Last-Minute Solar: When Is the Real Deadline for the §25D Credit?
A lack of specific guidance around a term causes confusion
Adding solar electricity to a residence can take months, even years, from initial payment until activation. Since this process can cross tax years, there is confusion about when a taxpayer can claim the §25D residential clean energy credit.
The One Big Beautiful Bill Act (OB3) Act made this determination even more critical because revised §25D(h) states that:
The credit allowed under this section shall not apply with respect to any expenditures made after December 31, 2025.
Expenditure Timing
§25D(a) states the credit is 30% of the qualified solar electric property expenditures made by the taxpayer during such year. However, §25D(e)(8)(A) requires that an expenditure be treated as made when the original installation of the item is completed. Thus, the installation date, and not the payment date, determines the tax year in which the taxpayer claims the §25D credit.
The IRS also confirmed in Fact Sheet 2025-05 that the installation date is key to the timing of the termination provision:
7. For purposes of the residential clean energy credit under section 25D, can a credit be claimed for property installed after December 31, 2025, or constructed after that date, if a taxpayer pays for the property on or before December 31, 2025?
No. Section 25D(e)(8)(A) provides that an expenditure with respect to an item is treated as made when the original installation of the item is completed. If installation is completed after December 31, 2025, the expenditure will be treated as made after December 31, 2025, which will prevent the taxpayer from claiming the section 25D credit.
Installation Timing
The term “installation” is not defined in §25D or any existing guidance concerning §25D, such as Notice 2013-70, Fact Sheet 2022-40, or Fact Sheet 2025-05. Nor has any court interpreted the term installation with respect to the §25D credit. Because of this, “placed in service” and that definition is often used as an incorrect substitute.
The placed in service date is most often used to determine when the depreciation of an asset begins. Treas. Reg. §1.167(a)-11(e)(1)(i) states that property is considered placed in service when it is “placed in a condition or state of readiness and availability for a specifically assigned function.” It is essential to note that the actual use of the property does not need to commence for it to be considered placed in service.
Treas. Reg. §1.263(a)-2(d)(2), Ex. 11, which is one of the repair and capitalization regulations, provides a valuable example that clearly distinguishes between the installation date and the placed in service date:
In this example, the installation date preceded and was distinct from the date the item was placed in service. Based on this, it is reasonable to claim the §25D credit in the tax year in which the system was entirely placed on the property, regardless of whether it has been connected to the electrical grid.
A taxpayer can take an uncertain tax position on a tax return and avoid §6662 penalties under §6662(d)(2)(B) if there is either:
Substantial authority for the position, or
A reasonable basis for the position, and it is adequately disclosed using Form 8275, Disclosure Statement.
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In your opinion, Tom, does the solar installation date position fall into the substantial authority or reasonable basis category?
The article linked to an IRS FAQ. In the discussion on EV cars in the FAQ, I am a tad confused. For the September 30th cut off date, if a client pays a deposit signs a contract, but does not receive the vehicle until after September 30th, do they qualify for the credit? This assumes all other qualifications are met.