Solar Tax Credit 2026: The Federal Credit Is Gone -- Here's What's Still Available
Key Fact: The Federal Solar Tax Credit No Longer Exists
The residential solar Investment Tax Credit (ITC) under Section 25D expired on December 31, 2025. If you install solar panels on your home in 2026, you cannot claim a federal tax credit. Any company telling you otherwise is either misinformed or deliberately misleading you.
If you have been searching for information about the solar tax credit in 2026, you are finding a lot of outdated content. Articles from 2023-2024 still rank promising a generous federal credit that no longer exists.
Here is the truth: the federal residential solar tax credit is gone. But solar incentives have not disappeared entirely. Several states still offer their own tax credits, rebates, and programs that can meaningfully reduce the cost of going solar.
What Happened to the Federal Solar Tax Credit
The federal residential solar Investment Tax Credit (ITC), codified under Section 25D of the Internal Revenue Code, allowed homeowners to deduct a percentage of their solar installation cost from their federal income taxes. At its most recent level, the credit had covered 30% of total system costs -- equipment, labor, permitting, and sales tax.
The Inflation Reduction Act of 2022 had extended this credit at 30% through 2032. That timeline never played out. The residential ITC was repealed as part of the broader rollback of IRA clean energy provisions, and it officially expired for residential installations on December 31, 2025.
For a homeowner installing a $25,000 solar system, this means the loss of a $7,500 credit that would have been available just months earlier. That changes the payback math -- but does not make solar unaffordable.
The Full History of the Federal Solar ITC (2005-2025)
Understanding why the federal solar tax credit disappeared in 2026 requires understanding its twenty-year arc. The residential Investment Tax Credit was never a permanent part of the tax code -- it was a temporary incentive that Congress repeatedly extended, reshaped, and ultimately allowed to sunset. Here is the long view.
Origins: The Energy Policy Act of 2005
The Energy Policy Act of 2005, signed by President George W. Bush, created the first federal residential solar tax credit. Initially, the credit was capped at just $2,000 per residential installation -- a modest incentive at a time when rooftop solar was still an expensive novelty. The original law scheduled the credit to expire at the end of 2007.
The industry was small, installation costs exceeded $8 per watt, and only about 500 megawatts of residential solar capacity existed nationwide. The $2,000 cap rarely covered more than 10% of a typical system's cost.
The 2008 Expansion and Financial Crisis
The Emergency Economic Stabilization Act of 2008 -- better known as the bank bailout -- included a significant solar provision: the $2,000 cap was removed, and the 30% credit became uncapped. This was the first time the credit approached its modern form. The law also extended the credit through 2016.
Combined with rapidly falling panel prices (down roughly 75% between 2008 and 2016), the uncapped 30% credit ignited the residential solar boom. Installations grew from roughly 30,000 per year in 2008 to over 300,000 per year by 2015.
The 2015 Extension and Planned Phase-Down
In late 2015, facing expiration of the 30% credit, Congress passed the Consolidated Appropriations Act. This extended the full 30% credit through 2019, then initiated a planned stepdown: 26% in 2020, 22% in 2021, and zero thereafter for residential installations.
The stepdown was meant to gradually wean the industry off federal support as costs fell. It did not quite play out that way.
The 2020 and 2021 Extensions
When the 2020 stepdown took effect, installers and industry groups lobbied hard for extensions. The Consolidated Appropriations Act of 2021 delayed the stepdown: 26% was extended through 2022, and a tiered schedule pushed the residential expiration to the end of 2023.
The Inflation Reduction Act of 2022: Peak of the ITC
The Inflation Reduction Act (IRA) of 2022, signed by President Biden, represented the most ambitious expansion of federal solar incentives in U.S. history. Key provisions:
- Residential credit (Section 25D) restored to 30% and extended through 2032, with a stepdown to 26% in 2033 and 22% in 2034
- Expanded to cover standalone battery storage (previously only batteries charged by solar qualified)
- Created a new commercial ITC under Section 48E with direct-pay and transferability options
- Added bonus credits for domestic content, energy communities, and low-income projects
Between the 2022 IRA passage and the end of 2024, U.S. residential solar installations set record highs. Industry forecasts assumed the 30% credit would remain in place through 2032, and most installer business models were built on that assumption.
