Big Beautiful Bill Section 25D Amendment Analysis

        The July 4th passage of the One Big Beautiful Bill Act (“OBBA”) included the following short but significant amendment to 26 U.S. Code § 25D – Residential Clean Energy Credit¹:

SEC. 70506. TERMINATION OF RESIDENTIAL CLEAN ENERGY CREDIT.

(a) IN GENERAL.—Section 25D(h) is amended by striking ‘‘to property placed in service after December 31, 2034’’ and inserting ‘‘with respect to any expenditures made after December 31, 2025’’.

        Since then, a countless number of articles, webinars, and email blasts have touched on the effect of this change as well as other changes brought about by the OBBA. This article is limited to an analysis of the Section 25D amendment based on research and discussions with CPAs, a former IRS employee and other tax experts. This is not tax advice.

        There are three prevailing readings of the revised Section 25D. The first is the “PTO Standard”, which asserts systems must receive Permission to Operate from their local utility on or before the December 31st, 2025 deadline to qualify for the tax credit. The second interpretation is the “Payment Made Standard”, which holds that payments made before the deadline qualify and those made thereafter do not. The third reading is the “Installation Complete Standard”, which asserts that systems must have their original installation complete before the deadline to qualify. All three readings can be evaluated under the guidance of traditional interpretative tools.

Express Language

        The most obvious starting point is the tax code’s plain text², which disqualifies “expenditures made after December 31st, 2025.” The section no longer contains the words “placed in service” and never contained the words “utility”, “permission to operate”, or anything of the like. Section 25D(e)(8)(A) states “an expenditure with respect to an item shall be treated as made when the original installation of the item is completed”. Advocates of the “Payment Made Standard” interpret this to mean that an expenditure isn’t valid until the installation actually occurs (e.g. you could not claim the tax credit for a forfeited deposit). Proponents of the “Installation Complete Standard” interpret this section as effectively reassigning the year a payment was made or will be made to a different year.

Legislative Intent

        The original text, “property placed in service” first appeared in the Energy Policy Act of 2005³. The IRS added clarification, stating “You must claim the credit for the tax year when the property is installed, not merely purchased”⁴, and affirmed the same in a private letter ruling.⁵ If the legislature sought to maintain that standard, it could have left the existing language in place. The decision to change the language to “expenditure made” signifies legislative intent to move to a different standard for determining the tax year under which the credit is allowed. The greatest weakness of the “PTO Standard” or the “Installation Complete Standard” is that they require the text amendment to be read as having no effect, a judicially disfavored action known as “implied repeal”⁶.

        Similarly, the OBBA amendments to the Section 48E Clean Electricity Investment Tax Credit aim to exclude solar systems installed after 2027 and do so using the express language, “This section shall not apply with respect to any applicable facility placed in service after December 31, 2027.”⁷ To reiterate, the OBBA simultaneously injected the “placed in service” language into Section 48E while removing it from Section 25D. If the intent was to replicate the Section 48E standard, lawmakers could have simply left the existing language in place.

Tax Regulations

        Most individual taxpayers are cash basis taxpayers⁸. Under Treasury Regulation 26 CFR § 1.461-1, allowable deductions for cash basis taxpayers shall “be taken into account for the taxable year in which paid”, with separate payments being treated as separate expenditures. This regulation also provides that payments submitted by lenders shall be treated as made “when an amount is paid on the taxpayer’s behalf”.⁹ IRS Rev Rule 78-38 stipulates that both cash and credit card payments shall be treated as made when the payment is submitted¹⁰.

Feasible Enforcement

        The former IRS employee we spoke with was quick to point out how interpretative tax discussions often revolve around the theoretical question of how the tax code should be enforced rather than the practical question of how it will be enforced, noting that the IRS, especially having lost 25% of its staff in the last twelve months¹¹, favors tax interpretations that rely on routine audit tools like receipts and bank statements over idiosyncratic records that are difficult to verify or lack authority. The most farfetched aspect of the “PTO Standard” has always been that the IRS, a tax collection agency, would burden itself with validating compliance with local utility regulations, not to mention that many qualifying systems (i.e. off-grid systems) never receive PTO.

        Along these lines, proponents of the “Installation Complete Standard” assert that deferred payments, which may not be due for months or years into the future, would qualify for the credit so long as the associated system was installed in 2025¹². It is hard to imagine a world where the IRS would grant tax relief based on money that hasn’t been paid, even if a literal reading of the text could support such an argument. Conversely, the “Payment-Made Standard” sets the type of simple-to-enforce and hard-to-manipulate standard the IRS prefers: was the payment made or not?

