In July, Congress passed H.R. 1, the federal budget reconciliation bill. Unfortunately, the sweeping legislation phases out a series of clean energy tax credits. That includes two tax credits that have helped consumers significantly reduce home energy costs through solar power and energy efficiency upgrades. This Q&A gives you the details.
What credits are being phased out?
Several, but CUB will focus on two that have been popular among consumers we talk to. These tax credits, which were created and/or extended by the 2022 federal Inflation Reduction Act, will be eliminated at midnight Dec. 31, 2025:
- The “Residential Clean Energy Credit” (section 25D of the U.S. Tax Code) helps consumers recoup up to 30 percent of the costs of energy-saving projects, like installing rooftop solar and system batteries. (You must own your panels to receive the tax credit.)
- The “Energy-Efficient Home Improvement Credit” (section 25C of the U.S. Tax Code) helps people recoup up to 30 percent of the cost (up to $1,200/a year) for energy-saving projects, like a professional home energy audit; installing insulation; door, window and electric panel upgrades; and installing a high-efficiency air-conditioning unit. (There’s an additional credit of up to $2,000 available for buying an electric heat pump or heat pump water heater.)
Why does CUB support the tax credits?
Programs that support solar and efficiency are cost-effective investments that have benefits far beyond the individual consumers who use them–including helping to lower energy prices for everyone and strengthening the power grid to prevent costly outages. Energy Innovation, a nonpartisan energy and climate policy think tank, estimates the federal legislation will increase household energy spending in Illinois by an average of more than $190 per year in 2030 and more than $400 per year in 2035. (Across Illinois, households will have to cover $12 billion in increased energy bills through 2035.)
If I’m considering installing solar or making energy efficiency upgrades, what should I do?
If you are interested in taking advantage of the solar tax credit, CUB recommends that you explore if it’s realistic to install solar panels before the end of the year. The same goes for the energy efficiency tax credit and potential efficiency upgrades to your home.
The understanding right now is that a solar installation must be fully completed before the end of the year to qualify for the credit. (Other solar industry observers have said signing a contract or placing a deposit is likely insufficient to qualify for the credit.) The same goes for energy efficiency upgrades–they must be completed before the end of the year.
While we encourage homeowners to move forward, keep in mind that a lot of other people will be trying to do the same thing to take advantage of the tax credits–so there are no guarantees that your solar system will be completed in time.
Also, in the wake of this legislation, CUB has lingering questions about how the provisions concerning the end of tax credits will be implemented. For example, the IRA allows consumers to roll over any excess tax credits to future years–it is unclear if that will be possible under the changes in the reconciliation bill. CUB will update consumers whenever we learn more.
Will solar and energy efficiency still be a good deal after the credits are eliminated?
Absolutely, but this definitely is a setback. A Chicago Tribune report quoted a solar business owner who described the federal bill as “pretty catastrophic” for residential solar. Clean energy industry observers have predicted tens of thousands of job losses, and a director at the financial research firm Rhodium Group said the bill will lead to 30 percent to 60 percent less clean power added in Illinois by 2035, although it could be even worse nationwide.
The tax credit and Illinois-specific incentives meant that a typical solar customer could pay back their investment in 5 to 8 years–but, unfortunately, that payback period will increase with the elimination of the credits.
Still, a big plus for Illinois is its strong state energy policy, including the Climate and Equitable Jobs Act (CEJA), which sets a goal of 100 percent, clean, affordable electricity by 2050. No doubt, the loss of the tax credit makes it harder for people to connect to solar power, but state and utility incentives still significantly reduce the costs. Thanks to CEJA, Illinoisans still have access to Illinois Shines and Illinois Solar for All, two state programs that offer incentives to solar customers. In addition to these incentives, ComEd and Ameren also offer limited solar generation rebates.
Are there other provisions I should know about?
Yes:
- Tax credits to support solar power applications for heating water are also ending for both businesses (48E) and individual consumers (25D).
- A tax credit (section 48E of the Tax Code) available for panels owned by solar businesses–including those building large solar projects–will stay in place a bit longer. This credit, 30 percent or more, is for businesses that typically allow consumers to enter into a leasing arrangement or Power Purchase Agreement in which the homeowner doesn’t own the panels. In such arrangements the customer wouldn’t get the tax credit directly, but the solar company would (hopefully) share the benefit with the customer by reducing the cost of the lease or PPA. It can get confusing–make sure to communicate with your solar installer about these deadlines:
- Projects that “commence construction” after December 31, 2025 must comply with eligibility rules related to “foreign entities of concern” (such as China) and payments to such entities. (For more info about “foreign entities of concern,” here’s a good resource by The Tax Law Center: Navigating OBBBA: phaseouts, prohibited foreign entity rules, and other new rules.)
- Projects that “commence construction” before July 4, 2026 will have four years to be placed in service, in order to qualify for the credit. Projects that “commence construction” after that date must be placed in service before the end of 2027 to qualify for the credit.
- The Department of Treasury has released updated guidance on what “commence construction” means for purpose of qualifying for the clean energy tax credit. (Here’s Utility Dive reporting about it, and here’s the actual guidance.)
- Section 48E also kept its tax credit for battery storage, which will stay in place through 2033.
- Manufacturing tax credits (45X of the Tax Code), for businesses that produce panels in the U.S., will stay in place through 2032. However, there are complex “Foreign Entities of Concern (FEOC)” rules that will block the credit from certain manufacturers that have U.S. factories but are also connected to a foreign country, mainly China. A related provision being phased in beginning in 2026 will also restrict non-FEOC companies from how many FEOC-connected components it can have in a solar project.
- Tax credits for new (30D) and used (25E) electric vehicles end on Sept. 30, 2025.
- An energy efficient home credit (45L), designed to incentivize builders to construct new, energy efficient homes and apartments, ends after June 2026.
These provisions are expected to have a significantly negative impact on the solar industry, and the clean energy industry in general. There’s also fear of how this will impact other innovative programs in Illinois, such as community solar. Stay tuned for more updates.
In the meantime, check out these helpful resources:
- A list of tax credits and when they expire, from Rewiring America
- Navigating H.R.1: Resources for Residential and Commercial Solar Projects, from the Illinois Power Agency
- Navigating OBBBA: phaseouts, prohibited foreign entity rules, and other new rules, from The Tax Law Center
- IPA Fact Sheet: Credits and Rebates for Installing Solar
- IPA Webinar (Sept. 26, 2025): The One Big Beautiful Bill Act—What it Means for Clean Energy, Tax Credits, and the Road Ahead
