Federal Solar Tax Credit in 2026: What Changed

What expired: the Residential Clean Energy Credit

The 30% credit available to homeowners under Internal Revenue Code Section 25D — which applied to solar panels, batteries, solar water heaters, geothermal, and small wind — was eliminated for systems placed in service after December 31, 2025. To claim the credit, the system had to be both purchased and operational by that date.

Systems that received Permission to Operate (PTO) on or before December 31, 2025 can still claim the credit on 2025 tax returns filed in 2026. Systems with PTO in 2026 or later cannot.

What's still available: the Commercial ITC

The Investment Tax Credit (Section 48E) for commercial solar projects was preserved. This applies to systems owned by businesses — including third-party residential solar providers. When a homeowner signs a lease or PPA, the solar company (not the homeowner) owns the system and claims the commercial ITC. They may pass some of that savings through to you in the form of lower lease payments or PPA rates.

This is why leases and PPAs became more competitive in 2026 — they retained access to a federal incentive that cash and loan purchases lost.

What's still available: state and utility incentives

Federal changes don't affect state programs. Most state credits, rebates, and SREC markets still operate normally:

• State tax credits: NY (25%, capped $5K), SC (25%, capped $3,500/yr), HI (35%, capped $5K), and others
• State rebates: NJ SuSI/SREC-II, MA SMART, MD residential grant, IL Shines
• Utility rebates: Xcel Solar Rewards (CO/MN), Austin Energy (TX), Duke Energy (NC), Ameren (MO)
• Net metering: still available in most states, though some have shifted to net billing or NEM 3.0-style rules

See state rebates by state for full breakdown.

What this means for solar economics

For a typical $24,000 (8 kW) system:

The math doesn't kill solar — it just shifts where solar makes sense. High-rate states (Hawaii, California, Northeast) still see 7–11 year payback. Low-rate states (WA, ID, LA, AK) now see 17–22 year payback that may not justify the investment.

What to ask any installer in 2026

Before signing any solar proposal, ask these questions and get the answers in writing:

• "Does your proposal subtract a federal tax credit from my net cost?" — If yes for cash/loan purchase, the math is wrong
• "What state and utility incentives apply to my system?" — Real numbers, not estimates
• "If I lease, how much of the commercial ITC are you passing through to me?" — Get a specific dollar amount
• "What's the cash price vs the financed price?" — Compare these to find the dealer fee

Will the credit come back?

Possibly, but not likely soon. The 25D credit was eliminated as part of the One Big Beautiful Bill Act signed in July 2025. Restoring it would require new federal legislation. The solar industry is lobbying for partial restoration, but as of April 2026 there is no active legislation to bring it back. Plan as if it's gone for good.

Could lease/PPA still make sense?

For some homeowners, yes. With cash and loans losing the federal credit, leases became more competitive on monthly cash flow. But you still don't own the system, lifetime savings are lower, and home sales get more complicated. Generally only consider a lease if (1) you can't claim a state tax credit anyway, (2) you want $0 down with zero payback risk, and (3) the lease has a 0% escalator. See our loan vs lease vs PPA comparison.

Frequently asked questions