The Commercial Solar Tax Credit in 2026: What Section 48E Says

The federal commercial solar tax credit is the clean electricity investment credit in 26 U.S.C. §48E: 6% of the qualified investment, or 30% for a facility under 1 MW AC or one meeting the wage and apprenticeship rules, plus possible bonuses. The date matters most. A solar facility that began construction after July 4, 2026 gets no credit for property placed in service after December 31, 2027.

This page sets out what the statute and the IRS say, with the date each source was read. It does not tell you what your business can claim; that depends on facts a tax professional has to review. For the price the credit applies to, see the commercial solar cost per watt in California, and for every business guide, the commercial solar hub. Sources were checked September 23, 2026.

The rate: 6%, 30% and the bonus amounts

Under §48E(a)(2), the base rate is 6%. The alternative rate of 30% applies to a facility with a maximum net output of less than 1 megawatt measured in alternating current, or to one that satisfies the prevailing-wage requirements of §48E(d)(3) and, for its construction, the apprenticeship requirements of §48E(d)(4). Most business systems are well under that line: in CRR's count of the CPUC's DGStats interconnection data, 3,468 of the 3,607 non-residential systems PG&E, SCE and SDG&E connected in 2025 were 1 MW DC or smaller. Larger projects reach 30% through the labor rules.

Three increases can apply on top:

The IRS summary of the credit (updated January 5, 2026) lists the 6% base, up to 30% with the labor requirements, and 10-point increases for domestic content and energy communities. It says the credit is claimed on Form 3468 and that a taxpayer cannot claim both the investment credit and the production credit for the same facility.

The December 31, 2027 cutoff for solar

Public Law 119-21 added §48E(e)(4): the section “shall not apply to any qualified property placed in service by the taxpayer after December 31, 2027, which is part of an applicable facility,” meaning a wind or solar facility. The effective-date note applies that amendment to facilities whose construction begins after the date 12 months after July 4, 2025. A solar project that had not begun construction by July 4, 2026 therefore has to be placed in service by December 31, 2027 to get any §48E credit.

Two limits on that rule matter. Energy storage placed in service at the facility is excepted from the cutoff by §48E(e)(4)(C). And whether a project began construction in time is a facts question. The IRS set its test for wind and solar in Notice 2025-42, which the U.S. District Court for the District of Columbia vacated and remanded on June 6, 2026 in Oregon Environmental Council v. IRS. If a seller says your project is grandfathered, ask for the tax position in writing and have your own tax professional review it.

The rest of §48E still phases down by the year construction begins after the “applicable year”, which §45Y(d)(3) fixes at 2032: 100% for construction starting in 2033, 75% in 2034, 50% in 2035 and zero after. For solar, the 2027 cutoff arrives first.

What the credit is calculated on

The credit applies to the basis of “qualified property” placed in service in the year. Section 48E(b)(2) defines that as tangible personal property, or other tangible property “not including a building or its structural components” used as an integral part of the facility, on which depreciation is allowable and whose original use begins with the taxpayer. For a facility of 5 MW AC or less, §48E(b)(1) also counts the owner's spending on qualified interconnection property.

The building exclusion is why carport canopies raise questions; the commercial carport cost guide covers that. Roof repairs done alongside a solar job raise the same line-drawing question, so price them on their own line.

Claiming the credit lowers depreciable basis. Under §50(c)(3), only 50% of a clean electricity investment credit reduces the basis.

Depreciation, and how California differs

Under §168(e)(3)(B)(viii), §48E qualified property and energy storage technology are 5-year property. Section 168(k) provides a 100% first-year allowance for qualified property, and the amending law applies it to property acquired after January 19, 2025.

California does not follow that. The Franchise Tax Board's 2025 Form 100 booklet lists §168(k) among the federal provisions California does not conform to and says California in general does not conform to the 2025 federal budget law. Ask whoever models your project to show the federal and California depreciation as separate lines.

