Why Your Business Can’t Afford to Wait to Leverage the Federal Solar Tax Credit
If you’ve been following the news, you’ve likely heard about the recent passage of the “One Big Beautiful Bill” (OBBB). Included in the bill is the rapid sunsetting of federal tax credits for clean energy projects like solar.
While the residential tax credit for solar ends at the end of 2025, businesses still have a limited window to secure the full 30% Investment Tax Credit (ITC), a key driver of solar project affordability and return on investment.
Even if your business is just starting to consider solar, now is the time to act. The OBBB has changed the solar investment landscape, and understanding its provisions and deadlines is critical to maximizing both your cost savings and long-term energy resilience. Here we provide a concise overview to help your organization understand the basics.
The Federal Solar Tax Credit: What Is It, and When Is It Ending?
The ITC provides a dollar-for-dollar tax credit equal to 30% of the total solar investment project cost. For example, a $100,000 solar installation would provide a tax credit equal to $30,000 in the first year the system is operational.
Beyond lifting the value of the ITC to its highest historic rate, the Inflation Reduction Act of 2022 expanded the ITC by offering additional enhancements:
Bonus credits for projects that meet certain criteria (e.g. domestic content), allowing eligible projects to receive more than a 30% tax credit.
Tax credit transferability and direct pay provisions invited organizations like non-profits and others without tax appetite to participate and monetize the tax credit by either selling it or receiving a cash payout instead (non-profits).
Under the OBBB:
Residential solar tax credits have the shortest timeline, requiring projects to be completed by December 31, 2025.
Commercial solar projects have a longer window to qualify for the tax credit: they must be installed and placed in service by December 31, 2027. Businesses can extend this timeline by using the safe harbor provision, which requires signing a contract and either starting physical work or making a minimum 5% financial investment by July 4, 2026. If safe harbor requirements are met, the project has until December 31, 2030, to be completed and placed in service while still maintaining tax credit eligibility.
Foreign Entity of Concern (FEOC): The OBBB introduces new restrictions on using solar products made in certain countries, specifically China, Russia, North Korea, and Iran. Starting in 2026, no more than 40% of the total value of manufactured system components can come from these countries in order for the project to qualify for the ITC.
Projects that begin construction before the end of 2025 are exempt from these restrictions. That said, reputable and experienced providers like SunPeak will be able to meet these provisions and document compliance to keep your project’s ITC eligibility safeguarded.
Once these deadlines pass, the federal solar tax credit will no longer be available. While some state and local incentives will certainly remain, the opportunity to combine them with the ITC, thus maximizing the financial impact of incentives, will disappear.
Can State and Local Incentives Be Combined with the Federal ITC?
Yes, and in some cases, local incentives are significant. For example, Illinois offers very strong financial incentives that can be combined with the federal ITC. It is not uncommon for commercial solar system owners in Illinois to offset their solar system cost by 50-100% when all incentives have been applied.
SunPeak has over a decade of commercial solar development and installation experience, working across the Midwest and beyond. Our team will help your business identify and secure available local incentives to ensure you maximize your project’s return on investment.
What is the Development and Construction Timeline for a Commercial Solar Project?
(How Soon Does My Organization Need to Act to Secure the ITC?)
Like other construction projects, commercial solar installations require time for engineering, permitting, procurement, installation, and utility coordination. While small systems may be completed in a few months, larger or more complex projects can take 6–12+ months from initial proposal to energization.
To ensure your business can access the ITC, action is essential. By starting the process now with an experienced provider like SunPeak, you’ll be able to secure your tax credit while having more flexibility to explore available financing options and secure your place on the construction schedule before key deadlines pass.
If My Business Needs Financing for a Solar Installation, Are There Options Beyond a Loan?
If you’re interested in solar but not ready to purchase a system outright, there are other financing options available. Depending where your business is located, your organization may consider third-party system ownership. A popular option is a Power Purchase Agreement (PPA).
With a PPA:
A third-party investor owns and pays for the solar system, and receives the tax credit
Your business hosts the system at your site and purchases the electricity the system generates for a lower, locked-in rate than your current utility rate
PPAs are ideal for organizations that:
Prefer to avoid capital outlay
Don’t have a tax appetite or the desire to manage tax credits or incentives
Don’t want responsibility for system maintenance
SunPeak can help you understand your financing options and connect you with financing or PPA partners, if desired.
What Changes Are Expected After the ITC Ends?
Without the ITC, energy prices are expected to rise sharply. Utilities are likely to slow solar deployment and rely more on their existing, costlier energy production sources like coal and natural gas, which will push electricity prices higher. Concurrently, rising demand for energy and ongoing grid constraints are also expected to keep upward pressure on prices. Analysts forecast a national average increase of 7% for retail electric rates after the ITC ends, with some states like Illinois potentially seeing hikes of 20% or more (CEBA, 2025).
As utility rates rise, having solar is a powerful hedge against these and other inflationary electrical price increases. While the economics of solar will still make sense after the ITC goes away, businesses that want the best return on investment need to act now. The ITC is still available for a limited time, and projects started soon will benefit from leveraging all available incentives and securing protection against rising energy costs.
What Else Should Businesses Know About the One Big Beautiful Bill?
The OBBB includes other key provisions that may impact solar projects:
Accelerated equipment depreciation benefit available with the OBBB passage. For solar projects that begin construction after January 19, 2025, system owners now have the option to fully depreciate their solar asset in the first year of operation. This accelerated depreciation benefit further enhances the investment payback.
Transferability and direct pay benefits are still available for organizations without tax appetite. Businesses can still sell their tax credit to investors, and non-taxable entities (non-profits) can receive a direct cash payment in place of a tax credit.
Bonus credits (tax credit adders) will remain available. SunPeak will help you determine if your project qualifies for these credits.
Battery storage will continue to be eligible for ITC into the future. The ITC for solar projects is ending, but battery storage projects will remain eligible for the full 30% ITC if construction begins by the end of 2033; after that a phased-down credit begins. If your organization is interested in pursuing battery storage, it can be paired with your solar project now or it can easily be added later.
Key Takeaways
The federal solar tax credit is ending soon - December 2025 for residential solar projects and December 2027 for commercial solar projects (with safe harbor options through 2030). The time to act is now.
State and local incentives can be stacked with the ITC, making solar projects even more affordable, sometimes at little to no net cost depending on the project’s location and characteristics.
Planning early ensures access to incentives and avoids delays tied to permitting, utility coordination, and material availability.
If you can’t fund a system upfront and a loan isn’t desirable, options like PPAs can help you to benefit from solar with no capital investment or maintenance burden.
After the ITC ends, electricity prices are expected to rise, making the economics of solar even stronger for those who invest now.
SunPeak is here to guide you. With more than a decade of high-quality commercial solar development and installation experience, we’re ready and able to help you obtain a solar PV system that suits your needs while helping you leverage available tax and financial incentives before they expire.