Solar Tax Credit 2026: What Changed and What It Means for You
Last updated: February 24, 2026 · Independent analysis · No affiliate links
The solar industry experienced a seismic policy shift in 2026. The One Big Beautiful Bill Act repealed the Section 25D residential clean energy credit -- the 30% federal tax credit that had been the cornerstone of residential solar economics since 2006. For homeowners who were planning to install solar panels or battery storage, the rules have fundamentally changed.
But the end of the federal credit does not mean the end of solar savings. Rising electricity costs, declining equipment prices, state-level incentives, and the growing popularity of third-party ownership models mean solar still makes financial sense for millions of American homeowners. This guide explains exactly what changed, what options remain, and how to maximize your savings going solar in 2026.
What Happened: The Section 25D Repeal
The Residential Clean Energy Credit, codified as Section 25D of the Internal Revenue Code, was the primary federal incentive for residential solar installations. Under the Inflation Reduction Act of 2022, this credit was set at 30% of the total installed cost of qualifying clean energy systems -- including solar panels, battery storage, and related equipment -- through 2032, with a planned step-down to 26% in 2033 and 22% in 2034.
The One Big Beautiful Bill Act, passed in 2026, repealed Section 25D as part of broader changes to the tax code. This means that homeowners who install solar panels or battery storage on their primary or secondary residence after the effective date can no longer claim the 30% federal tax credit on their personal income tax return.
What Was Lost
- ✗ 30% residential solar tax credit -- no longer available for new installations
- ✗ 30% standalone battery storage credit -- residential battery installations no longer qualify
- ✗ 30% credit for other clean energy -- residential small wind, geothermal heat pumps, and fuel cells also affected
What Remains
- ✓ Section 48 commercial ITC -- commercial solar and storage installations retain tax credit eligibility (subject to FEOC rules)
- ✓ State and local incentives -- most state programs operate independently of the federal credit
- ✓ Net metering -- available in most states, though policies vary
- ✓ TPO solar (leases/PPAs) -- leasing companies can still use the commercial ITC
Homeowners who completed their solar installation before the repeal date should still be eligible to claim the credit for the tax year in which the system was placed in service. Consult a tax professional to confirm your eligibility based on your specific installation timeline.
Impact on Homeowners
The most immediate impact is higher upfront costs. A typical residential solar installation in the US costs $20,000-$35,000 before incentives. Under the old 30% ITC, a $28,000 system would have qualified for an $8,400 tax credit, bringing the net cost down to $19,600. Without the federal credit, that same system costs the full $28,000 out of pocket (minus any state incentives).
| System Size | Typical Cost | Old Net Cost (with 30% ITC) | New Net Cost (no federal ITC) | Difference |
|---|---|---|---|---|
| 6 kW (small home) | $18,000 | $12,600 | $18,000 | +$5,400 |
| 8 kW (average home) | $24,000 | $16,800 | $24,000 | +$7,200 |
| 10 kW (large home) | $30,000 | $21,000 | $30,000 | +$9,000 |
| 10 kW + battery | $42,000 | $29,400 | $42,000 | +$12,600 |
Estimated costs based on national averages. Actual costs vary by region, installer, and equipment selection. State incentives not included.
However, it is critical to view these numbers in context. Solar panel prices have declined approximately 70% over the past decade, and equipment costs continue to fall. The cost per watt for a residential system has dropped from roughly $4.00/W in 2015 to approximately $2.75-$3.50/W in 2026. Meanwhile, residential electricity rates have risen by an average of 5-8% per year in many states, making the value of solar-generated electricity higher than ever.
The payback period for solar has extended by roughly 1.5-3 years without the federal credit, depending on local electricity rates and state incentives. In high-electricity-cost states like California, Connecticut, and Hawaii, payback periods remain attractive at 5-7 years. In states with lower electricity costs and no state incentives, payback may stretch to 9-12 years, which is still well within the 25-40 year operational life of modern solar panels like the Maxeon 7 (40-year warranty) or REC Alpha Pure-RX (25-year warranty).
Incentives Still Available in 2026
The repeal of the federal credit makes state and local incentives more important than ever. Many states operate their own solar incentive programs independently of the federal government, and these remain fully in effect. Here are the major categories of incentives still available to homeowners.
State Tax Credits and Rebates
Several states offer their own tax credits or direct rebates for solar installations. These include:
- New York: 25% state tax credit (up to $5,000) plus NY-Sun incentives
- Massachusetts: SMART program provides per-kWh production credits
- California: SGIP battery storage rebate program remains active
- South Carolina: 25% state tax credit (up to $3,500)
- Arizona: Property tax exemption for solar equipment value
- Maryland: Residential Clean Energy Rebate Program
Visit our state-by-state solar guide for incentive details specific to your location.
