ITC vs PTC: The Deadline Passed — What's Left for Solar Projects

For years, solar's federal incentives came in two forms: the Investment Tax Credit (ITC, Section 48E) and the Production Tax Credit (PTC, Section 45Y). If you're starting a project today, that choice no longer exists. The construction-start deadline has passed, and neither credit is claimable for new projects. Here's what changed, how the choice used to work for projects that locked in eligibility, and what still moves the economics in 2026.

What Changed and When

The One Big Beautiful Bill Act (OBBBA, signed July 4, 2025) terminated both the Section 48E ITC and the Section 45Y PTC for projects that did not begin construction in time. The statutory construction-start deadline was July 4, 2026 — a Saturday — and under IRC 7503 it rolled to Monday, July 6, 2026. That deadline has now passed.

What survives: grandfathered projects — those with a documented construction start before the deadline, established either through the Physical Work Test or the 5% safe harbor — can still claim their credit, provided the system is placed in service by December 31, 2027. Everyone else plans around a 0% federal credit.

What the ITC Was (Section 48E)

The ITC provided a one-time tax credit equal to a percentage of total project cost. Under Section 48E, the rate was 30% of eligible costs, including equipment, installation, and permitting. Bonus credits (domestic content, energy community, low-income) could push the effective rate to 40–50%.

The ITC was taken in the year the system was placed in service. For most solar projects, it was the preferred option because it provided an immediate, substantial reduction in tax liability.

What the PTC Was (Section 45Y)

The PTC provided a per-kilowatt-hour tax credit for electricity generated by a solar system over a 10-year period. The rate was approximately $0.027/kWh (adjusted annually for inflation). Unlike the ITC, the PTC was based on production, not investment cost.

The PTC was typically elected by utility-scale and large commercial projects where the system produces significant electricity over many years. It was less common for residential or small commercial installations.

Key Differences at a Glance

How the Choice Used to Work

For projects that began construction before the deadline, the ITC-vs-PTC election was a real financial decision. The same logic still applies to grandfathered projects deciding how to claim, and it's useful context for understanding installers' legacy pricing.

When the ITC Won

• Residential and small commercial projects: The ITC's 30% of cost typically exceeded the present value of 10 years of PTC payments for systems under 100 kW.
• Higher cost per watt: If an installation cost $3.50/W, the ITC delivered $1.05/W. Matching that with the PTC required producing 39 kWh per installed watt over 10 years — unlikely for most residential systems.
• Need for the benefit sooner: The ITC was taken immediately, while the PTC accrued over a decade.
• Lease/PPA arrangements: Installers almost always elected the ITC for residential lease/PPA deals.

When the PTC Won

• Utility-scale projects: Large systems with low $/W and high capacity factors produce enough electricity that the PTC's per-kWh value exceeded the ITC's percentage-based value.
• Low installation cost, high production: In sunny regions with cheap labor, installing at $1.50/W while generating 2,000+ kWh/kW/year made the PTC the winner.
• Tax equity structures: Large projects financed through tax equity partnerships favored the PTC's predictable 10-year cash flow.

The Breakeven Calculation

The general rule: if a system's 10-year production value per watt exceeded 30% of cost per watt divided by the PTC rate, the PTC won. For a $3.00/W system with the PTC at $0.027/kWh:

ITC value = $3.00 × 30% = $0.90/W
PTC breakeven = $0.90 ÷ $0.027 = 33.3 kWh/W over 10 years
That's 3.33 kWh/W/year, about 1,500 kWh/kW/year in sunny areas — achievable but not guaranteed.

For most residential installations ($2.50–$4.00/W), the ITC was the clear winner. For utility-scale ($1.00–$1.50/W), the PTC often edged ahead.

What's Left for Projects Starting Now

If your project did not begin construction before the deadline, neither the 48E ITC nor the 45Y PTC is available — at any rate, with any bonus, under any ownership structure. What still moves the economics:

• Depreciation for businesses. Commercial, rental, and business-use solar remains eligible for MACRS depreciation — including 100% first-year bonus depreciation restored permanently by the OBBBA — even without the ITC. For a business in a 21%+ tax bracket, depreciation remains a substantial benefit. See our Commercial vs Residential Credits guide.
• State and local incentives. State tax credits, rebates, and performance incentives never depended on the federal credit. Several states (including New York, Massachusetts, and South Carolina) still offer meaningful offsets. Check them with the Incentive Finder.
• Post-credit economics. Solar can still pay off in high-rate states on avoided utility costs alone — payback stretches 3–5 years without the 30%. Run your numbers with the Post-48E Payback Calculator, which models the $0-federal-credit reality.
• Grandfathered lease/PPA inventory. A small share of third-party-owned deals with pre-deadline construction starts still carry the 30% via the Section 48E pass-through. If a developer claims their offer includes it, demand the construction-start documentation. See our Section 48E Pass-Through guide and the Lease vs PPA Homeowner Guide.

For the full market picture, read Post-48E Market Reality: Solar After July 4, 2026.

What About the Expired Section 25D?

Section 25D was a personal ITC; it could not be converted to a PTC. It expired December 31, 2025. The PTC was never available for owned residential systems. If you're a homeowner with an owned system on a primary residence, neither the ITC nor the PTC is available to you in 2026+.

Sources: IRS Form 3468 Instructions, IRS Form 8835 Instructions, IRC §48E, IRC §45Y, IRC §7503, NREL ITC/PTC Comparison Report.