Doctrine of Tax Ambiguity

        The doctrine of tax ambiguity holds that unclear tax statutes are to be construed in favor of the taxpayer¹³. When the IRS has not released guidance on an issue, a taxpayer is entitled to whichever reasonable interpretation is most beneficial when multiple conflicting readings exists. The presence of conflicting readings is well established in this case (see the following article excerpts below for examples).

• PV Magazine: If the homeowner pays for the installation in 2025, they could lock in the credit, even if the system is placed in service later¹⁴
• Fox News: Customers must have their system installed and acquire permission to operate by Dec 31st, 2025 in order to qualify.¹⁵
• EnergySage: You can claim the full 30% credit in the tax year your system is installed. Based on EnergySage’s conversation with a tax expert, it likely doesn’t need to be fully paid for—though, again, it’s possible that others could interpret that differently.¹⁶
• Virtue Solar: Under the new law, residential systems that are paid for after December 31st, 2025 will not be eligible for the federal tax credit (Section 25D).¹⁷
• NPR: Matusiak suggests that people sign a contract with a contractor and pay for and install the project before the end of the calendar year so that they can secure their eligibility for the tax credit.¹⁸
• Kimberly Bagley CPA: You must have the system installed and placed in service by December 31, 2025¹⁹
• NerdWallet: Homeowners who want to claim the solar tax credit for the 2025 tax year need to make a financial transaction before the new December 31 deadline²⁰

Conclusion

        The “PTO Standard” does not have any basis either in terms of statutory text or IRS guidance and should not be considered a reasonable benchmark. It has been progressively moved away from as more attention has been directed towards this issue.

        The “Installation Complete Standard” has a reasonable basis under a particular reading of Section of 25D, however it is contradicted by relevant tax regulations and by the concepts of legislative intent and practical enforcement. Nonetheless, it could be construed as a reasonable interpretation under the doctrine of tax ambiguity.

        The “Payment Made Standard” is the best reading of Section 25D considering all factors. It harmonizes the statute’s plain text, acknowledges the effect of the OBBA amendment, complies with the relevant tax regulations, and is congruent with IRS practices.

Practical Effects

        Based on our analysis, Nova Solar is no longer offering solar loans to residential customers. We want to avoid a situation where the delay of a third-party lender prevents a homeowner from receiving all or part of the ITC. For customers needing financing, we are offering upfront-payment loans through Figure Lending.

        Separately, we have partnered with the escrow, PayKeeper, to enable cash customers to realize the full benefit of the ITC without the risk of contractor prepayment. We are also guaranteeing, at our own potential expense, that customers who escrow their system’s cost by December 31 will receive the full benefit of the ITC.

Citations

1. U.S. Congress. H.R. 1: One Big Beautiful Bill Act, 119th Cong., 1st Sess., signed July 4, 2025
2. 26 U.S. Code § 25D – Residential clean energy credit | U.S. Code | US Law | LII
3. Pub. L. No. 109-58, 119 Stat. 594 (Aug. 8, 2005)
4. Internal Revenue Service. (2025, July 3). Residential Clean Energy Credit
5. Priv. Ltr. Rul. 201809003 (IRS Mar. 2, 2018)
6. Morton v. Mancari, 417 U.S. 535 (1974)
7. U.S. Congress. H.R. 1: One Big Beautiful Bill Act, 119th Cong., 1st Sess., signed July 4, 2025
8. Cash Basis vs. Accrual Basis Taxpayer, IRS VITA, § 0507–01–015
9. 26 C.F.R. § 1.461-1 (2023)
10. Rev. Rul. 78-38, 1978-1 C.B. 67
11. Martha Waggoner, “IRS staffing, budget cuts threaten 2026 filing season,” The Tax Adviser, June 25 2025
12. Bodhi, “Your top residential solar questions about the One Big Beautiful Bill—Answered,” July 28 2025
13. Madeleine Pickens v. United States, No. 23-571, U.S. Supreme Court, filed Dec. 19, 2023
14. Ben Zientara. “What do the changes in the One Big Beautiful Bill Act mean for residential solar companies?” pv magazine USA, July 8, 2025
15. Franco, Mayra. “Thinking about going solar? Now’s your last chance to claim the 30% federal tax credit.” KMPH.com, July 17 2025
16. Zagame, Kristina. “The Solar Tax Credit Is Ending—We Answer 10 Questions Keeping You Up at Night.” EnergySage, July 22 2025
17. Powers, M. “What the ‘Big Beautiful Bill’ means for solar in Virginia.” Virtue Solar, July 8 2025
18. Simon, J., & Domonoske, C. “Do you want federal money for an EV or home solar? Time is running out — fast.” NPR, July 16 2025
19. Kimberly Bagley CPA PLLC. “Going solar? The 30% federal tax credit ends in 2025.” July 8, 2025
20. Vandiver, W. “The solar tax credit is ending: What that means for homeowners.” NerdWallet, July 18, 2025