Red States Could Pay the Price if Congress Cuts the Tax Credits for Solar

May 13, 2025

As congressional committees prepare to vote on the Budget Reconciliation Bill, reports are emerging from across the solar industry that key solar tax credits are under threat. 

The latest news is that the House and Ways and Means Committee have submitted a proposed budget plan that would end the Section 25D Residential Clean Energy Credit on December 31, 2025, nine years earlier than initially scheduled. 

Eliminating the Section 25D credit would be detrimental to the residential solar industry and have an extremely negative impact on American families, especially in areas won by Donald Trump during the election. It would destroy small businesses, result in thousands of job losses, and deprive Americans of the opportunity to achieve energy independence and self-sufficiency.

Key facts about the residential solar industry

According to the U.S. Energy Information Administration (EIA), there are now nearly 4.9 million U.S. households with grid-connected solar installations, representing a 10% increase over the last 12 months. An additional 130,000 commercial businesses have solar installations.

Data from the Treasury Department shows that the total cost of the Residential Clean Energy Tax Credit in 2023 was approximately $6.3 billion, with credits distributed to 1.25 million homeowners. That’s an average of $5,084 in credits per family. $6.3 billion is 0.093% of the total United States budget.

The families using the federal tax credit are not the wealthiest of the wealthy; they are average American families. In 2023, 47% of families claiming the solar credit had an adjusted gross income (AGI) of less than $100,000, and 82% had an AGI of under $200,000, according to the IRS.

By dollar amount, 49% of all residential solar tax credits for 2023 went to homeowners in states won by Trump in the 2024 Presidential election. 

The solar industry employed close to 280,000 people across the United States as of the end of 2023, according to the annual Solar Jobs Census performed by the Interstate Renewable Energy Council (IREC). That number grew by 5.9% between 2022 and 2023.

What the end of the tax credit would mean

Given that the rate of solar installation is growing by 10% per year, eliminating the credit would mean 1.5 million American families would be quoted up to 30% more for a solar installation over the next 12 months. These price increases would deter many families from choosing to purchase solar panels at all.

According to our analysis, eliminating the solar tax credit would increase the median solar payback time by almost 43%, from 10.7 years to 15.3 years. 

That increase would not affect all states equally.

Our research shows that under the current tax credit, the average-sized turnkey professional solar installation has a payback period of longer than 15 years in 15 states. If the tax credit is eliminated, the number of states with payback periods greater than 15 years would jump to 22, and 12 other states would have payback periods that exceed 13 years.

A “decent” solar payback period is less than 13 years, so having 37 states with estimated payback times of greater than 13 years spells trouble for the industry.

The table below shows the 19 states that would be most affected by the elimination of the tax credit.

¹ IRS Clean Energy Tax Credits Statistics
² IREC National Solar Jobs Census 2023
³ Determined using data from the EIA, National Renewable Energy Laboratory, and Bureau of Labor Statistics

It’s clear that most of the states that would be hurt most by the elimination of the solar tax credit were won by Donald Trump in the last election. 

If the rate of solar adoption were to continue rising by 10% under the current tax credit rules, these states would represent 5.8 million new solar homeowners between now and 2032, when the tax credit is currently scheduled to step down. Without the tax credit in place, those 5.8 million families would likely not choose to install solar panels, potentially collapsing an entire industry in their wake.

What happens next

Now that the Ways and Means Committee has made its recommendations, they will be forwarded to the Budget Committee, which will package all Committee recommendations and bring them to the floor in the coming days. 

While the final reconciliation package is up for debate on the floor, the House Rules Committee may allow amendments to the package. This appears to be the next best opportunity to influence the outcome of the House’s version of the Budget. 

After the budget passes the House, it will be sent to the Senate, which may further vote to amend it. There is some hope that an attempt to save the tax credit could succeed. Several Representatives and Senators have urged their leaders to keep clean energy credits intact, and it is vitally important to win their support.

Final word

If the residential energy tax credit is eliminated, the effects would be far-reaching and unpredictable. It will take years to sort out all the impacts that such a decision would have, but it would likely result in thousands of jobs lost, millions more Americans beholden to investor-owned utilities, and billions in lost revenue for American companies.

What is certain is that eliminating this tax credit is a terrible idea. Nearly every rooftop in America can and should be a power plant that makes energy from the sun. Encouraging investment in solar energy helps ordinary American families, supports American jobs, and stimulates our economy. 

Congress should act immediately to protect the Section 25D tax credits.