The solar financing question has fundamentally changed in 2026. The federal residential tax credit (Section 25D) that made cash purchases so attractive — a clean 30% reduction in net cost — expired on December 31, 2025. For homeowners in Connecticut, New York City, and Long Island, this means the decision between a prepaid lease, a cash purchase, a monthly lease, and a solar loan looks very different than it did a year ago.
This guide lays out all four options with no agenda — just the information you need to make a good decision.
What Changed: Section 25D Is Gone
From 2015 through December 31, 2025, homeowners who purchased solar with cash could claim 30% of total system cost as a credit on their federal tax return. A $30,000 system effectively cost $21,000.
That credit — the Residential Clean Energy Credit under Section 25D — no longer applies to new installations after December 31, 2025. Cash buyers in 2026 pay the full pre-incentive price at the federal level.
The commercial Investment Tax Credit (Sections 48 and 48E) still exists for business-owned solar. This is the key fact that makes the prepaid lease the standout option for many homeowners in 2026.
The core shift in 2026:
In 2025, a cash buyer claimed 30% federal credit directly. In 2026, only a leasing company (which owns the system) can claim the commercial ITC — and it passes that value to homeowners through a prepaid lease structure. For many homeowners, a prepaid lease in 2026 costs less than a 2024 cash purchase, even though the federal credit was directly available then.
The Four Options Side by Side
Option 1: Cash Purchase
Pay the full system cost upfront. Own the equipment outright from day one. No third party, no lease, no ongoing relationship beyond manufacturer warranties and any service agreement.
Option 2: Prepaid Lease
Pay one upfront amount — no monthly payments — but the equipment is owned by a leasing company. The leasing company claims the commercial ITC (Sections 48/48E) and passes the value to you as a lower purchase price: up to 30% cost reduction. You get all the electricity savings, production guarantees, and maintenance is typically included.
Option 3: Monthly Lease ($0 Down)
Go solar with no upfront payment. You pay a fixed monthly lease amount — typically less than your current electricity bill — to use the system. The leasing company owns the equipment and claims the commercial ITC. Good for homeowners who want solar with zero capital outlay, though the total cost over the lease term exceeds a prepaid lease.
Option 4: Solar Loan
Finance a cash purchase via a solar loan — own the equipment, pay the loan off over time (typically 5–20 years). Without the 25D federal credit to reduce principal in Year 1, loan math requires careful review. The right loan at a competitive interest rate can work well; an unfavorable loan can offset solar's value.
The Bottom Line for 2026
For most homeowners with available capital, the prepaid lease delivers the best total value in 2026 because it captures the commercial ITC passthrough that cash buyers can no longer access directly. For homeowners who prioritize full ownership and simplicity, cash purchase remains sound. Monthly leases work well when upfront capital is the limiting factor. Solar loans require the most careful analysis.
What matters most is that you understand all four options clearly before signing anything — and that the analysis is done for your specific home, energy use, and financial situation. A SolarPro Lab solar advisor will model all options side by side at no cost, with no pressure to choose one over another.
Frequently Asked Questions
What is a prepaid solar lease?
A prepaid solar lease is a financing structure where you pay for the solar system upfront — similar to a cash purchase — but the equipment is technically owned by a third-party leasing company. Because the leasing company owns the panels, it can claim the commercial Investment Tax Credit (Sections 48/48E) and pass that value to you as a reduced system price — effectively up to 30% off. You receive all the electricity savings with no monthly payments and typically no maintenance responsibilities.
Did the federal solar tax credit really expire for homeowners?
Yes. The residential federal solar tax credit (Section 25D) expired December 31, 2025. Homeowners who purchase solar systems directly with cash in 2026 are no longer eligible for the 30% federal credit. The commercial ITC (Sections 48/48E) for business-owned solar — including solar owned by leasing companies — remains in effect and can be passed through to homeowners via a prepaid lease.
What is a monthly solar lease and how is it different from a prepaid lease?
A monthly solar lease (also called a $0-down lease) lets you go solar with no upfront payment. Instead, you pay a fixed monthly amount to lease the equipment — typically lower than your current electricity bill. Like a prepaid lease, the leasing company claims the commercial ITC. Unlike a prepaid lease, there are ongoing monthly payments. Monthly leases are good for homeowners who want solar with no upfront cost, but the total cost over the lease term is higher than a prepaid lease.
Who owns the solar panels in a prepaid lease?
In a prepaid lease, the leasing company owns the panels for the lease term (typically 20–25 years). You own the electricity the panels produce and all the savings. At lease end, you typically have the option to purchase the system at fair market value, renew the lease, or have the panels removed. Most homeowners choose to purchase at end of term for a nominal amount.
Does a prepaid lease affect my home sale?
A prepaid lease creates a lien on your property that must be disclosed at time of sale. In practice, prepaid leases transfer reasonably well — buyers are often attracted to homes with solar already installed and producing savings. However, it requires coordination with your real estate attorney and the leasing company. Cash-owned systems transfer with the home without this added step.
What is a solar loan and when does it make sense?
A solar loan lets you finance a cash purchase — you own the system and pay the loan off over time, typically 5–20 years. Without the 25D federal credit to apply toward principal in Year 1 (as was common 2023–2025), loans require more careful analysis. The key factors are interest rate, term length, and whether monthly savings exceed monthly payments from Day 1. A well-structured loan at a competitive rate can still make sense for the right homeowner who wants ownership but doesn't want to pay everything upfront.
How do I know which option is right for my home?
The right choice depends on your tax situation, available capital, how long you plan to stay in your home, and your preference for full ownership vs. lower net cost. A SolarPro Lab solar advisor can model all options side by side for your specific home at no cost and with no pressure to choose any particular structure.
Ready to See What Solar Can Save You?
A SolarPro Lab solar advisor will walk you through the numbers for your specific home — no pressure, no obligation.
Get Your Free Assessment