Islamic Solar Finance Vehicle
Ijara wa IqtinaIjara wa Iqtina pairs a lease (rent for use of the equipment) with an option to buy later at an agreed price—structured so payments are rent on a real asset, not interest on a loan. · Section 48ESection 48E is the part of the tax code that defines which clean electricity facilities can qualify for the federal energy credit, including many commercial solar projects. ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. · 100% Bonus DepreciationBonus depreciation lets a business deduct a large share of a solar system’s cost in early years (often year one), lowering taxable income faster than spreading deductions evenly. · Domestic Content Adder
Critical window: To claim the 30% commercial ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. under Section 48ESection 48E is the part of the tax code that defines which clean electricity facilities can qualify for the federal energy credit, including many commercial solar projects., construction must begin on or before July 4, 2026 — approximately 76 days from today. Projects placed in service by December 31, 2027 after meeting this start date remain eligible.
The three federal incentive pillars
Pillar 1 — Investment Tax Credit (ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner.)
Section 48ESection 48E is the part of the tax code that defines which clean electricity facilities can qualify for the federal energy credit, including many commercial solar projects.
A dollar-for-dollar reduction in federal tax liability equal to a percentage of the system's installed cost. Because the finance vehicle owns the system (as lessor under the Ijara), it — not the homeowner — claims the ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner.. This is the same mechanism AURA already uses.
Base credit rate
30%
Of total installed cost
Domestic content bonus
+10%
= 40% total if qualified
Credit type
Direct
Dollar-for-dollar vs tax owed
Transferable?
Yes
Sell to third party via §6418
Pillar 2 — Accelerated Bonus DepreciationBonus depreciation lets a business deduct a large share of a solar system’s cost in early years (often year one), lowering taxable income faster than spreading deductions evenly.
OBBB · Section 168(k)
The One Big Beautiful Bill (signed July 4, 2025) eliminated 5-year MACRS for solar but restored 100% first-year bonus depreciation for property placed in service after January 19, 2026. This means the finance vehicle can deduct the full depreciable basis — 85% of system cost — in Year 1 alone.
85%
Depreciable basis calculation
IRS reduces your depreciable basis by half the ITC amount. With a 30% ITC: basis = 100% − (50% × 30%) = 85% of gross system cost. On a $30K system, you depreciate $25,500 in Year 1.
~21%
Effective cash benefit of depreciation
At a 25% effective federal tax rate, the $25,500 deduction saves $6,375 in cash taxes. That's 21.25% of gross system cost recovered in Year 1 via depreciation alone.
2030
Expiration of 100% bonus depreciation
100% bonus depreciation runs through January 1, 2030. Systems placed in service after this date revert to a longer, less favorable recovery period. Act before 2030 to capture the full benefit.
Pillar 3 — Domestic Content Bonus
IRS Notice 2025-08
An additional 10% ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. adder for projects using qualified US-manufactured components. For residential rooftop systems under 1 MW, PWA (prevailing wage) requirements do not apply — only the domestic content sourcing test matters.
100%
Steel and iron requirement
All structural steel and iron components (racking, foundation posts, rebar) must be 100% US-made. Non-negotiable threshold.
50%
Manufactured product threshold (2026)
At least 50% of the total manufactured product costs (panels, inverters, wiring) must be US-made in 2026. This increases to 55% in 2027. Use the IRS safe harbor table (Notice 2025-08) to calculate — no need to get direct cost data from manufacturers.
FEOCFEOC (Foreign Entity of Concern) names categories of overseas manufacturers tax rules may restrict—projects may need to limit how much equipment is sourced from those suppliers.
Foreign Entity of Concern restriction
Projects beginning construction after December 31, 2025 must certify ≤40% of components come from Foreign Entities of Concern (primarily Chinese-owned manufacturers). SolarEdge is one confirmed non-FEOC inverter supplier.
