How does HR1 change the residential solar ITC?

HR1 alters most solar-related tax credit from the Inflation Discount Act, however residential photo voltaic cuts are essentially the most abrupt. The legislation ends the 30% homeowner-collected funding tax credit score (25D) for rooftop photo voltaic + storage installations on the finish of 2025.

The positive print modifications the previous IRA textual content to finish the credit score for tasks “positioned in service after December 31, 2034,” to “any expenditures made after December 31, 2025.” Whereas at first look that change seems to deal with fee, Christopher McLoon, tax lawyer at Cozen O’Connor, says this really means all the set up have to be accomplished by Dec. 31, 2025.

“IRS steerage on this query (in Notice 2013-47) states that ‘expenditures made’ means expenditures paid or incurred for property put in. Expenditures are handled as ‘made’ when the property is put in, not earlier than,” he stated.

Taxpayers can carry ahead any unused incentives into future tax years as wanted even after the credit score expires.

All the identical phrases apply to incentives for standalone residential storage tasks, which additionally finish on December 31, 2025.

One grey space might give residential photo voltaic and storage tasks barely extra runway. The legislation doesn’t specify that the challenge have to be interconnected by yr’s finish, so tasks that may be totally put in by December 31 however can’t interconnect to the grid till after that date might nonetheless doubtlessly acquire the ITC.

“The legislation states that the credit score is out there for expenditures made for property that’s ‘positioned in service.’ The time period ‘placed-in-service’ means to be in a situation of readiness and availability for a particularly assigned perform. It appears affordable to say that, as a normal rule, if a property is prepared for use for its supposed goal topic solely to a PTO (permission to function), that it has been positioned in service. This query can solely be answered primarily based on the details of a selected case,” McLoon stated.

The entire above applies to the ITC collected by householders who put money into photo voltaic and storage tasks by way of money or loans. Third-party-owned residential photo voltaic corporations that lease tasks to clients can nonetheless acquire the 48E ITC, and will then doubtlessly move that financial savings all the way down to clients by way of cheaper installs. 48E tasks have an extended runway — they have to begin building by July 4, 2026, and have to be positioned in service earlier than December 31, 2027, to gather the credit.

The residential ITC has been getting ready to expiring many occasions however has all the time been prolonged. Now, with a tough cease and three extra years of President Donald Trump’s presidency, federal dwelling photo voltaic incentives could also be gone for some time.

“The one lasting change can be one made with robust help from Democrats and Republicans,” McLoon stated. “With out help from each of these events, any change by Democrats may very well be undone, because it was in OBBB, by way of a funds reconciliation course of.”