Solar Tax Credit 2026: What Homeowners Need to Know
The Federal ITC Expired. Here Is What Still Saves You Money.
What Happened to the Federal Solar Tax Credit?
The residential solar Investment Tax Credit (ITC) under Section 25D of the tax code had allowed homeowners to deduct 30% of their solar installation cost directly from federal taxes owed. A $25,000 system translated to a $7,500 reduction in your tax bill — dollar-for-dollar, not just a deduction.
That credit expired December 31, 2025. The One Big Beautiful Bill Act (Public Law 119-21) did not extend or reinstate Section 25D. Systems placed in service on or after January 1, 2026 do not qualify.
Key Dates
- Through Dec 31, 2025: 30% federal residential ITC (Section 25D) — active
- Jan 1, 2026 onward: Section 25D expired — no federal residential credit
- Through 2032: 30% commercial ITC (Section 48E) — still active for businesses
If you installed solar in 2025 and have not yet filed taxes, you can still claim the credit on your 2025 federal return. Consult a tax professional to confirm eligibility based on your placement-in-service date.
Is Solar Still Worth It Without the Federal Tax Credit?
Yes — and the math still holds up. The federal ITC was valuable, but solar economics have shifted dramatically in homeowners' favor since 2010.
Why Solar Still Pencils Out in 2026
- Panel prices dropped 90% since 2010. A watt of installed solar capacity that cost $7-8 in 2010 costs under $2.50 today. The federal credit existed partly to offset high early-market costs. Those costs are largely gone.
- Electricity rates keep rising. Utility rates have increased 3-5% annually on average. Every year you delay, the payback period on solar gets shorter — not longer.
- State incentives fill part of the gap. Arizona, New York, Massachusetts, South Carolina, Oregon, and other states still offer 10-25% state tax credits. Cash rebates and net metering add further savings.
Example: 8kW System, California
Gross system cost: $25,000
CA property tax exemption: ~$0/year added tax (100% exemption)
CA sales tax exemption: ~$2,000 savings at installation
Net cost after state savings: ~$23,000
Annual electricity bill offset: ~$2,400/year (avg CA rate)
Payback period: ~9-10 years (vs. 7-8 with the old federal ITC)
Results vary by location, system size, utility rate, and net metering policy. Use the payback calculator for your specific numbers.
State Solar Incentives Still Available in 2026
With the federal ITC gone, state and local programs are now the primary tool for reducing solar costs. The landscape varies significantly by state.
What Is Still Available
- State income tax credits: AZ (25%), NY (25%), MA (15%), SC (25%), OR (varies) and others
- Cash rebates: Utility and state programs, particularly in CA, CT, RI, MN, NJ
- Property tax exemptions: 30+ states exclude solar from property assessment — a significant long-term benefit
- Sales tax exemptions: 25+ states waive sales tax on solar equipment
- Net metering: Most states still credit excess solar generation against your bill, though policies vary
Incentives change frequently. Use our incentives finder to see current programs for your ZIP code, or read the full 2026 state incentives guide for a state-by-state breakdown.
Commercial Solar Tax Credit (Section 48E) Still Active
If you are a business owner, the picture is different. The commercial Investment Tax Credit under Section 48E remains at 30% through 2032 for systems under 1MW AC. Businesses can also stack bonus adders:
- Domestic Content bonus (+10%): Requires U.S. steel/iron and 40%+ domestically manufactured components
- Energy Community bonus (+10%): Sites in areas historically dependent on fossil fuel industries (IRS designation)
- Maximum combined rate: 50% with both bonuses
Combined with 60% bonus depreciation on the adjusted basis, commercial solar systems at the 37% tax bracket can recover 50%+ of total cost in year one.
For the full commercial breakdown including real project examples, see the Commercial Solar Tax Credits 2026 guide.
How to Maximize Solar Savings in 2026
- Find every state and local incentive first. Use the incentives finder with your ZIP code before talking to any installer. Know what you are entitled to before negotiating.
- Get multiple bids. Installer margins vary more now that the federal credit no longer inflates perceived savings. Three quotes is a minimum.
- Confirm your net metering policy before signing. Net metering terms vary by utility and state. Ask your installer exactly how your utility compensates excess generation.
- Run your actual numbers. Use the ROI calculator with your real utility rate and system quote. A good deal in one state is a bad deal in another.
- Check payback before committing. Use the solar payback calculator to estimate years-to-breakeven with your specific inputs. Under 10 years is generally solid in 2026.
- Apply for rebates immediately after installation. Many state and utility rebate programs are first-come, first-served and run out of funding mid-year.
Frequently Asked Questions
No. The 30% residential federal solar tax credit (Section 25D) expired December 31, 2025 under the One Big Beautiful Bill Act. No federal residential credit applies to installations beginning January 1, 2026 or later. The commercial ITC (Section 48E) remains active at 30% through 2032.
Yes. Panel prices have dropped 90% since 2010. State incentives, net metering, and property/sales tax exemptions still reduce costs significantly. Payback periods are 1-2 years longer than with the federal credit, but solar remains a strong long-term investment in most states.
State income tax credits, utility cash rebates, property tax exemptions, sales tax exemptions, and net metering programs. The availability and value vary by state. Use our incentives finder for your specific ZIP code.
Yes, if your system was placed in service on or before December 31, 2025, you can claim Section 25D on your 2025 federal tax return. Consult a tax professional to verify your specific placement-in-service date and eligibility.
Yes. The commercial ITC (Section 48E) remains at 30% for business solar systems under 1MW AC through 2032, with potential bonuses bringing it to 50%. See the full commercial solar tax credit guide for details.
This guide is for informational purposes only and does not constitute tax or financial advice. Tax law is complex and changes frequently. Consult a qualified tax professional for guidance specific to your situation.