What are the eligibility rules and phaseouts for clean energy tax credits expiring or changing in 2026?
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Executive summary
Major residential clean-energy credits created or expanded by the Inflation Reduction Act (IRA) are being accelerated toward termination in 2026: homeowner-facing credits like the Residential Clean Energy Credit (30% of qualified costs) and annual Energy Efficient Home Improvement Credit (up to $3,200/year) effectively end for most consumer expenditures after Dec. 31, 2025 or become unavailable for installations after that date, while several business-oriented credits (45Y/48E production and investment credits for wind and solar) face tightened “begin construction” and placed‑in‑service windows with a July 4, 2026 construction cutoff to preserve eligibility and a Dec. 31, 2027 placed‑in‑service deadline for projects that start later [1] [2] [3] [4].
1. What’s ending for homeowners: a hard stop, not a slow fade
The federal Residential Clean Energy Credit — the 30% credit for rooftop solar, geothermal heat pumps, batteries and similar residential systems — must generally be claimed for property installed and placed in service by Dec. 31, 2025; guidance and multiple outlets report the Practical effect of the One Big Beautiful Bill Act (OBBBA) is to terminate that homeowner credit for expenditures after 2025, meaning customer‑owned residential credits fall to zero on Jan. 1, 2026 [1] [5] [6]. The Energy Efficient Home Improvement Credit, which had provided up to $3,200 a year and 30% of qualifying costs, is likewise curtailed for items placed in service after 2025 under the new law [2] [7]. The IRS instructions and Form 5695 commentary make clear taxpayers cannot claim residential clean energy credits for expenditures made after Dec. 31, 2025 [8].
2. Near‑term timing rules homeowners must watch
Multiple federal and state summaries urge homeowners to “use it or lose it”: systems must be installed and activated, or expenditures made, before year‑end 2025 to qualify for the credits on 2025 returns [9] [5]. The IRS explicitly treats an expenditure as made when original installation is completed; if installation completes after Dec. 31, 2025, the item generally will not qualify [4]. Some groups and local governments repeat the same deadline: installers and homeowners should document placed‑in‑service dates and manufacturer certifications to support claims [8] [10].
3. Commercial projects: a construction‑start safe harbor and new deadlines
Utility‑scale wind and solar face a different but urgent clock: commercial investment tax credits (48E) and production tax credits (45Y) survive only for facilities that begin construction on or before July 4, 2026, if developers want to preserve broader timing flexibilities — otherwise projects begun after that cutoff will generally have to be placed in service by Dec. 31, 2027 to claim credits [3] [11] [12]. Industry analyses stress that projects demonstrating “physical progress” by the July 4, 2026 date may use multi‑year safe harbors, while those starting later face an accelerated placed‑in‑service deadline [3] [13].
4. New eligibility filters — foreign‑entity rules, domestic content and FEOC limits
The OBBBA layered on new eligibility restrictions starting in 2026: credits for clean electricity and related components include prohibitions or special limits for “specified foreign entities” and “foreign‑influenced entities,” and stricter domestic‑content ratios for bonus credits will apply with escalators tied to construction year [14] [15]. Several law‑firm and industry summaries warn these material‑assistance and FEOC (foreign entity of concern) rules will materially change who can claim large taxpayer credits and add compliance burdens beginning in 2026 [3] [15].
5. What still remains and the voice of industry and tax experts
Law and tax advisers note not all IRA provisions vanished: transferability and direct‑pay mechanisms remain for certain projects, and some credits retain limited windows or carve‑outs if construction started earlier [16] [3]. But advisory firms and industry groups argue the OBBBA “significantly accelerates” phaseouts, creating planning and financing complications for developers, manufacturers and homeowners who previously relied on long sunsets under the IRA [16] [7].
6. Practical steps, limitations and open questions
Taxpayers should document placed‑in‑service dates, binding contracts and manufacturer certifications and consult a tax professional: the IRS FAQs state that contracts and payments before certain cutoffs can preserve eligibility in some cases and that registration portals or reporting deadlines for vehicle and manufacturer programs may close earlier [4] [8]. Available sources do not mention post‑2026 congressional actions to restore these homeowner credits; Treasury guidance and safe‑harbor tables are still expected and will affect how domestic content and FEOC rules operate in practice [15] [16].
Sources referenced above provide the timeline, IRS guidance and industry interpretation: homeowners — act before the end of 2025 to preserve residential credits [1] [8]; developers — meet July 4, 2026 construction thresholds or face compressed placed‑in‑service deadlines [3] [13]; and beware new foreign‑entity and domestic‑content eligibility rules that kick in for 2026 tax years [14] [15].