The 2025 Repeal
Following the 2024 federal elections, Congress passed and the President signed a broad rollback of IRA clean energy provisions. The One Big Beautiful Bill Act (OBBBA) -- enacted in 2025 -- eliminated or restructured most IRA energy tax credits, including the residential Section 25D credit. Under the new law, residential installations placed in service after December 31, 2025 no longer qualify.
Homeowners who installed and commissioned systems during 2025 were allowed to claim the full 30% credit on their 2025 tax return (filed in 2026). Systems commissioned in 2026 or later receive nothing from the federal government for residential purchase.
Why the ITC Expired: The Political Story
A 30% tax credit for rooftop solar is not, on its face, partisan. Various forms of the ITC passed under Republican and Democratic administrations between 2005 and 2022. So why was it repealed in 2025?
1. Budget Pressure
The Congressional Joint Committee on Taxation estimated the IRA clean energy credits would cost roughly $370 billion over ten years, with projections revised upward to over $1 trillion as uptake exceeded forecasts. In a budget-reconciliation environment seeking offsets for other priorities, clean-energy credits became a primary target.
2. Political Opposition to the IRA
Many lawmakers had campaigned on repealing the IRA entirely. Once the composition of Congress shifted in 2025, repeal of IRA energy provisions became a policy priority rather than a budgetary afterthought. Residential solar -- as a high-profile IRA beneficiary -- was an obvious target.
3. Industry Maturity Argument
Proponents of repeal argued that the residential solar industry had matured to a point where subsidies were no longer necessary. Panel prices had fallen over 90% since 2005, installed costs dropped to around $3 per watt, and over five million U.S. homes already had rooftop solar. The original rationale for the credit -- subsidizing an emerging technology -- had arguably been satisfied.
4. Shift Toward Commercial and Industrial Scale
Notably, the commercial ITC under Section 48E was not fully eliminated. Utility-scale solar, battery storage, and manufacturing credits (45X) were largely preserved, reflecting a policy shift toward large-scale clean energy rather than distributed residential generation.
The political economy of utility-scale renewables -- often built in rural, politically mixed districts with concentrated job and tax-base benefits -- is different from rooftop solar, which is spread across millions of individual homeowners and benefits primarily suburban middle- and upper-income households.
Timeline: How We Got Here
| Year | Event |
|---|---|
| 2006 | Residential solar ITC created (30% credit) |
| 2015 | Extended at 30% through 2019 |
| 2020 | Extended again; stepdown delayed |
| 2022 | IRA restores 30% through 2032 |
| 2025 | IRA clean energy provisions repealed; residential ITC expires Dec 31 |
| 2026 | No federal residential solar tax credit available |
The Commercial ITC Still Exists -- What That Means for You
The commercial Investment Tax Credit under Section 48E remains in effect for businesses. This matters if you are considering a solar lease or PPA -- the leasing company can claim the commercial ITC, which may be reflected in lower lease payments.
If you were planning to purchase outright and counting on the federal credit, this does not help directly. But leases and PPAs may now be relatively more attractive. See our lease vs buy vs PPA guide.
State Solar Tax Credits Still Available in 2026
Multiple states operate their own solar tax credit programs -- state income tax credits claimed on your state tax return, completely independent of the federal government:
| State | State Tax Credit | Details |
|---|---|---|
| Arizona | 25% up to $1,000 | Residential solar energy credit |
| Iowa | Up to $5,000 | Solar Energy System Tax Credit; funding-limited |
| Massachusetts | 15% up to $1,000 | Residential renewable energy credit |
| Montana | Up to $1,000 | Alternative energy system credit |
| New Mexico | 10% up to $6,000 | Solar Market Development Tax Credit |
| New York | 25% up to $5,000 | Highest state credit available |
| South Carolina | 25% up to $3,500 | Can carry forward unused portions |
| Utah | Up to $1,600 | Renewable residential energy credit |
Always verify through DSIRE before making decisions. For a complete 50-state breakdown, see Solar Incentives by State 2026.
