If you looked into solar a couple of years ago, put it off, and have come back to it now, the most important thing to know is that the rule you were counting on has changed.
The federal residential clean energy credit — Section 25D — ended for expenditures made after December 31, 2025. A Michigan homeowner who buys a system with cash in 2026 does not receive 30% back on their taxes. That is not a phase-down or a reduction; the residential credit is gone.
A great deal of solar content online still says the credit runs “through 2032.” That was the pre-2025 law. Even the IRS’s own older explanatory pages carried the outdated language for a while after the change. If a proposal you are reading assumes 30% back, the payback number on it is wrong by a substantial margin.
But that is not the end of the story, because the federal money did not disappear — it moved. Here is where it went and how a Michigan homeowner can still reach it.
The credit moved from the homeowner to the owner of the system
There are two federal clean energy credits. Section 25D was the residential one, claimed by the homeowner. Section 48E is the business one, claimed by a business that owns qualifying energy property.
When the 2025 tax law ended 25D, it left 48E in place. And importantly, it did not extend the leasing restrictions to residential solar electric property. Solar water heating and small wind were removed from third-party eligibility; solar photovoltaic was not.
The practical consequence is this: if a third party owns the system on your roof, that party is a business, and it can still claim the 48E credit. You cannot claim a credit you are no longer eligible for. They can claim one they still are. Whether that value reaches you depends entirely on how the agreement is written — which is why the structure matters more now than it ever did when everyone simply bought their own system.
The 48E credit is also on a clock. Qualifying property generally must be placed in service by December 31, 2027. Projects that begin construction on or before July 4, 2026 get a longer runway under a continuity safe harbour instead. Rooftop-scale solar retains a more accommodating “beginning of construction” test than large utility projects do. The details are technical and the guidance is still settling, so the deadline that applies to a specific project is a question for a tax professional — but the direction is unambiguous: the window is closing, and it closes sooner for anyone who waits.
What an Energy Service Agreement actually is
“Energy Service Agreement,” or ESA, is an industry term rather than a legal one. There is no statutory definition, and different providers use it to mean somewhat different things — which is exactly why you should read the specific contract rather than a generic explainer.
Structurally, an ESA is a form of third-party ownership. A third party owns the system, insures it, maintains it, monitors it, and claims the federal credit. You pay for the energy service rather than for the equipment.
It sits between the two more familiar structures:
- A lease is a fixed periodic payment for the use of the equipment, whether or not the sun cooperates in a given month.
- A power purchase agreement charges you per kilowatt-hour actually produced, at an agreed rate, usually with an annual escalator.
- An ESA typically bundles the two ideas — often a fixed monthly energy-service payment, sometimes prepaid, frequently with a purchase option at fair market value after an initial term.
The questions that decide whether any of these is a good deal are the same in each case. What is the escalator, if any? What happens at the end of the term? What happens when you sell the house? Who is responsible when the inverter fails in year eleven? Get those answers in writing before you sign anything, from whoever is offering it.
The Energy Community bonus, and why Michigan matters here
This is the part most Michigan homeowners have never heard of.
Federal law provides a bonus credit on top of the base investment credit when qualifying property is placed in service in an Energy Community. The bonus is 10 additional percentage points where prevailing wage and apprenticeship requirements are met, and 2 points where they are not.
Land qualifies as an Energy Community through one of three routes:
- Brownfield sites, under the federal environmental definition.
- Statistical areas — a metropolitan or non-metropolitan area with significant historical fossil fuel employment, combined with unemployment at or above the prior year’s national average.
- Coal closure tracts — a census tract, or a tract directly adjoining one, where a coal mine closed after 1999 or a coal-fired generating unit was retired after 2009.
That third category is the reason this matters in Michigan. The state has seen a substantial number of coal-fired generating units retire since 2009, and each retirement creates qualifying census tracts around it.
A word of caution that your installer should be giving you too: eligibility is determined address by address, not county by county or city by city. A census tract qualifies; the tract next to it may not. The Department of Energy publishes an interactive mapping tool that is the actual compliance reference, and the qualifying lists are refreshed periodically — the current list took effect in June 2026. Anyone telling you that “Michigan qualifies” as a blanket statement is skipping the step that matters. The right answer is to look up your specific address.
What this actually adds up to
Put together, a Michigan homeowner in 2026 is looking at a different structure than the one their neighbour used in 2023:
- Buying with cash? No federal credit. Your savings come from offsetting DTE or Consumers Energy rates, which have risen repeatedly, and from whatever state or utility programmes apply.
- Third-party owned? The federal credit is still in play, claimed by the system owner, with the benefit reaching you through the pricing of the agreement rather than through your tax return.
- In a qualifying Energy Community? A further bonus stacks on top of that credit for the owner — again, reaching you through pricing.
Because the value arrives through the contract rather than through the IRS, the contract terms are the deal. Two ESAs with identical federal treatment can produce very different outcomes for the homeowner depending on the rate, the escalator and the end-of-term provisions.
Why the timing is genuinely tight
Three clocks are running at once. The 48E credit faces a placed-in-service deadline at the end of 2027, with a beginning-of-construction test in mid-2026 that changes which deadline applies. The Energy Community lists are periodically revised, and a tract that qualifies today is not guaranteed to qualify on the next update. And Michigan’s utilities have continued to raise rates — the state regulator approved increases for both DTE and Consumers Energy in 2026 — which raises the value of every kilowatt-hour you generate yourself.
None of that is a reason to sign something you have not read. It is a reason not to leave it another eighteen months.
Find out what your address actually qualifies for
The honest answer to “what incentives can I get?” in Michigan in 2026 is: it depends on how the system is owned and where exactly your house sits. Those are both knowable, and they should be established before anyone quotes you a payback figure.
This article describes federal tax rules in general terms and is not tax advice. Stellar Solar is not a tax advisor — confirm how any credit applies to your situation with a qualified tax professional.
Ready to take control of your energy costs and protect your home from Michigan’s frequent outages? Request a free, no-obligation quote from Stellar Solar Michigan — serving Michigan homeowners with solar and battery storage since 1998, A+ rated with the BBB — or call 858-395-6905.