The 30% tax credit your salesperson is offering — and why it expired

Walk into enough solar sales presentations and you will still hear it: "You qualify for the 30% federal tax credit." In 2026, that statement is either technically wrong or deliberately misleading. The residential solar investment tax credit under Section 25D expired on December 31, 2025. Any salesperson quoting a 30% residential credit for a system installed this year is describing a program that no longer exists.

The confusion is profitable. It lets installers sell financing structures that depend on a tax credit the homeowner cannot actually claim. By the time the homeowner files their return and discovers the gap, the installer has already been paid.

Which credit is actually being claimed?

There are two separate federal solar tax credits. They have different rules, different expiration dates, and different eligibility requirements. Mixing them up is the core of the bait-and-switch.

Section 25D was the residential credit. It allowed homeowners to deduct 30% of the cost of a residential solar system from their federal income taxes. It expired on December 31, 2025 under the One Big Beautiful Bill Act. For residential systems placed in service on or after January 1, 2026, there is no federal residential solar tax credit.

Section 48E is the commercial credit. It is active at 30% for commercial solar systems placed in service through the end of 2026. After 2026, it phases down on a schedule set by statute. Section 48E applies to commercial entities, not residential homeowners, and it requires the taxpayer to be the owner of the system — not a lessee, not a power purchaser, and not a participant in a third-party ownership structure.

So when a salesperson says "30% tax credit" in 2026, the honest follow-up questions are: which section, which taxpayer, and what ownership structure? If the answer is Section 25D and you are a homeowner, the credit is gone. If the answer is Section 48E and you are a homeowner in a TPO arrangement, you are not the taxpayer who can claim it.

What entity holds the asset during the five years?

The commercial credit follows tax ownership, not utility ownership or physical possession. If the tax owner and the power user are different parties, the economics need a lawyer.

Third-party ownership structures like solar leases and power purchase agreements separate the tax owner from the building owner. Under a typical lease, the provider owns the system, claims the credit, and sells power back at a rate below utility pricing. The host gets lower bills and no upfront cost. In return, the provider keeps the tax credit, the depreciation, and a 20- to 25-year payment stream.

Here is the gap: the provider claims the Section 48E credit, not the building owner. The building owner gets none of the direct tax benefit. You get lower bills and no upfront cost, but the provider prices the savings into the rate in ways you cannot audit.

For a commercial building owner in Texas, this matters because the state has additional incentives that only flow to the owner. The Texas property tax exemption under Section 11.27 applies to the owner of the solar equipment. If a TPO provider owns the system, the exemption may not attach to your property assessment in the same way. MACRS depreciation also follows tax ownership. You cannot depreciate an asset you do not own.

What does the prepaid structure cost in total?

Prepayment converts a depreciating 25-year asset into a five-year cash outlay with none of the depreciation. Some TPO providers offer a prepaid lease option: you pay a lump sum upfront, lock in a low power rate, and avoid the monthly payment. It sounds like ownership. It is not.

In a prepaid TPO structure, you do not own the system. You have a contractual right to purchase power from equipment on your roof. You cannot sell the system with the building. You cannot upgrade it without the provider's consent. You cannot claim Section 48E, MACRS, or the Texas property tax exemption because you are not the owner.

The total cost comparison is straightforward. A cash purchase at $200,000 with Section 48E at 30% and MACRS over five years produces a net present cost that is typically 40% to 50% lower than the equivalent prepaid TPO structure over the same period. The provider captures the tax benefits and prices them back to you at a spread. You get simplicity. They get the arbitrage.

The 2026 to 2027 window makes this especially relevant for Texas commercial owners. Section 48E is at 30% now but phases down after 2026. MACRS bonus depreciation is still active. The Texas property tax exemption has no expiration. A cash purchase in 2026 stacks all three. A TPO structure stacks none of them for you.

What happens if you sell the building inside five years?

TPO contracts typically include a lien on the property or a requirement that the buyer assume the lease. That means a building sale triggers a negotiation with the TPO provider. The provider may require a buyout at fair market value, which they define. The buyer may refuse to assume the contract. The deal may stall while both sides argue over a system the seller never actually owned.

Some TPO contracts also include escalation clauses that increase the power rate annually. A buyer doing due diligence will find those escalations in the financials and discount their offer accordingly. The TPO structure that looked like savings in year one becomes a liability in year seven.

For a commercial owner in a growing market like Dallas-Fort Worth, where property values are rising and transaction volume is active, a TPO lien is a material encumbrance. It does not show up on a standard title search the way a mortgage does, but it shows up in due diligence, and it affects valuation.

The clean exit is ownership. If you own the system, you sell it with the building. The buyer gets the power savings, the remaining warranty, and the monitoring data. There is no third-party consent, no buyout negotiation, and no escalation schedule to explain.

The transparent alternative

DFW Solar Electric structures commercial solar as cash purchases with direct ownership. The client claims Section 48E, takes MACRS depreciation, and applies the Texas property tax exemption. There is no TPO provider in the middle, no prepaid lease with hidden costs, and no surprise lien at sale.

The numbers are disclosed upfront: system cost, expected production, payback period, and net present value with incentives included. The client sees the full stack, not a filtered version that hides the tax benefits in someone else's return.

If your salesperson is still offering the 30% tax credit in 2026, ask which section and which taxpayer. A vague answer usually means a vague deal. Talk to a solar expert who can show you the actual economics of ownership versus TPO side by side.

Sources

Section 25D Expiration: The residential solar investment tax credit under Section 25D expired on December 31, 2025 under the One Big Beautiful Bill Act (Public Law 119-21). For residential systems placed in service on or after January 1, 2026, no federal residential solar tax credit is available. Sources: IRS guidance; Solar Permit Solutions; The Green Watt; Solar Cost by State.

Section 48E Commercial Credit: The commercial solar investment tax credit under Section 48E remains active at 30% for commercial systems placed in service through 2026, with a statutory phase-down schedule thereafter. Source: Internal Revenue Code Section 48E.

Texas Property Tax Exemption: Texas Property Tax Code Section 11.27 exempts the appraised value of solar energy devices from property taxation, with no expiration date. Source: Texas Comptroller of Public Accounts.

MACRS Depreciation: Commercial solar systems qualify for 5-year Modified Accelerated Cost Recovery System (MACRS) depreciation. Source: IRS Publication 946.

Note: Cost comparisons between cash purchase and TPO structures (e.g., "40% to 50% lower") represent typical industry estimates based on standard tax benefit stacking. Actual savings vary by system size, tax position, and financing terms.