U.S. Home Electrification Costs Rise After Tax Credit Expiry

Home Electrification

US: Federal tax credits for residential solar panels, batteries and heat pumps expired at the end of 2025, removing incentives that previously saved homeowners significant amounts and making home electrification more expensive from 2026. The lapse of the 30% tax credit does not raise equipment prices directly but ends the ability for homeowners with tax liabilities to offset their taxes, with a typical solar and battery system previously generating credits worth around USD 10,000. Tax credits remain available for leased solar systems until the end of 2027, with installers passing savings to homeowners through lower monthly payments. In response, installers are increasingly shifting to lease-to-own or prepaid lease models, where homeowners pay upfront and receive the benefit of tax credits as a discount, with ownership transferred after a mandated holding period. While demand may soften initially, rising electricity costs, higher temperatures, increased air-conditioning use, electric vehicle charging, and replacement of fossil-fuel appliances with induction stoves and heat pumps are expected to sustain long-term demand, even if payback periods extend by a few years.

At the same time, new tariffs and domestic manufacturing requirements effective from January 1 could push prices higher for solar panels, batteries and heat pumps. Most solar panels and nearly all residential energy storage batteries are imported from countries subject to U.S. tariffs, while guidance on limits for foreign components under new manufacturing rules is still pending. Analysts expect tariffs and mandates to increase costs, though the industry may focus on reducing “soft costs” such as permitting and paperwork. Homeowners have also lost a USD 2,000 federal tax credit for heat pumps, although only the most efficient and expensive models previously qualified. In 2024, the U.S. imported 382,000 heat pumps mainly from China and Mexico out of 4.1 million units shipped, and prices may rise modestly as domestically assembled systems still rely on tariffed components.

Source: LA Times