The 5-year recapture rule — clarifying the "6-year" question
ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. Recapture PeriodThe recapture period is the years after the system is placed in service when the IRS can reclaim part of the tax credit if the project is sold early or stops qualifying. (§50(a))
If the finance vehicle disposes of the solar system — or if it ceases to be a qualified energy facility — within 5 years of the placed-in-service date, the IRS claws back a portion of the ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner.. This is the holding period constraint that governs when the homeowner can take ownership. The recapture vests 20% per year:
Where "6 years" comes from: Under the old 5-year MACRS (now eliminated by OBBB for solar), the half-year convention spread depreciation over 6 tax years. Practitioners adopted "6-year hold" as a conservative buffer — one year past the full Recapture PeriodThe recapture period is the years after the system is placed in service when the IRS can reclaim part of the tax credit if the project is sold early or stops qualifying. — to give a clean margin before transferring ownership. Under 100% Bonus DepreciationBonus depreciation lets a business deduct a large share of a solar system’s cost in early years (often year one), lowering taxable income faster than spreading deductions evenly., the depreciation issue is gone in Year 1, but the 5-year ITC recapture period remains. The practical implication: the Ijara lease term should be at least 6 years before the homeowner exercises their Promise to PurchaseA Promise to Purchase is a contractual option (not a requirement) for the homeowner to buy the system later, often at a nominal price, after tax rules allow a safe transfer. — this is your structural constraint.
Adjust parameters to model a deal
Year 1 tax benefit breakdown
Gross system cost$30,000
ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. credit (base 30%) 30%
−$9,000
Bonus DepreciationBonus depreciation lets a business deduct a large share of a solar system’s cost in early years (often year one), lowering taxable income faster than spreading deductions evenly. benefit
85% basis × 100% × tax rate −$6,375
85% basis × 100% × tax rate −$6,375
DC bonus (if applicable)
Additional 10% ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. $0
Additional 10% ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. $0
Total Year-1 tax benefit
ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. + depreciation savings
$15,375
Net effective cost
$14,625
After all Year-1 benefits
Cost recovery rate
51.3%
Recovered in Year 1
Lease income (20 yrs)
$24,000
Undiscounted total
NPV lease income
$11,963
At 8% discount rate
Capital return profile (investor perspective)
Capital deployed per system$30,000
Year-1 tax benefit cash return$15,375
Remaining net capital at risk$14,625
NPV of lease distributions (20yr)$11,963
Estimated total value returned$27,338
Total value vs capital deployed91%
This is a simplified NPV model. Actual investor IRR will also include management fees, servicing costs, residual asset value, and state-level incentives. Consult a tax attorney before structuring.
Revenue to Raynora (per 1,000 systems at scale)
Origination fee — 2% per deal
At $30,000 avg system × 1,000 systems = $600,000 one-time
AUM management fee — 0.75% annually
On $30M AUM = $225,000/year recurring
Lease servicing spread
Difference between collected lease payments and investor distributions = residual margin over lease term
Legal entity structure
The finance vehicle is structured as an SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company. (Special Purpose Vehicle) — likely a Delaware LLC — wholly owned or managed by Raynora. Investors enter as MusharakaMusharaka is a Sharia-compliant profit-and-loss partnership: partners contribute capital, share real business risk, and earn a share of actual profits—not a guaranteed return like interest. (equity partnership) members. The SPV owns the solar systems, claims all tax benefits, and leases systems to homeowners under the Ijara structure.
Investors (MusharakaMusharaka is a Sharia-compliant profit-and-loss partnership: partners contribute capital, share real business risk, and earn a share of actual profits—not a guaranteed return like interest.)
Contribute equity capital
Contribute equity capital
↓ Capital in
Raynora Solar Finance SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company.