State-by-State Alternatives to the Federal ITC
With the federal credit gone, your state becomes the single biggest variable in whether solar pencils out. The table below summarizes the strongest residential solar incentive packages in 2026, combining tax credits, rebates, net metering, and tax exemptions.
| State | Primary Incentive | Net Metering | Tax Exemptions |
|---|---|---|---|
| New York | 25% state credit up to $5,000 + NY-Sun rebates | Full retail | Property + Sales |
| Massachusetts | 15% state credit + SMART production incentive | Full retail (below 10kW) | Property + Sales |
| New Jersey | SREC-II / SuSI program | Full retail | Property + Sales |
| South Carolina | 25% state credit up to $3,500 (carries forward) | Varies by utility | Property (municipal) |
| Arizona | 25% state credit up to $1,000 | Net billing (APS/SRP) | Property + Sales |
| New Mexico | 10% state credit up to $6,000 | Full retail | Property + Sales |
| California | SGIP battery rebates (income-targeted) | NEM 3.0 (avoided-cost) | Property |
| Illinois | Illinois Shines upfront REC payments | Full retail (1:1) | Property |
| Iowa | State credit up to $5,000 (funding-limited) | Full retail | Property + Sales |
| Connecticut | RSIP performance incentive | Full retail | Property + Sales |
| Colorado | Xcel Solar*Rewards per-watt incentive | Full retail | Property + Sales |
| Florida | No state credit; strong net metering | Full retail | Property + Sales |
| Texas | Utility rebates (Austin Energy, CPS Energy) | Varies widely | Property |
| Utah | State credit up to $1,600 | Net billing | Property |
| Montana | State credit up to $1,000 | Full retail | None |
States not listed (Ohio, Michigan, Pennsylvania, Georgia, Tennessee, etc.) generally offer no dedicated residential solar tax credit and limited or no net metering, which makes the economics significantly harder in 2026. See Solar Panels Without the Tax Credit for the detailed ROI analysis.
State and Utility Rebate Programs
Beyond tax credits, many states and utilities offer direct cash rebates:
- California SGIP: Battery storage rebates, especially for low-income and fire-threat areas
- New York NY-Sun: Per-watt rebates through NYSERDA
- Massachusetts SMART: Performance-based production incentive
- Illinois Adjustable Block Program: Upfront REC payments through Illinois Shines
- Colorado Xcel Solar*Rewards: Per-watt utility incentives
- Connecticut RSIP: Performance-based incentives
Net Metering: The Other Major Incentive
With the federal credit gone, strong net metering is now the single most important factor in your solar payback period.
- Full retail rate (best): NJ, NY, MA, and others credit at full retail
- Net billing/reduced rate: CA (NEM 3.0) and others credit at lower than retail
- No statewide mandate: Some states leave it to individual utilities
Property and Sales Tax Exemptions
Property tax exemptions prevent solar from increasing your property tax bill. Available in AZ, CA, CO, CT, FL, IA, MD, MA, MN, MT, NV, NH, NJ, NM, NY, NC, ND, OR, RI, TX, VT, VA, and others.
Sales tax exemptions save you the tax on the full purchase price. At 6% on $25,000, that is $1,500. Available in AZ, CT, FL, MD, MA, MN, NJ, NY, RI, VT, WA, and others.
How to Calculate Your Actual 2026 Tax Savings
Without the federal ITC, your total 2026 tax savings from solar come from four possible sources, stacked together:
- State income tax credit -- claimed on your state return, reduces your state tax liability dollar-for-dollar (up to the cap).
- Sales tax exemption -- reduces the purchase price at the point of sale; no paperwork needed if your state offers it.
- Property tax exemption -- prevents the added home value from raising your annual property tax bill. Save roughly 1-2% of the system cost per year, every year.
- Direct rebates / performance incentives -- upfront cash rebates or ongoing per-kWh payments (SRECs, SMART, NY-Sun). Technically not tax savings, but they reduce net cost similarly.
The formula for quick estimation:
Annual savings = Electricity avoided + Net metering credits + Property tax not paid
Simple payback (years) = Net system cost / Annual savings
Calculation Examples: California, Texas, Florida
To make this concrete, here is how the math shakes out for an identical 8 kW residential system ($25,000 gross cost, producing roughly 11,000 kWh/year) across three large solar markets in 2026.
