🇺🇸 Federal Energy Policy

Federal Solar Tax Credit 2026: What Ended and What's Left

Solar Savings Hub
Solar Savings Hub Editorial Team
Reviewed against DOE, SEIA & IRS sources
📅 Updated: 2026-10-04 ⏱️ 6 min read
Homeowner reviewing Federal Solar Tax Credit Form 5695 calculation and savings breakdown
Homeowner reviewing Federal Solar Tax Credit Form 5695 calculation and savings breakdown
⚠️ 2026 Policy Update (October 2026)

The 30% Residential Clean Energy Credit (Section 25D) ended on December 31, 2025 under the One Big Beautiful Bill Act (P.L. 119-21). Homeowner systems installed in 2026 no longer qualify for a federal tax credit. This guide has been fully rewritten to reflect the post-credit reality: what ended, who can still claim, and the paths that remain. All figures below use 2026 post-credit economics.

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Key Takeaways & Executive Summary

  • 30% Credit Ended: The Residential Clean Energy Credit (Section 25D) expired for homeowner systems placed in service after December 31, 2025. 2026 cash and loan purchases get 0% federal credit.
  • Lease/PPA Path Remains: Third-party-owned systems (leases and power purchase agreements) may still qualify under Section 48E if construction began by July 4, 2026 or the system is placed in service by December 31, 2027.
  • 2025 Installs Can Still File: If your system was placed in service in 2025, you can still claim the 30% credit on your 2025 tax return using IRS Form 5695.
  • State Incentives Now Decide: With the federal credit gone, state rebates, tax credits, SRECs, and net metering rules are the deciding factor in 2026 solar economics.
2026 Credit Rate 0% Section 25D ended Dec 2025
Net Cost Basis $24,000 8kW system, no federal offset
Governing Law P.L. 119-21 One Big Beautiful Bill Act
IRS Form 5695 For 2025 installs only

For a decade, the 30% Federal Solar Investment Tax Credit (ITC) — Section 25D of the Internal Revenue Code — was the single most powerful incentive for US residential solar. That era ended on December 31, 2025. If you are buying solar in 2026, there is no federal tax credit to claim. This guide explains exactly what changed, who can still benefit, and how to evaluate solar on post-credit economics.

1. What Happened to the 30% Federal Solar Tax Credit?

The One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, terminated the Residential Clean Energy Credit under Section 25D for homeowner systems placed in service after December 31, 2025. The Inflation Reduction Act had previously scheduled the 30% rate through 2032 — that schedule no longer applies to residential systems.

What this means in plain terms: a homeowner who buys a solar system in 2026 pays the full gross cost with no federal tax offset. The table below shows 2026 net costs with the credit removed:

System Capacity Avg Gross Cost Federal Credit (2026) Net Out-of-Pocket
6 kW Array $18,000 $0 $18,000
8 kW Array $24,000 $0 $24,000
10 kW Array + Battery $42,000 $0 $42,000

2. The Rules As They Stand in 2026

  • Section 25D is over for new homeowner systems: No federal credit for residential systems placed in service after December 31, 2025, regardless of when the contract was signed.
  • Section 48E — the remaining federal path: Third-party-owned systems (solar leases and power purchase agreements) may still qualify for the commercial clean electricity credit under Section 48E, provided construction began by July 4, 2026 or the system is placed in service by December 31, 2027. The leasing company claims the credit and typically passes part of the value through as lower payments.
  • State and local incentives are now the deciding factor: State tax credits, cash rebates, SREC income, property-tax exemptions, and net metering rules determine whether solar pencils out in 2026. See our 50-state solar policy matrix.

3. Who Can Still Claim a Federal Credit?

  • 2025 installations: If your system was placed in service (fully installed and generating) in 2025, you can still claim the 30% credit on your 2025 federal tax return. See Section 4 below for the Form 5695 walkthrough.
  • Lease and PPA customers: You do not claim the credit yourself — the third-party owner does under Section 48E — but you benefit through reduced monthly payments. Compare lease/PPA offers carefully against cash purchase economics.
  • Everyone else buying in 2026: Budget on gross cost. Run the numbers with our post-credit solar calculator before signing anything.

4. Filing Form 5695 for a 2025 Installation

If your system was placed in service in 2025, attach IRS Form 5695 (Residential Energy Credits) to your 2025 federal tax return (Form 1040):

  1. Calculate your total qualified installation costs (equipment, permitting, labor, and battery).
  2. Input the total onto Line 1 of Form 5695 (Part I - Residential Clean Energy Credit).
  3. Multiply by 30% (0.30) to compute your total credit on Line 6.
  4. Transfer the calculated credit amount to Schedule 3 (Form 1040), Line 5.

Note: the credit was non-refundable — it could reduce your tax liability to zero, with unused amounts rolling over to future tax years, but the IRS would not refund amounts beyond what you owed.

