Solar tax equity for individuals: owning solar for the ITC versus buying credits

By the Tax Field Guide editorial team. Published 2026-10-26. Facts checked 2026-10-26. Related strategies: Solar Investment Credits, Purchased Energy Credits, Accelerated Depreciation.

Education only; not tax, legal or investment advice. Tax rules change, and how they apply depends on your facts. No outcome is guaranteed.

"Tax equity" traditionally means an investor who puts money into a renewable energy project mainly in exchange for its tax credits and depreciation. Large banks and corporations dominate that market. Individuals are offered three smaller-scale versions, and they work very differently.

Option 1: own solar equipment directly

You buy solar equipment (often placed on a host's roof or in a small array and leased or used to sell power), and you claim the investment tax credit and depreciation as the owner.

• The credit. For solar placed in service after 2024, the business credit is §48E: 6% base, 30% if the prevailing wage and apprenticeship rules are met or the facility is under 1 megawatt.¹
• Depreciation. You reduce the depreciable basis by half of the credit,² and you may be able to use bonus depreciation; see bonus depreciation and solar.
• The catch. Unless you materially participate, the credit and losses are passive and generally cannot offset tax on wages.³ At-risk rules can cut the credit base where financing is non-recourse.⁴ Five-year recapture applies if the equipment is sold or stops qualifying.²
• The deadline. A solar facility that begins construction after July 4, 2026 must be placed in service by December 31, 2027.⁵

Sponsors offering equipment ownership are listed on the solar ITC strategy page with their evidence scores, for example Fortified Solar. The historic warning is DC Solar, a mobile solar generator program that turned out to be a billion-dollar Ponzi scheme.⁶

Option 2: invest through a fund or partnership

A partnership owns the projects and allocates credits and depreciation to partners. The passive activity rules apply at the partner level, so for most individual partners the credits are passive.³ Partnership deals also raise partnership-allocation questions that need a tax adviser who reads the operating agreement.

Option 3: buy credits from a developer (§6418)

You pay cash for a credit at a discount. You do not own equipment and you do not get depreciation. The credit is subject to §469 in your hands, so for individuals it generally offsets only tax on passive income, and you carry the risk of the credit being reduced, plus a possible 20% penalty.⁷⁸ See buying transferable solar credits.

Side-by-side

• Who it can fit: owning equipment fits people who will genuinely run a solar business or who have passive income to absorb the benefit; buying credits fits people with substantial passive income tax.
• What you get: ownership gives a credit plus depreciation; buying gives only the credit, at a discount.
• Main risks: ownership carries operating, valuation, at-risk and recapture risk; buying carries the risk that the seller's credit is overstated.

Red flags (all three options)

1. Zero-down or no-money-out-of-pocket pitches.
2. 0% or below-market seller financing.
3. Equipment valued well above suggested retail or market price.

Common questions

Can an individual be a solar tax equity investor?

Yes, but the passive activity rules usually limit the credits and losses to offsetting tax on passive income unless the individual materially participates in the solar business.

Is it better to own solar equipment or buy solar tax credits?

It depends on your income mix and goals. Owning gives a credit plus depreciation but involves operating, valuation and recapture risks; buying gives only a discounted credit and the risk that the seller's credit is overstated. Either way, for most individuals the benefit is limited to passive income tax.

Education only; not tax, legal or investment advice. Talk to a qualified professional before acting.

Sources

1. 26 U.S.C. §48E, https://www.law.cornell.edu/uscode/text/26/48E
2. 26 U.S.C. §50 (recapture; basis adjustment in §50(c)), https://www.law.cornell.edu/uscode/text/26/50
3. IRS Publication 925, Passive Activity and At-Risk Rules, https://www.irs.gov/publications/p925
4. 26 U.S.C. §49, https://www.law.cornell.edu/uscode/text/26/49
5. IRS, Working Families Tax Cuts provisions page, https://www.irs.gov/newsroom/working-families-tax-cuts
6. IRS Criminal Investigation, DC Solar sentencing, https://www.irs.gov/compliance/criminal-investigation/dc-solar-accountant-is-last-to-be-sentenced-for-the-dc-solar-billion-dollar-ponzi-scheme
7. Treas. Reg. §1.6418-2(f)(3), https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR97a4759977382b4/section-1.6418-2
8. 26 U.S.C. §6418, https://www.law.cornell.edu/uscode/text/26/6418