Solar leases and the federal tax credit: What you need to know

When comparing your solar financing options, one question that often comes up is whether you'll be able to take advantage of tax incentives. The answer largely depends on who owns the systems on your roof. 

The federal solar investment tax credit (ITC) expires for purchased systems installed after December 31, 2025. For most homeowners looking to buy, this credit is no longer accessible due to limited installer capacity through the end of the year. 

But if you're considering a solar lease or power purchase agreement (PPA), the tax credit landscape works differently. These third-party-owned systems still qualify for commercial tax credits (Section 48 of the U.S. tax code) for systems that begin construction before July 2026 or are placed in service before January 2028. The right provider should pass some of those savings on to you through lower monthly rates, making leasing a financially attractive option for many homeowners.

When you lease solar panels or sign a PPA, you don't own the system on your roof. The solar company does. This means you can't claim the federal tax credit yourself—the leasing company receives it instead.

This used to be a major strike against leasing. You'd miss out on thousands in tax savings while paying monthly fees to the solar company. It felt like leaving money on the table.

But the market has shifted. While purchased systems will no longer qualify for the federal residential tax credit after December 31, 2025, solar leases and PPAs are the only installations that still qualify for tax credits. The solar company captures those credits and—depending on who you choose—they should pass some of the value to you through lower monthly rates.

The tax credit hasn't disappeared for residential third-party-owned solar panel systems. In fact, the post-tax credit landscape for purchased systems has encouraged more innovation in the solar leasing and PPA space, which may benefit homeowners who prefer not to own their systems. Competitive leasing providers will use tax credit savings to sweeten the deal for homeowners.

The financial gap between owning and leasing solar is narrowing, but the decision still comes down to how you value upfront costs versus long-term savings. Purchasing your system outright has always delivered the highest return over 25-30 years. Without the federal tax credit, your savings are somewhat diminished, but ownership still typically comes out ahead in the long run.

When leasing becomes more competitive

Solar leases and PPAs are gaining ground because they address a real problem: Not everyone has $29,649 available—the average quoted system cost on EnergySage—and not everyone wants to take on debt. When you lease, you start saving immediately without tying up capital or taking on a loan payment. The solar company owns the system, handles all maintenance, and you simply pay a monthly fee that's typically lower than what you'd pay your utility.

Here's where the math gets interesting. With the median interest rate on solar loans currently at 7.5% according to EnergySage data, the monthly payment on a financed system can be steep. A lease payment might actually be lower than a loan payment for a comparable system, especially in the early years. You'll still typically save less over the system's lifetime with a lease—the solar company takes its cut—but your month-to-month cash flow may be more favorable.

The commercial tax credits that leasing companies can still claim help narrow this gap further. When a provider passes those tax benefits through as lower monthly rates, leasing becomes even more competitive with high-interest loans. You're essentially benefiting from a tax credit you couldn't claim yourself.

Making ownership work for your budget

If you want to own your system but are concerned about high loan payments, there are ways to make the numbers work better in your favor. Your credit score plays a huge role in determining your interest rate, which directly impacts your monthly payment and how much you'll ultimately pay for your system.

"If you do decide to finance, make sure that your credit score is in a good place because that's going to have a dramatic effect on what interest rates lenders are willing to lend to you at," said Jordan Naffa, director of financial planning at Arista Wealth Management. "The better your credit, typically the lower the interest rate is. So you want to make sure that you're building up your credit to ensure that you're getting the best deal possible."

Even small improvements to your credit score can translate to meaningful savings over the life of a 15- or 20-year loan. If you have time before going solar, focusing on credit improvement could help you secure ownership at a more affordable monthly cost.

The trade-offs worth considering

Ownership still offers advantages that leasing can't match. You'll save more in the long run, increase your home's value, and have complete control over your system. But these benefits can come with higher upfront or monthly costs, depending on whether you pay cash or finance.

Leasing flips this equation. You'll save less overall, typically won't increase your home value, and don’t gain true energy independence—but you'll preserve your capital, potentially have lower monthly payments than a loan, and let someone else worry about maintenance. For homeowners who value flexibility and simplicity, or those with limited tax liability to begin with, this trade-off often makes sense.

While the federal tax credit is no longer available for purchased systems after December 31, 2025, many states offer their own tax credits, rebates, and ongoing savings incentives that can significantly reduce your solar costs. These state-level programs can determine whether buying or leasing makes more financial sense for your specific situation.

Tax credits and rebates

State tax credits work similarly to the federal credit—they're dollar-for-dollar reductions of your state tax bill, and you'll only receive them if you own your solar system. If you lease, the solar company may be eligible to claim state commercial incentives, but you typically won't be able to claim residential credits yourself—although New York is an exception. States like South Carolina, Arizona, and Massachusetts offer substantial tax credits that can reduce your installation cost by thousands, making ownership very attractive.

Cash rebates are similar. Many states and utilities offer upfront rebates that directly reduce your installation cost. These typically go to the system owner, so if you lease, you won't receive them—though some leasing companies may factor utility rebates into their pricing. States like New York, Rhode Island, and Maryland have particularly generous rebate programs that can make a significant dent in your upfront costs if you purchase.

Ongoing savings incentives

Beyond tax credits and rebates, net metering policies and Solar Renewable Energy Credits (SRECs) can also tilt the math in favor of ownership. Net metering allows you to receive credits from your utility for excess power your system sends to the grid, effectively spinning your meter backward. If you own your system, these credits show up on your utility bill as savings. With a lease or PPA, the economics are built into your monthly payment, but you don't see the direct benefit.

In states with SREC markets—like New Jersey, Pennsylvania, and Washington D.C.—you can earn substantial income by selling certificates for the solar energy you produce. These payments only go to system owners, not lessees. In some markets, SREC income can add up to thousands of dollars over your system's lifetime, representing a meaningful chunk of your total return on investment.

Before deciding between leasing and buying, research the incentives available in your state. If you're eligible for a healthy state tax credit, a cash rebate, and have strong net metering or SREC programs, the math may swing decisively in favor of ownership.

With the federal solar tax credit expiring for purchased systems after December 31, 2025, the solar financing landscape has shifted. Solar leases and PPAs continue to qualify for commercial tax credits, making them the only way to indirectly benefit from federal tax incentives going forward.

This doesn't automatically make leasing the "best" option. Ownership still delivers higher long-term savings for most homeowners, and state incentives can help offset the loss of the federal credit. But leasing offers real advantages for homeowners who value capital flexibility, want zero maintenance responsibilities, or simply prefer lower monthly payments to the prospect of a high-interest loan.

The right choice depends on your financial situation, your state's incentive landscape, and what you prioritize. Compare multiple offers, understand the trade-offs, and choose what aligns with your goals. If you're unsure which path makes more sense for your specific situation, our team of Energy Advisors can walk you through your options and help you evaluate whether buying or leasing is the better fit.