5. What Counted as Eligible Expenses (2025 Reference)

For 2025 filers, the IRS strictly defined qualified expenditures under Section 25D. This table remains useful if you are filing for a 2025 installation:

Expense Category Eligible for 2025 Credit? IRS Rule & Technical Guidance
Solar Panels, Inverters & Racking 100% Eligible All primary photovoltaic generation hardware, roof mounting brackets, microinverters, and junction boxes.
Labor, Permitting & Engineering 100% Eligible All on-site installation labor, structural engineering stamps, municipal permit fees, and utility interconnection application charges.
Main Electrical Panel Upgrade (MPU) Eligible (When Required) If upgrading an older 100-Amp breaker panel to a 200-Amp service panel was necessary to safely interconnect the system or battery, the entire cost qualified under Section 25D.
Battery Storage (3+ kWh) 100% Eligible Standalone energy storage systems (such as Tesla Powerwall 3, Enphase 5P, or FranklinWH) rated at 3 kWh or higher qualified, even if installed without solar panels.
Standard Roof Replacement NOT Eligible Standard asphalt shingles, clay tiles, or metal roof decking did not qualify, even if installed concurrently with solar panels. Only specialized solar roofing tiles (such as Tesla Solar Roof glass tiles) qualified directly.
Tree Trimming / Tree Removal NOT Eligible Cutting back or removing trees to eliminate roof shading did not qualify as solar property under IRS rules.

6. How the Credit Worked: A 2025 Example

To understand what buyers lost, here is how the credit worked for a 2025 installation. A common misconception was: "I get a tax refund every year, so I have zero tax liability to offset." A refund does not mean zero liability — it means your employer withheld more than your actual tax bill.

  • Step 1: Check Line 24 on Form 1040: Line 24 ("Total Tax") is your true federal tax liability before withholdings.
  • Step 2: Compare withholdings: If your employer withheld $9,000 and your Line 24 liability was $8,000, you normally received a $1,000 refund.
  • Step 3: Apply the 2025 solar credit: On a $20,000 system, the 30% credit was $6,000, reducing the $8,000 liability to $2,000.
  • The result: With $9,000 withheld against a $2,000 liability, the refund was $7,000.

This mechanism no longer applies to 2026 installations — but it shows why the credit's end added roughly $6,000–$7,200 to the effective cost of a typical residential system.

7. Solar Loans After the ITC Ended

Specialized solar lenders (GoodLeap, Mosaic, Sunlight Financial) historically engineered loans around the 30% credit: an 18-month introductory payment assumed you would apply your tax refund as a balloon principal payment at month 18, after which the loan re-amortized.

  • 2026 reality: With no federal credit for new homeowner systems, the 18-month balloon structure has no tax refund to draw on. Lenders are repricing these products — expect straightforward amortizing loans instead.
  • Watch legacy paperwork: If a 2026 loan quote still references an "ITC balloon" or month-18 re-amortization, ask the lender to re-quote on current terms. Do not sign a loan whose payments assume a credit you cannot claim.
  • Dealer fees still matter: "Low-APR" solar loans (e.g., 3.99%) often hide 15%–30% dealer origination fees in the principal. Always compare the cash price against the financed total.

8. State Incentives Now Carry the Weight

With the federal credit gone, 2026 solar economics are decided at the state level. Layer what's available where you live:

  • State tax credits: New York (25% up to $5,000), Massachusetts (15% up to $1,000), and others directly cut your state tax bill — and never reduced the old federal basis.
  • Cash rebates & SRECs: Upfront utility rebates and ongoing Solar Renewable Energy Certificate income (NJ, MA, MD, PA) now do the heavy lifting the ITC used to do.
  • Property & sales tax exemptions: Many states exempt solar from property tax assessments and sales tax — pure savings with no paperwork beyond the install.
  • Net metering rules: Your utility's export rate increasingly determines payback. Compare policies in our 50-state matrix.

The bottom line for 2026: solar can still pay — but only where the state-level math works. Run your numbers with post-credit economics before you sign.

Frequently Asked Questions

Can I still claim the federal solar tax credit in 2026?

No — not for a homeowner system installed in 2026. The Section 25D credit ended December 31, 2025. The only exceptions: systems placed in service in 2025 (claim on your 2025 return via Form 5695), and lease/PPA systems where the third-party owner may claim under Section 48E.

Does a new roof replacement qualify for a solar tax credit?

Generally no. The IRS states that standard roofing materials and structural repairs do not qualify, even if installed alongside solar panels. Only specialized solar roofing tiles (like Tesla Solar Roof) qualify directly.

Are solar batteries like Tesla Powerwall 3 covered by any federal credit in 2026?

Not for homeowner purchases in 2026 — the Section 25D credit that covered 3+ kWh standalone batteries ended December 31, 2025. Batteries in third-party-owned (leased) systems may still be covered under Section 48E.