Delaware LLC · Owns all systems · Claims ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. + depreciation
Delaware LLC · Owns all systems · Claims ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. + depreciation
↓ Purchase price
← Monthly rental
← ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. + Bonus DepreciationBonus depreciation lets a business deduct a large share of a solar system’s cost in early years (often year one), lowering taxable income faster than spreading deductions evenly. benefit
EPC / Installer
Installs system, gets paid at completion
Installs system, gets paid at completion
Homeowner
Lessee under Ijara, pays rental monthly
Lessee under Ijara, pays rental monthly
IRS / Federal
ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. credit + Bonus DepreciationBonus depreciation lets a business deduct a large share of a solar system’s cost in early years (often year one), lowering taxable income faster than spreading deductions evenly. shield
ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. credit + Bonus DepreciationBonus depreciation lets a business deduct a large share of a solar system’s cost in early years (often year one), lowering taxable income faster than spreading deductions evenly. shield
The Ijara wa IqtinaIjara wa Iqtina pairs a lease (rent for use of the equipment) with an option to buy later at an agreed price—structured so payments are rent on a real asset, not interest on a loan. Contract Flow
1
SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company. purchases the solar system from the EPC/installer at full cost. Ownership vests in the SPV — this is required to claim the ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner..
2
SPV leases the system to the homeowner under a written Ijara (rental) agreement. Monthly payments are rental, not interest. No riba.
3
SPV files for ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. (30–40%) and 100% Bonus DepreciationBonus depreciation lets a business deduct a large share of a solar system’s cost in early years (often year one), lowering taxable income faster than spreading deductions evenly. in Year 1. Tax benefits flow to SPV, then distributed to MusharakaMusharaka is a Sharia-compliant profit-and-loss partnership: partners contribute capital, share real business risk, and earn a share of actual profits—not a guaranteed return like interest. investors as profit-sharing — not as interest.
4
The SPV issues a Promise to PurchaseA Promise to Purchase is a contractual option (not a requirement) for the homeowner to buy the system later, often at a nominal price, after tax rules allow a safe transfer. — giving the homeowner the right (not obligation) to buy the system at a pre-agreed nominal price ($1 or fair market value) after the Recapture PeriodThe recapture period is the years after the system is placed in service when the IRS can reclaim part of the tax credit if the project is sold early or stops qualifying..
5
After year 6 (one year past the 5-year ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. Recapture PeriodThe recapture period is the years after the system is placed in service when the IRS can reclaim part of the tax credit if the project is sold early or stops qualifying. window), ownership may safely transfer to the homeowner with zero recapture exposure. The Ijara lease ends, and the Promise to PurchaseA Promise to Purchase is a contractual option (not a requirement) for the homeowner to buy the system later, often at a nominal price, after tax rules allow a safe transfer. executes.
Islamic finance compliance pillars
No Riba
Rental income
Payments are rent on a tangible asset, not interest on money
Asset-backed
Real property
Solar system is the underlying tangible asset — no speculative instrument
Risk sharing
MusharakaMusharaka is a Sharia-compliant profit-and-loss partnership: partners contribute capital, share real business risk, and earn a share of actual profits—not a guaranteed return like interest.
Investors share risk of ownership and profit from returns
Transparency
Full disclosure
All costs, terms, and profit margins disclosed upfront to investors and customers
Sharia board required: Any vehicle marketed as Islamic-compliant must be reviewed and certified by an independent Sharia supervisory board. Work with scholars familiar with Ijara wa IqtinaIjara wa Iqtina pairs a lease (rent for use of the equipment) with an option to buy later at an agreed price—structured so payments are rent on a real asset, not interest on a loan. structures — this is non-negotiable for credibility with Muslim investors and customers.
