Churches can’t use a tax credit the way a business does, but they can still get the federal value of going solar, either as a direct payment from the IRS or through a third-party power agreement. The catch for 2026 is the calendar.
Key takeaways
- Churches and other tax-exempt organizations can receive the federal solar credit as a direct payment from the IRS through elective pay.
- For most church-sized systems, the credit is 30 percent of eligible project costs, with possible 10-point adders.
- Solar projects that begin construction after July 4, 2026 must be placed in service by December 31, 2027 to claim the credit.
- A power purchase agreement is the other route: a third party owns the system, claims the credit and sells the church the power.
- Size the system to a full year of actual use, not just Sunday’s load, because exported energy earns less under California’s solar billing rules.
Frequently asked questions
Can churches get the solar tax credit?
Yes, through elective pay. Under Section 6417 of the tax code, tax-exempt organizations, including churches and other 501(c)(3) nonprofits, can elect to receive the commercial solar credit under Section 48E as a direct payment from the IRS.
How does elective pay work for a church?
The church registers the project through the IRS’s online pre-filing registration (the IRS recommends at least 120 days before filing), claims the payment on Form 990-T, and receives the credit amount from the IRS.
How much is the solar credit for a church in 2026?
For most church-sized systems, 30 percent of eligible project costs. Projects under 1 MW AC qualify for the full rate without prevailing wage and apprenticeship requirements, and adders of 10 points each are possible for domestic content and energy communities. Tax-exempt bond financing and some grants can reduce the payment.
What is the deadline for church solar projects?
Under IRS Notice 2025-42, solar projects that begin construction after July 4, 2026 must be placed in service by December 31, 2027 to claim the credit. For a church starting now, approvals, design, permits, interconnection and installation all need to fit in less than 15 months.
Should a church buy solar or sign a PPA?
Compare the total cost over the term, not just the first-year rate. Under a PPA the developer owns the system and claims the tax benefits, usually with no upfront cost to the church. A church that can fund the project through savings, a capital campaign or a loan often comes out ahead owning the system and taking elective pay.
For years, the standard advice to churches and other houses of worship was that solar panels were a business’s game: the big federal incentive was a tax credit, and congregations don’t pay income tax. That changed with elective pay, which lets tax-exempt organizations receive the value of the credit as a payment. It’s still available. But a project starting now has a deadline that church boards and finance committees need to plan around.
Here’s how it works.
Elective pay: the federal credit as a payment
Under Section 6417 of the tax code, tax-exempt organizations, including churches and other 501(c)(3) nonprofits, can elect to receive certain clean energy credits as a direct payment from the IRS. The commercial solar credit under Section 48E is one of them, and it remains eligible for elective pay under current law.
The process, per the IRS’s elective pay FAQs:
- Pre-file registration. Before claiming, the organization registers the project with the IRS through its online pre-filing registration. The IRS recommends registering at least 120 days before you plan to file.
- File the return. The payment is claimed on Form 990-T, due the 15th day of the fifth month after the end of the organization’s tax year, with an extension available.
- Receive the payment. The IRS pays the credit amount to the organization.
How much it’s worth
For most church-sized systems, the credit is 30 percent of eligible project costs. Projects under 1 MW AC qualify for the full rate without prevailing wage and apprenticeship requirements, and that covers most congregations. Two adders can raise it: 10 points for meeting domestic content requirements, and 10 points for projects located in a designated energy community.
A few details your treasurer should know:
- Tax-exempt bond financing reduces the credit. If the project is financed with tax-exempt bonds, the payment is cut.
- Grants count. If restricted grants or forgivable loans plus the credit would exceed the project’s cost, the credit is reduced.
- Larger projects face domestic content rules. For projects of 1 MW AC or more that start construction now, elective pay is eliminated unless domestic content requirements are met or an IRS exception applies. Very few churches are that large, but campus-scale projects should check.
The deadline: placed in service by December 31, 2027
This is the part that matters most for a church starting now. Under the 2025 federal tax law and IRS Notice 2025-42, solar projects that begin construction after July 4, 2026 must be placed in service by December 31, 2027 to claim the 48E credit at all. New federal rules also restrict equipment sourced from certain foreign entities for projects that begin construction after 2025, so confirm your supply chain qualifies.
For a church, that means the decision, the design, the permits, SDG&E or SCE interconnection and the installation all need to land in less than 15 months. Congregational approvals take time. Building committees meet monthly. If solar is on your church’s agenda, the conversation should start this fall, not next summer.
Battery storage has a longer runway under current law than solar, which is worth knowing if your plan includes backup power for the sanctuary or fellowship hall.
The other route: a power purchase agreement
Some churches would rather not own the equipment. In California, a third party can own a solar system on your property and sell you the electricity under a power purchase agreement, or PPA. The developer claims the federal credit and depreciation, and the church pays a set rate for the power it uses, usually with no upfront cost.
It’s worth knowing why it’s structured that way: a company that leases equipment to a tax-exempt organization generally can’t claim the credit on it, which is why third-party solar for churches is usually set up as a PPA rather than a lease. Compare the two paths on total cost over the term, not just the first-year rate. A church that can fund the project, through savings, a capital campaign or a loan, often comes out ahead owning the system and taking elective pay.
Sizing for a congregation’s schedule
Churches use power differently than businesses. Usage often peaks on weekends, with offices, classrooms and community programs during the week. Under California’s current solar billing rules, energy you export to the grid earns less than energy you use on site, so a system sized only to Sunday’s load can end up exporting most of its weekday production at low value.
Good design looks at a full year of interval data, sizes the array to actual use, and considers whether a battery can shift midweek solar into evening programs or provide backup during a power shutoff.
Bringing it to your congregation
Most church solar projects succeed or stall in the finance committee. What helps:
- A clear before-and-after on the annual utility bill
- The elective pay amount and when it arrives
- The ownership choice (buy with elective pay, or PPA) laid out side by side
- A timeline that meets the December 31, 2027 deadline
- A plain explanation of what the congregation is responsible for over the system’s life
Churches we’ve helped go solar
Stellar Solar’s church solar projects in California include Catholic parishes, Lutheran congregations and more, among them St. Margaret Parish, San Rafael Parish, Grace Lutheran Church and the First Unitarian Universalist Church of San Diego.
Start the conversation this fall
If your church is considering solar, the clock is the most important variable. Stellar Solar can model elective pay and PPA options side by side and build a timeline that meets the federal deadline. Stellar Solar has engineered and installed commercial solar, carports and storage across Southern California since 1998, A+ rated with the BBB and a repeat winner of San Diego’s Best Solar in the Union-Tribune Readers Poll. Call 866.787.6527 for a free commercial evaluation, or visit stellarsolarcommercial.com. Tax benefits vary; consult your tax professional to determine eligibility.
Sources & further reading
Federal tax & elective pay
- IRS: elective pay and transferability
- IRS: elective pay frequently asked questions
- IRS IR-2024-210: register at least 120 days before filing
- IRS Notice 2025-42: beginning of construction
- 26 U.S. Code Section 6417
Rates & solar billing
Stellar Solar credibility