Foreign-entity rules for projects starting construction in 2026

For a facility whose construction begins after December 31, 2025, §48E(b)(6) removes it from the definition of qualified facility if its construction includes material assistance from a prohibited foreign entity. That is measured by a material assistance cost ratio, and §7701(a)(52) sets the threshold for a qualified facility at 40% for construction beginning in 2026 and 45% in 2027 (55% and 60% for energy storage). Separately, §48E(d)(6) denies the credit to a taxpayer that is a specified foreign entity or a foreign-influenced entity.

Ask the installer or developer who prepares the cost-ratio documentation for the modules, inverters and racking, and who carries the loss if the project fails the test.

Does financing reduce the credit?

Section 48E(d)(2) applies rules similar to §45(b)(3). That provision reduces the credit when the facility is financed with proceeds of tax-exempt bonds, by the lesser of 15% or the share of capital spending those proceeds covered. It says nothing about ordinary commercial loans, equipment financing or leases. How a particular grant, subsidized program or lease affects your credit is a question for your tax professional.

Leases and PPAs change who holds the credit, not its size: the owner of the system claims it. See commercial solar lease programs and PPA versus purchase for how each structure handles it.

Selling the credit, or taking it as a payment

Transfer. Under 26 U.S.C. §6418, an owner can elect to transfer all or part of a §48E credit to an unrelated taxpayer. The price must be paid in cash, is not income to the seller and is not deductible to the buyer. The election is made by the due date of the return, including extensions, and is irrevocable. A buyer cannot resell the credit, and a §48E credit cannot be transferred to a specified foreign entity.

Elective pay. Under 26 U.S.C. §6417, tax-exempt organizations, state and local governments, tribal governments and rural electric cooperatives, among others, can elect to treat the credit as a payment of tax. For those elections, §48E(d)(5) applies the domestic content phase-out in §45Y(g)(12): a facility of 1 MW AC or more whose construction began after December 31, 2025 gets 0% of the credit as a payment unless it meets the domestic content requirement or a Treasury exception applies. Facilities under 1 MW AC keep 100%. The church solar guide shows how a tax-exempt owner weighs this against a PPA.

Selling the property early: recapture

If the property is disposed of, or stops qualifying, within five years, §50(a) recaptures part of the credit: 100% within the first full year after it was placed in service, then 80%, 60%, 40% and 20% for each following year. A business that expects to sell the building, or the system, inside that window should have the recapture exposure modeled before signing.

Questions to put to anyone quoting you the credit

• What date does the proposal assume construction began, and on what evidence?
• What placed-in-service date does it assume, and what happens to the price if it slips past December 31, 2027?
• Is the system under 1 MW AC, or does the 30% rate depend on wage and apprenticeship compliance, and who documents that?
• Which costs are in the credit basis, and which (roof work, canopy steel) are not?
• Who prepares the foreign-entity cost-ratio documentation?
• Are any bonus amounts assumed, and on what basis?

A proposal that shows the project before tax benefits, and then the claimed benefits as a separate case, is easier to check. The commercial financing checklist lists the documents to request.

Frequently asked questions

California Rate Relief is a referral service. We are not a licensed contractor. This page summarizes statute and agency text as of the date shown; it is not tax advice, and it does not say what any business can claim.

Sources

Checked September 23, 2026.

• 26 U.S.C. §48E, §45, §45Y, §50, §168, §6417, §6418 and §7701, Office of the Law Revision Counsel (text in effect September 23, 2026)
• IRS, Clean Electricity Investment Credit (updated January 5, 2026)
• IRS, Notice 2025-42; U.S. District Court for the District of Columbia, Oregon Environmental Council v. IRS, No. 25-cv-4400 (June 6, 2026)
• California Public Utilities Commission, DGStats Interconnected Applications Data Set (data through May 31, 2026); CRR count of 2025 non-residential PV systems
• California Franchise Tax Board, 2025 Form 100 booklet