How each party experiences this vehicle
Homeowner / Customer
Lessee (Ijara)
Calls Raynora, qualifies for the Ijara program — no credit score needed beyond basic lease screening
System installed by certified EPC with no upfront cost
Signs Ijara lease agreement — pays fixed monthly rental, no interest, no balloon payment
Electricity savings immediately offset or exceed monthly rental
After year 6, has the right to purchase the system for $1 or nominal FMV
Islamic-compliant: no riba, no gharar, asset-backed contract
Unlike AURA: does not receive a cashback check — the ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. benefit flows to the finance vehicle and investors instead
Investor
MusharakaMusharaka is a Sharia-compliant profit-and-loss partnership: partners contribute capital, share real business risk, and earn a share of actual profits—not a guaranteed return like interest. partner
Contributes equity capital to the SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company. — minimum investment TBD (likely $100K–$500K for accredited investors)
Receives ~50% of invested capital back in Year 1 via ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. monetization and depreciation tax shield
Receives quarterly profit distributions from pooled lease payments over 20–25 years
Halal return structure: profit-sharing (MusharakaMusharaka is a Sharia-compliant profit-and-loss partnership: partners contribute capital, share real business risk, and earn a share of actual profits—not a guaranteed return like interest.), not fixed interest — compliant for Muslim investors
Recapture PeriodThe recapture period is the years after the system is placed in service when the IRS can reclaim part of the tax credit if the project is sold early or stops qualifying. risk is minimal — residential systems are dispersed, rarely destroyed, and customers can't buy out within recapture period
Tax credit may also be transferred (§6418) to offset investor's own corporate tax liability
Raynora (Finance Co.)
SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company. manager / originator
Sources deals through existing Raynora channels (SMS, digital funnel, referrals)
Structures and manages the SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company. — does not install systems
Earns origination fee per deal (2–3% of system cost)
Earns annual AUM management fee (0.5–1% of portfolio)
Earns lease servicing margin between collected payments and investor distributions
Builds a scalable, recurring revenue business independent of installation
Does NOT need Aurora Solar credentials or Freedom Forever relationship to operate this vehicle
Installer / EPC
Contractor (arm's length)
Receives full purchase price from the SPV upon system completion and commissioning
No financing risk — payment guaranteed at placed-in-service date
Does not claim ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. (the SPV does, as owner)
EPC must provide domestic content certification if DC bonus is claimed — critical that they can verify US-made components (SolarEdge, QCells, US-made racking)
Relationship: Raynora brings the customer and the capital; installer delivers the project
Revenue share: zero ongoing — installer is paid once, at cost + margin
Revenue share waterfall (per $30,000 system)
Installer / EPC payment$30,000 (gross system cost)
Raynora origination fee (2%)$600 one-time
ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. claim by SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company. → investors$9,000 Year 1
Depreciation benefit → investors~$6,375 Year 1
Lease payments (20 yr undiscounted)$24,000 → split investors + Raynora
Raynora AUM fee (0.75%/yr on $30K)$225/yr × 20 yrs = $4,500
Residual system value at year 20+Homeowner exercises Promise to PurchaseA Promise to Purchase is a contractual option (not a requirement) for the homeowner to buy the system later, often at a nominal price, after tax rules allow a safe transfer. at nominal cost
Note: Exact investor distribution percentage vs. Raynora servicing margin is set at fund formation. Common structure: 80% of net lease cash to investors after fees, with carried interest to Raynora on performance above a hurdle rate.
Open questions to resolve with counsel
1
Securities law
Pooling investor capital into an SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company. likely constitutes a securities offering. Requires either a Reg D 506(b) exemption (accredited investors) or Reg CF (crowdfunding). Work with a securities attorney before raising capital.
2
Sharia certification
Engage a recognized Sharia supervisory board (e.g., Amanie Advisors, Dar Al Sharia, or ISNA's AAOIFI scholars) to certify the Ijara contract structure and the MusharakaMusharaka is a Sharia-compliant profit-and-loss partnership: partners contribute capital, share real business risk, and earn a share of actual profits—not a guaranteed return like interest. investor terms.
3
ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. pass-through vs. retention
If investors have insufficient tax liability to absorb the ITC directly, consider selling the credit via §6418 transferability to a corporate tax credit buyer at ~90–95 cents on the dollar. This converts the credit to cash without requiring investors to have tax appetite.
4
State UCC filings
The SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company. must file UCC-1 financing statements on the solar equipment in each state of operation to perfect its security interest as owner of the collateral against any competing claims.
Pitching to a homeowner
Lead with outcomes, then structure. You are not a tax advisor—stay in plain language.
