Eliminating the 30% Federal Tax Credit for Residential Solar
On July 4th, 2025, Congress eliminated the Residential Clean Energy Credit, along with ending a multitude of other federal incentives for clean energy through the enactment of the One Big Beautiful Bill Act. The tax credit for residential clean energy will be terminated after December 31, 2025, meaning all residential solar systems must be fully operating and installed by the end of 2025 to qualify for the tax credit.
The tax credit for residential solar allowed homeowners to deduct up to 30% of the cost of constructing, equipping, and installing residential solar systems from their federal taxes. The tax credit was a huge financial incentive to homeowners as it lowered costs upfront, and solar would, in turn, provide long-term savings. The credit helped accelerate renewable energy adoption across the United States. The credit’s impacting in increasing residential solar also helps offset peak power usage and grid stress that would otherwise require utilities to update infrastructure more frequently, resulting in cost savings.
However, tax credits for residential solar are going away. With the termination of tax credits, residential solar installation is estimated to drop by 42% between 2025 and 2029. As homeowners stop installing solar modules, the solar industry is also likely to be impacted, with the Solar Energy Industries Association predicting 86,000 job losses by the end of 2026.
The abrupt cancellation of solar tax credits causes major setbacks to the US solar industry, and as demand for energy increases with climate change, the need for renewable energies, like solar, is becoming increasingly important to help prevent grid failures. Rolling back solar infrastructure not only hurts individuals through increased utility rates, but it also affects utilities’ ability to mitigate impacts from climate change, which is further exacerbated by using non-renewable energy sources that will now be more heavily relied upon to meet grid demand.
What is PACE Financing
There are two types of pace financing: RPACE (Residential Property Assessed Clean Energy) and CPACE (Commercial Property Assessed Clean Energy). PACE is a program implemented and run at the state and local level that provides a long-term, low-rate loan to finance clean energy projects on residential or commercial buildings. PACE financing helps building owners overcome challenges to clean energy infrastructure by providing 100% of the financing cost upfront. PACE financing creates a super-priority lien on a property to cover the cost of clean energy improvements to a project, and the savings from the clean energy improvements would essentially help pay off the lien over time. It is important for homeowners to be aware of the financial implications of a property lien and to calculate whether the savings from renewable energy systems are sufficient to pay the loan.
Note that the PACE financing mentioned here is not the same program as the USDA’s Rural Utilities Service Powering Affordable Clean Energy (RUS PACE) program in which the USDA finances renewable and energy storage projects through partially forgivable loans.
How Can PACE Financing Fill in the ‘Tax Credit’ Gap for Residential Solar?
Although PACE differs from the tax incentive offered by the Residential Clean Energy Credit, PACE could provide another avenue to finance solar infrastructure after the tax credits are no longer available.
PACE financing is only available in select states, so it is important to find out if your state or local government has laws enabling PACE financing. In determining if PACE financing is appropriate for a project, building owners should work with qualified PACE providers to determine what would be the most cost-effective project and if PACE is advantageous to them. After applications are complete, building owners are free to begin their project with the financing through their PACE loan.
PACE is a helpful financing tool for homeowners and commercial building owners to consider because it covers 100% of the project's cost, relies on long-term financing to ensure maximum savings, lowers power costs, lowers an individual’s carbon footprint, helps reduce grid failures, and provides storm protection upgrades. With the cancellation of the federal tax credit, PACE can fill in the financial gaps that remain. Especially for those who see the cost of solar as the primary barrier to adoption, this provides another incentive for clean energy projects.
PACE does not provide a 30% tax reduction, but in a limited market for those who want to implement solar and other clean energy infrastructure, PACE is a helpful tool. Most importantly, the solar industry is likely to be impacted by the termination of solar tax credits, and PACE can help mitigate the harm that is expected. PACE can help homeowners and solar businesses overcome challenges to adopt solar.
For more information on how PACE financing, or other sources of funding, can help fund your solar projects, please contact Keith Gordon and Gelane Diamond.
Article By DWGP Summer Associate Megan Webster – The George Washington University School of Law, May 2026