
1) Streamlining and expanding state funding for renewable energy
2) Offering equitable financing models;
3) Streamlining local permitting which will help counteract the loss of federal tax credits; and
4) Passing the Clean and Reliable Grid Affordability Act, which should be back at the Illinois legislature this fall for Veto Session.
Illinois can continue to lead on climate action and the clean energy transition, providing a model for future federal policies. Let’s work together and show them how it’s done!