- No upfront cost: The finance vehicle pays for the system; the customer pays a predictable monthly amount.
- Islamic-compliant structure: Payments are Ijara wa IqtinaIjara wa Iqtina pairs a lease (rent for use of the equipment) with an option to buy later at an agreed price—structured so payments are rent on a real asset, not interest on a loan.—rent on a real asset (the solar equipment), not interest on borrowed money.
- Fixed monthly payment: No surprise rate hikes; amount is set in the lease.
- Own it after ~6 years: The Promise to PurchaseA Promise to Purchase is a contractual option (not a requirement) for the homeowner to buy the system later, often at a nominal price, after tax rules allow a safe transfer. lets them buy the system at a nominal price once the ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. Recapture PeriodThe recapture period is the years after the system is placed in service when the IRS can reclaim part of the tax credit if the project is sold early or stops qualifying. has safely passed—typically year 6+.
Common objections
“How is this different from a regular lease?”
Same idea—use the equipment for a monthly payment—but the contract is structured as Ijara wa IqtinaIjara wa Iqtina pairs a lease (rent for use of the equipment) with an option to buy later at an agreed price—structured so payments are rent on a real asset, not interest on a loan. (rent + purchase option) so payments are not priced as interest. Tax credits accrue to the owner (the SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company.), not as a homeowner “cashback.”
“What happens after 6 years?”
They may exercise the Promise to PurchaseA Promise to Purchase is a contractual option (not a requirement) for the homeowner to buy the system later, often at a nominal price, after tax rules allow a safe transfer. and buy the system for a small agreed amount, or continue under whatever terms the program allows—exact options are in the documents.
“Is this really halal?”
The product is designed for Sharia compliance (rent on a real asset, profit-sharing for investors), but final rulings come from an independent Sharia board—don’t play scholar; offer to connect them to approved disclosures.
“What if I want to sell my house?”
Explain that the lease (and any assignment rules) runs with the program’s standard process—buyer may assume or pay off per contract; you don’t draft that language. Escalate to operations/legal for specifics.
Documents the homeowner signs
- Ijara lease agreement — rent for use of the solar system; not a loan agreement.
- Promise to PurchaseA Promise to Purchase is a contractual option (not a requirement) for the homeowner to buy the system later, often at a nominal price, after tax rules allow a safe transfer. — option to buy later at a nominal or agreed price after the safe window.
What you do not handle
- Tax filings, ITCThe Investment Tax Credit (ITC) reduces federal income tax by a percentage of the cost of a qualifying solar system—it works like a tax coupon, not a cash rebate to the homeowner. / Bonus DepreciationBonus depreciation lets a business deduct a large share of a solar system’s cost in early years (often year one), lowering taxable income faster than spreading deductions evenly. modeling for the customer’s personal return.
- Sharia certification or fatwa—refer to compliance and official disclosures.
- Investor relations, fund terms, or securities questions—hand off to finance/legal.
Simple timeline
Day 1
Customer signs the Ijara wa IqtinaIjara wa Iqtina pairs a lease (rent for use of the equipment) with an option to buy later at an agreed price—structured so payments are rent on a real asset, not interest on a loan.-style lease and related paperwork (including the Promise to PurchaseA Promise to Purchase is a contractual option (not a requirement) for the homeowner to buy the system later, often at a nominal price, after tax rules allow a safe transfer.).
Installation
EPC installs and commissions; SPVAn SPV (Special Purpose Vehicle) is a separate legal entity created to own specific assets—here, solar systems—and ring-fence risk away from a parent company. pays installer per contract.
Month 1
First rental payment begins per schedule.
Year 6+
After the Recapture PeriodThe recapture period is the years after the system is placed in service when the IRS can reclaim part of the tax credit if the project is sold early or stops qualifying. window, customer may exercise Promise to PurchaseA Promise to Purchase is a contractual option (not a requirement) for the homeowner to buy the system later, often at a nominal price, after tax rules allow a safe transfer. (typical messaging—verify with counsel).