The U.S. residential solar market has expanded rapidly in recent years, supported by falling hardware prices and generous incentives, including the 30% federal solar Investment Tax Credit (ITC) under the Inflation Reduction Act. Yet a growing share of homeowners may be missing out on these benefits due to financing structures, eligibility issues, and misunderstandings about tax liability. As installation costs rise and financing tightens, the lost value of these credits could become a significant drag on household returns — and on the solar industry’s growth trajectory.

Financing Models Are Preventing Tax Credit Eligibility

A key reason homeowners fail to capture the solar ITC is the widespread use of leases and power-purchase agreements (PPAs). Under these structures, the solar company — not the homeowner — owns the system and therefore claims the tax incentive. While leases often appeal to households seeking lower upfront costs, analysts note that many consumers mistakenly believe they still qualify for credits. According to U.S. Department of Energy data, nearly 40% of residential installations in some states still use third-party ownership, suggesting that millions of households could be forfeiting thousands of dollars in tax benefits. With average system prices hovering around $20,000–$25,000, the lost credit can exceed $6,000, materially altering the payback period.

Misunderstanding Tax Liability Limits Reduces Expected Savings

Even among homeowners who purchase their systems, another issue is emerging: insufficient tax liability to fully absorb the credit. The ITC is non-refundable, meaning households can only claim the credit against taxes owed, though unused portions may be carried forward. Tax advisors report that many middle-income homeowners overestimate their eligibility, especially after adjustments such as deductions, child credits, or reduced taxable income. As inflation pressures household finances and shifts consumption patterns, some homeowners may qualify on paper for the credit but fail to realize its full value over subsequent tax years. This mismatch has led to rising consumer disputes and unexpected financing gaps when borrowers rely on projected tax-credit proceeds to pay down solar loans.

Rising Costs and Interest Rates Magnify the Financial Impact

Higher interest rates, supply-chain pressures, and increased labor costs have pushed residential solar installation prices up over the past two years, reversing a decade-long decline. For Israeli investors tracking global energy-transition trends, these U.S. dynamics illustrate a broader challenge: when borrowing costs rise, incentive capture becomes even more central to system economics. Many solar loans in the U.S. feature structures where borrowers are expected to make a large “ITC repayment” in the first 12–18 months to keep monthly payments low. If the homeowner fails to qualify for the full credit, monthly payments can rise steeply, increasing default risk and reducing overall solar adoption. Market analysts warn that such trends could slow growth at a time when utilities and regulators rely on distributed generation to stabilize grids.

The coming year will test whether better consumer education, clearer financing disclosures, and evolving incentive structures can close this knowledge gap. Policymakers may face pressure to refine eligibility rules or expand guidance as households navigate more complex tax situations. For investors and industry observers, the key variables to watch include credit-claim rates, loan performance, and any regulatory adjustments that could influence residential solar economics. As governments push toward ambitious renewable targets, ensuring homeowners fully access available incentives will remain essential to sustaining deployment momentum.