New Solar Lease Model: Upfront Savings, Tax Credit Benefits & Ownership

For two decades, the Residential Clean Energy Tax Credit (often called the solar ITC) helped make solar an easy financial decision for homeowners. By allowing 30% of the system cost to be claimed directly against federal taxes, it played a major role in the growth of rooftop solar. That incentive officially expired at the end of 2025. 

So what happens now? No need to worry—we’ve seen this before. When the industry shifts, we adapt.

A new generation of solar leases have risen from the ashes of the ITC. These aren’t the inflexible, long-term contracts people have come to expect. Instead, they’re designed to give homeowners access to commercial tax incentives that still remain in place even though residential tax credits are gone. And the best part is that these innovative new leases apply the savings immediately—without the frustration of waiting until tax season to realize the benefit. The only downside is that you cannot own the system right away, but ownership does become available after a few years.

So how do these re-imagined leases actually work? Let’s take a closer look.

Key Takeaways

• Instant Savings: Unlike traditional tax credits that require waiting until tax season, these newer leasing models provide an "instant discount" on the system's cost.
• Transitional Ownership: Many newer leases, like the Propel program, feature automatic ownership transfers after an initial period, typically five-to-seven years.
• Comprehensive Protection: During the initial third party ownership (TPO) phase, homeowners enjoy "bolstered" warranties that cover everything from production to operations and maintenance.

Section 48E: The Commercial Credit That Now Powers Residential Solar

While the residential credit is gone, the commercial solar investment tax credit (ITC) remains. The commercial ITC is governed by a totally different section of the tax code, specifically Section 48E of the Internal Revenue Code. Section 48E provides a substantial 30% tax credit to commercial entities that own and place solar energy systems into service.

Here’s the key insight: when a solar system is owned by a financing company instead of the homeowner, that company can claim commercial tax credits under Section 48E.

Many of today’s lease providers pass a significant portion of that value back to homeowners—either through lower upfront costs or reduced payments. This transfer of tax credit value is what makes the new generation of solar leases possible.

The result: homeowners can still effectively benefit from a federal solar incentive; it just comes through a reduced lease amount, rather than their personal tax return. And most importantly, the system must remain in third party ownership for a period of time, typically five-to-seven years, depending on the specific lease offering.

This Isn’t Your Father’s Solar “Lease”

The word “lease” carries baggage in the solar world, and understandably so. Many traditional solar lease agreements lock homeowners into 20–25 year contracts with annual payment escalators, complicated home-sale transfers, limited upgrade options, and no path to ownership. They were often a good deal for the financing company, but a mixed bag for homeowners.

The new generation of solar financing products looks dramatically different. Here’s what’s changed:

• Ownership is built in. Many modern programs are explicitly structured as “transitional ownership” arrangements. The third party owns the system for an initial period to fulfill IRS requirements for receiving the full tax benefit, typically five-to-seven years, and then ownership transfers to the homeowner, either automatically or through a “fair market” buyout option, depending on the specific lease offering.
• Savings are immediate and simple. Unlike the old residential tax credit, which required homeowners to have sufficient federal tax liability and wait until filing season, the savings in these newer lease programs show up directly in the monthly payment and/or the total buyout amount. The commercial tax credit is priced into the deal upfront – no need to file with your taxes.
• No complicated tax filing required. The commercial entity handles the tax credit. The homeowner simply benefits from lower rates — no IRS Form 5695, no worrying about whether you have enough tax liability to fully utilize the credit.
• More flexibility. Modern programs increasingly include no prepayment penalties, easier transferability when a home is sold, and predictable fixed payments or reduced prepayment options, rather than escalating ones.

• • Prepaid means no monthly payments. Many of these newer offerings are structured as prepaid leases—meaning the homeowner covers the full lease cost upfront minus the tax credit benefits – saving 25-30% instantly in some cases. In exchange, the system remains under third-party ownership for the required IRS holding period—usually five-to-seven years.

The Third-Party Ownership Period: A Feature, Not a Bug

A reasonable question homeowners ask is: “If I’m the one generating energy on my roof, why would I want someone else to own the system for the first five years?”

The answer is that it is only through the third-party ownership (TPO) option that the tax credit benefits are accessible. Cash purchases are still the best way to secure instant ownership, but without the benefit of the TPO period, no tax credit discount is applied, making the total system cost for a cash purchase 25-30% higher. But if a brief TPO period is acceptable, there are additional benefits that homeowners often don’t get when they purchase outright:

• Performance guarantees. Because the third-party owner has a financial stake in the system’s output, they’re typically contractually obligated to ensure the system produces what it’s supposed to. If it doesn’t, they fix it, at their cost.
• Operations and maintenance coverage. During the TPO period, monitoring, maintenance, and necessary repairs are mostly included. Think of it as a bolstered maintenance package.
• Savings are built-in. Because leasing companies can still benefit from commercial solar tax credits, that value is applied upfront—reducing the initial cost to the homeowner. In exchange, the system remains in third-party ownership for a defined period, typically five-to-seven years. .

Once the initial TPO period is complete, ownership typically transfers to the homeowner—either automatically (as with our Propel prepaid lease) or through a reduced-cost buyout, depending on the specific lease chosen.

What This Means for Arizona Homeowners

In Arizona, the financial case for solar remains as strong as it’s ever been. SRP has implemented recent rate increases, and APS has a proposed 14% rate increase on the docket for 2026. For homeowners running air conditioning for six or more months a year, generating your own electricity isn’t just an environmental choice, it’s increasingly a financial necessity and the only viable alternative to being wholly dependent on the grid.

The loss of the residential tax credit removes one incentive pathway, but newer more flexible lease options create another pathway through a commercial tax credit workaround that’s arguably more accessible because it doesn’t require a tax liability to receive the benefits. What’s more, there are significant operations and maintenance advantages during the TPO period.

An Example of This Model in Practice: Propel

At Sun Valley Solar Solutions, we’ve partnered with Propel to offer this kind of transitional ownership program to Phoenix-area homeowners. Propel combines a prepaid solar or solar + battery lease with a loan structure—resulting in one predictable monthly payment and automatic ownership transfer after year five.

During the initial five-year period, the program includes a performance guarantee, increased operations and maintenance coverage, and 25 years of system monitoring access. At the end of year five, the Early Buyout Option (EBO) is automatically exercised, and ownership transfers fully to the homeowner with the balance of manufacturer warranties and the 10-year Sun Valley Solar Workmanship Warranty transferring directly to the homeowner as well.

Because the loan can be paid off as early as month one without penalty, the structure can feel similar to a cash purchase—with the value of tax incentives already reflected in a reduced upfront cost.

The Industry Is Evolving and Remaining Healthy

The expiration of the residential ITC is a significant shift, but it’s not a death knell for residential solar. The industry has adapted before, from changing net metering policies, supply chain disruptions, fluctuating incentive structures, etc. and it’s adapting again. We call these fluctuations the “Solar Coaster,” and we’ve seen them many times before.

The emergence of these newer lease programs—leveraging commercial tax incentives to deliver upfront savings—represents a maturation of the solar market. Financing structures are becoming more transparent, more flexible, and more aligned with homeowner interests than many of the lease products that came before.

The path to solar ownership hasn’t gone away—it’s just changed. And in many ways, it’s clearer than ever.

If you’re a Phoenix-area homeowner evaluating solar in 2026, the question isn’t whether incentives still exist — they do. The question is understanding which structures work best for your situation.

Contact us and speak to a representative to see if the new transitional ownership prepaid solar lease is right for you!