Hybrid path

Prepaid lease: pay upfront, own the system later, and capture federal value.

The solar company owns the system and claims Section 48E, then passes that value to you as a 20 to 30 percent discount on the prepaid contract price. You receive ownership after approximately 5 to 7 years. The primary route to indirect federal value in 2026 for residential buyers.

Financing detail

Prepaid Lease / Prepaid PPA

Ownership outcome

You own the system

Federal Section 48E applies

Yes -- the third-party owner or commercial entity can claim it

The TPO company owns the system during the prepaid period and claims the Section 48E commercial ITC at 30%. The ITC allows the TPO to offer the prepaid price at 20-30% below what the system would cost to purchase outright. Homeowner benefit is indirect via the reduced prepaid price. The homeowner does not receive a direct federal tax credit.

Term options

5, 7 years

Data as of: 2026-06-02

Strengths

Leverages Section 48E commercial ITC even though residential Section 25D expired
Effective total cost often 20-30% below direct cash purchase
Clear path to full ownership after approximately 5-7 years
Can be financed with a solar loan on the prepaid amount (not a monthly solar fee)
Lower total cost than a specialty solar loan with dealer fee in most scenarios

Considerations

Upfront capital still required, or a loan on the prepaid amount
Equipment restricted to the TPO provider's approved list
Transfer terms vary: the fair-market-value purchase price at transfer is not always guaranteed to be $0
Newer product structure with less track record than traditional loans or leases
TPO company owns the system during the prepaid period

Best for

Buyers who want to benefit from the Section 48E commercial ITC passthrough (the only path to a federal incentive on a residential new installation in 2026) while eventually owning the system. Most effective when compared against a specialty solar loan with dealer fee.

Section 48E

Section 48E is what makes prepaid pricing possible. Verify timing with your tax advisor.

The Section 48E commercial ITC (30 percent base rate) applies to qualified energy property placed into service with a construction start before the deadline. Confirm construction-start timing with your tax advisor before signing.

Commercial solar projects must begin construction by July 4, 2026 to qualify for the 30 percent Section 48E federal tax credit. After that date, the system must be placed in service by December 31, 2027.

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Common questions

Questions about Prepaid Lease / Prepaid PPA

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How does a prepaid lease produce a lower cost than a cash purchase?

The solar company owns the system, claims the Section 48E commercial credit (30 percent base rate), and uses that tax value to offer the prepaid contract at a discount. A $24,000 system priced as a prepaid lease might carry a total prepaid cost of $17,000 to $19,000, reflecting a 20 to 30 percent pass-through discount. The homeowner pays less upfront than a direct cash purchase but does not receive the federal credit directly.

When do I own the system?

Ownership transfer timing varies by contract, typically 5 to 7 years after installation. Review the contract carefully to understand the exact transfer date, what the transfer triggers (lease expiration vs. a fixed date), and whether any payment is due at transfer.

Is the prepaid amount refundable if I sell my home?

Generally no. The prepaid amount is paid upfront and is not refundable on sale. If you sell before the ownership transfer date, the new buyer typically assumes the remaining prepaid lease contract or you negotiate a buyout. This is a material consideration before signing.

Do I get any state incentives with a prepaid lease?

State incentive eligibility on prepaid leases varies. Some state tax credits and SRECs require system ownership. Others allow third-party-owned systems to participate. Verify state incentive eligibility with the specific provider and a tax advisor before signing.

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