Example 1: California (8 kW, PG&E territory)
| Gross system cost | $25,000 |
| State income tax credit | $0 (CA has none) |
| Sales tax exemption | $0 (not exempt) |
| SGIP battery rebate (if added) | -$1,500 to -$4,000 (battery only) |
| Net system cost (solar only) | $25,000 |
| Annual electricity avoided (NEM 3.0) | ~$2,400 |
| Property tax avoided | ~$250/year |
| Estimated payback | ~10-11 years |
California has no state income tax credit and NEM 3.0 significantly reduces export compensation compared to the old NEM 2.0. The economic case now depends heavily on pairing solar with a battery to time-shift self-consumption. High electricity rates ($0.35-$0.50/kWh) still make solar viable, but the payback is materially longer than under the old federal credit.
Example 2: Texas (8 kW, Austin Energy customer)
| Gross system cost | $25,000 |
| State income tax credit | $0 (no state income tax) |
| Property tax exemption | Yes (reduces ongoing cost ~$300/yr) |
| Austin Energy Value of Solar rebate | -$2,500 (approx, 8 kW eligible) |
| Net system cost | $22,500 |
| Annual electricity avoided + VoS credit | ~$1,500-$1,800 |
| Property tax avoided | ~$300/year |
| Estimated payback | ~11-13 years |
Texas has no state income tax so a state income tax credit is structurally impossible, but the state offers a strong property tax exemption. Payback varies dramatically by utility: Austin Energy and CPS Energy offer the best rebates, while most ERCOT retail providers (Houston, Dallas) offer only limited or no buyback programs. If you live in a non-rebate utility territory in Texas, payback may push to 14-16 years.
Example 3: Florida (8 kW, statewide)
| Gross system cost | $25,000 |
| State income tax credit | $0 (no state income tax) |
| Sales tax exemption (6%) | -$1,500 |
| Property tax exemption | 100% (ongoing savings ~$225/yr) |
| Net up-front cost | $23,500 |
| Annual electricity avoided (net metering full retail) | ~$1,900 |
| Property tax avoided | ~$225/year |
| Estimated payback | ~10-11 years |
Florida has no state income tax credit but benefits from three stackable incentives: sales tax exemption, property tax exemption, and strong one-to-one net metering. Combined with excellent solar resource (roughly 1,450 kWh per kW installed per year), the state remains one of the better solar markets even without the federal ITC. For a state-specific deep dive, see Florida Solar Incentives 2026.
Comparing the Three
For the same $25,000 system, New York (not shown) delivers the strongest economics of any state in 2026 thanks to the $5,000 state credit, NY-Sun rebate, full-retail net metering, and property + sales tax exemptions -- often bringing net cost below $17,000 and payback inside 9 years. California, Texas, and Florida land in a 10-13 year payback range depending on utility, while states with no meaningful incentives (most of the Southeast and Midwest outside Illinois and Iowa) commonly see 14-18 year paybacks in 2026.
Is Solar Still Worth It Without the Federal Credit?
For many homeowners, yes. Here is a comparison for a typical 8 kW system at $25,000:
| Factor | 2025 (with federal credit) | 2026 (no federal credit) |
|---|---|---|
| System cost | $25,000 | $25,000 |
| Federal credit | -$7,500 (was available) | $0 (expired) |
| State credit (NY example) | -$5,000 | -$5,000 |
| Net cost | $12,500 | $20,000 |
| Annual savings | ~$1,800 | ~$1,800 |
| Payback period | ~7 years | ~11 years |
An 11-year payback on a 25-30 year system still delivers 14-19 years of free electricity. Solar is most worth it if your state offers incentives, electricity rates exceed $0.15/kWh, you have strong net metering, good sun, and plan to stay 10+ years.
How to Maximize Your Savings in 2026
- Stack every state and local incentive. Use DSIRE.
- Get 3+ quotes. Pricing varies $5,000-$10,000 for the same system.
- Consider a lease or PPA. The commercial ITC still benefits leasing companies.
- Right-size your system. Match actual usage, not more.
- Avoid financing traps. Watch for hidden dealer fees (15-25%). Compare total cost.
- Negotiate hard. Demand has softened. Ask for price matching and upgrades.
Watch Out for Companies Still Promising the Federal Credit
Warning
Some companies are still running ads referencing the federal credit in 2026. This is either outdated or deceptive. If a salesperson mentions a federal tax credit for a purchased system, ask them to show you IRS guidance. They cannot. See 10 solar scams and how to protect yourself.
