For many years, the 30% federal investment tax credit (“ITC”) for going solar has been utilized by residents and businesses alike. Few people were aware that the vehicle for the residential credit (26 U.S.C. § 25D1) was totally separate from the one for business (26 U.S.C. § 48E2). The July passage of H.R.1, better known as the One Big Beautiful Bill Act (“OBBA”)3 made this distinction imperative by ending the residential ITC at the end of 2025 and keeping the business ITC around through 2027. The effect is that systems owned by businesses will be eligible for a 30% tax benefit that systems owned by homeowners will not.
This change represents a huge short-term boost for purveyors of solar leases and power purchase agreements (“PPAs”), whose third-party ownership (“TPO”) products will become substantially less expensive on a relative basis. Solar financiers have responded by discontinuing their loan products and introducing TPO products in their place4. For those going solar in 2026 or 2027, buying a residential solar system either outright or through a loan has suddenly become an economically inferior option. What about homeowners who want to own their solar system?
Enter the Deferred Ownership Model, an arrangement where ownership of a solar system begins with a business who, after absorbing the tax benefits, will transfer that ownership away. It’s a realm where the solar industry already has lots of experience with firms like Collective Sun that have been helping nonprofits indirectly reap solar tax benefits for over a decade5. Big industry players like Sunrun, Tesla, and LightReach have already gotten on board by adding year-6 buyout options to their existing TPO products6.
Figure 1: Nova Solar installed this system at All Saints Lutheran Church, who used a Collective Sun Prepaid PPA to cut 15% off the would-be cash price.
That still leaves out the would-be cash customers who value system ownership and don’t want yet another bill to have to pay for the next five years. For these folks, the answer has arrived with the emergence of Prepaid Deferred Ownership. Not technically new, this product has historically been used by companies like Sunnova to get bonus depreciation and other non-ITC benefits derived from commercial ownership. Now, all those benefits and the ITC are being wrapped together and indirectly passed to homeowners who can’t otherwise enjoy the benefits themselves.
The IRS is, of course, no dummy and not a big fan of tax loopholes. As such, they aren’t about to allow a day two, no-strings-attached ownership transfer fly and have rules to ensure that businesses claiming ownership of residential systems have skin in the game. The rules include: i) the business must hold the property for at least five years7, ii) buyout options must approximate fair market value8, iii) title transfers must not be automatic, iv) the term must be shorter than the expected useful life of the system9, and v) the service provider must bear benefits and burden of ownership10, which for solar essentially means that a production guarantee must be provided.
For homeowners, the only real downside is having to wait five years before taking title of the system. The other IRS rules essentially serve as legally required benefits. Production guarantees make system outages, which the customer is entitled to reimbursement for, the solar company’s problem. Residents also get to avoid the uncertainty and rigmarole of qualifying and filing for the tax credit then waiting several months to get those thousands back. Instead, solar companies must compete to efficiently bridge the waiting period, digest those benefits and serve it all together in the form of a lower upfront price.
Many of the forthcoming Deferred Ownership products are still in development and will not be available until early next year. For homeowners wanting to get ahead of the pack, Nova Solar is now offering an in-house prepaid PPA that will be available to approximately 90 customers (we only have so much tax liability to offset) on a first-come, first-served basis. If you’re interested, you can fill out our Free Quote Form.
1 26 U.S.C. § 25D (2025) — Residential Clean Energy Credit
2 26 U.S.C. § 48E (2025) — Clean Electricity Investment Credit
3 U.S. Congress. H.R. 1: One Big Beautiful Bill Act, 119th Cong., 1st Sess., signed July 4, 2025
4 DiGangi, Diana, Solar industry looks to third-party ownership as 25D tax credit winds down, Utility Dive (Sept. 4, 2025)
5 “About Us,” CollectiveSun, https://collectivesun.com/about-us/
6 Tesla Energy [@TeslaEnergy]. “New Tesla Lease now available in the US”, October 2, 2025, X (formerly Twitter)
7 26 U.S.C. § 50 (2025) — Other special rules
8 IRS Rev. Rul. 55-540, 1955-2 C.B. 39
9 IRS Issues Guidance on Advance Rulings for Leveraged-Lease Transactions,” TaxNotes (Tax & Accounting)
10 Frank Lyon Co. v. United States, 435 U.S. 561 (1978), Cornell Legal Information Institute