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Is there a federal solar tax credit in 2026?
No. The federal residential solar tax credit (Section 25D ITC) expired on December 31, 2025. Homeowners who install solar in 2026 cannot claim a federal tax credit. The commercial ITC (Section 48E) still exists for businesses only.
What happened to the 30% solar tax credit?
It was repealed as part of the broader rollback of Inflation Reduction Act clean energy provisions. The credit expired for residential installations on December 31, 2025.
Which states still offer solar tax credits?
Arizona (25% up to $1,000), New York (25% up to $5,000), South Carolina (25% up to $3,500), New Mexico (10% up to $6,000), Iowa (up to $5,000), Massachusetts (15% up to $1,000), Montana (up to $1,000), and Utah (up to $1,600).
Is solar still worth it without the federal credit?
For many homeowners, yes. The payback period is longer but state incentives, net metering, and rising electricity costs can still make solar a strong investment.
Does the commercial solar tax credit still exist?
Yes. The commercial ITC under Section 48E remains for businesses. Solar leases and PPAs can still benefit indirectly. But homeowners purchasing outright cannot claim any federal credit.
Will the federal solar tax credit come back?
There is no current legislation to reinstate it. Make decisions based on current law.
I installed my system in December 2025 -- can I still claim the 30% credit?
Yes. The key date is when the system was "placed in service" -- meaning permission to operate (PTO) was granted by your utility. If your system received PTO on or before December 31, 2025, you claim the 30% credit on your 2025 tax return using IRS Form 5695. Systems commissioned on or after January 1, 2026 receive no federal credit.
Are batteries still eligible for any federal credit in 2026?
No. The IRA had extended the residential ITC to cover standalone battery storage of 3 kWh or more. That provision was repealed along with the broader Section 25D credit. Residential batteries installed in 2026 receive no federal tax credit. State-level programs like California's SGIP and Oregon's battery rebate still exist.
Do I need to file Form 5695 for 2025 installations?
Yes, if your system was placed in service in 2025. File IRS Form 5695 (Residential Energy Credits) with your 2025 federal return. The credit is non-refundable but can be carried forward to future tax years if it exceeds your liability. Consult a tax professional for specifics.
What about the EV charger tax credit?
The Section 30C Alternative Fuel Vehicle Refueling Property Credit is a separate credit from the solar ITC and is set to expire June 30, 2026. It may cover up to 30% of home EV charger costs up to $1,000, but eligibility depends on your census tract. See our Solar Panels + EV Charging Guide for details.
Which state has the best solar incentives in 2026?
By absolute dollar value, New York leads with a $5,000 state credit, NY-Sun rebates, full retail net metering, and property and sales tax exemptions. South Carolina is the runner-up on the tax credit side (25% up to $3,500 with carry-forward). For states without income tax, Florida offers the strongest combination via sales-tax exemption, property-tax exemption, and full-retail net metering.
How much is the ITC worth historically?
From 2006 to 2007, the credit was capped at $2,000 per installation. Starting in 2009, it became an uncapped 30% credit. It stepped down to 26% in 2020 and 22% in 2021 before being restored to 30% by the IRA for 2022-2032. That full 2032 extension was cut short by the 2025 OBBBA repeal.
Can I still benefit from the commercial ITC as a homeowner?
Indirectly. If you sign a solar lease or PPA, the commercial entity that owns the system can claim the Section 48E commercial ITC. That tax savings may -- depending on the deal -- be reflected in lower monthly lease or PPA payments. You do not claim it yourself, and the benefit depends entirely on how competitive the lessor's offer is.
Does my state's tax credit cover batteries?
It varies by state. New York, Arizona, and South Carolina state credits generally apply to solar PV equipment and may include battery storage that is charged by solar. Read each state's statute or DSIRE entry carefully, because the rules and caps differ. California does not have a state tax credit for solar but has the SGIP rebate for batteries.
The Bottom Line
The federal credit is gone. But solar in 2026 is defined by falling panel prices, rising electricity costs, state-level programs, and net metering -- not a single incentive. In states with strong programs, solar still delivers attractive returns. Do not let any company sell you on incentives that no longer exist.
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