Net Metering
Net metering policies, which credit homeowners for excess solar energy exported to the grid, remain active in most states. While the specific rates and structures vary -- some states offer full retail credit while others provide a reduced export rate -- net metering continues to be a significant source of value for solar system owners. States with strong net metering policies include New Jersey, Massachusetts, and many Midwest and Northeast states. California transitioned to NEM 3.0 in 2023, which reduced export rates but increased the value of battery storage for self-consumption.
Solar Renewable Energy Certificates (SRECs)
In states with renewable portfolio standards, homeowners earn SRECs for every megawatt-hour (MWh) of solar energy their system produces. These certificates can be sold on the open market, providing an additional income stream. SREC values vary widely -- from under $10/MWh in oversupplied markets to over $300/MWh in states like New Jersey and Massachusetts with strong demand. Over a 25-year system life, SRECs can generate $5,000-$30,000 in additional revenue depending on your state and system size.
Local Utility Programs
Many utilities offer their own incentive programs, including rebates for solar installations, battery storage incentives, demand response credits, and virtual power plant (VPP) participation payments. Tesla's Powerwall program, for example, allows Powerwall 3 owners to participate in grid support programs that earn credits on their utility bills. Check with your local utility for available programs.
Property Tax Exemptions
Many states exempt the added value of solar equipment from property tax assessments. This means that while solar panels increase your home's market value, your property taxes do not increase as a result. States with solar property tax exemptions include Arizona, California, Florida, New Jersey, New York, Texas, and many others. This is an often-overlooked benefit that effectively saves homeowners hundreds to thousands of dollars over the life of the system.
Solar Leases and PPAs: The TPO Opportunity
With the residential tax credit gone, third-party ownership (TPO) models -- solar leases and power purchase agreements (PPAs) -- are experiencing a significant resurgence. Here is why: the Section 48 commercial Investment Tax Credit was not repealed by the One Big Beautiful Bill Act. This means that solar companies that own the equipment on your roof can still claim tax credits on their commercial taxes, passing a portion of those savings to you through lower monthly payments or per-kWh energy rates.
Solar Lease
You pay a fixed monthly fee to use a solar system installed on your roof. The leasing company owns the equipment, handles maintenance, and claims any available tax credits. Your benefit is a predictable monthly payment that is typically lower than your current electricity bill.
- Typical cost: $50-$150/month depending on system size
- Contract length: 20-25 years
- Maintenance: Included by lessor
- Best for: Homeowners who want savings without upfront cost
Power Purchase Agreement (PPA)
Instead of a fixed monthly fee, you pay for the electricity the system produces at a per-kWh rate, typically 10-30% lower than your utility rate. The PPA provider owns the system and is responsible for performance and maintenance.
- Typical rate: $0.08-$0.18/kWh (varies by market)
- Contract length: 20-25 years
- Escalator: 0-3% annual rate increase (negotiate for 0%)
- Best for: Homeowners in high-rate utility areas
The key advantage of TPO in the post-ITC landscape is that you do not need to have tax liability to benefit from the credit. Previously, homeowners with lower tax bills sometimes could not fully utilize the residential credit. With TPO, the leasing company captures the commercial credit and factors it into your pricing. Industry analysts expect TPO installations to increase from approximately 35% of residential solar to 50-60% by the end of 2026 as homeowners seek zero-down options.
One important consideration: with a lease or PPA, you do not own the system and therefore do not benefit from the increase in property value that solar ownership provides. You also cannot sell SRECs in states where they are available. For homeowners who can afford the upfront cost and plan to stay in their home long-term, direct ownership still offers the highest total return on investment. For everyone else, TPO is an excellent way to start saving immediately.
Battery Storage and the Tax Credit
The repeal of Section 25D affects battery storage as well as solar panels. Under the IRA, standalone batteries with at least 3 kWh of capacity qualified for the 30% residential credit -- a provision that had only been in effect since 2023. With the repeal, homeowners purchasing batteries like the Tesla Powerwall 3, Enphase IQ Battery 5P, or Franklin WH aPower no longer receive a federal tax credit on the purchase.
However, batteries remain valuable for several reasons beyond the tax credit:
Time-of-Use Arbitrage
In states with TOU rates, batteries save $500-$2,000 per year by charging during cheap off-peak hours and discharging during expensive peak hours. Over a 10-year battery life, this can generate $5,000-$20,000 in savings.
Backup Power
Grid outages are increasing in frequency. A battery system provides peace of mind and avoids the cost and hassle of portable generators. For homes with medical equipment or vulnerable residents, backup power can be essential.
Self-Consumption Maximization
In states with reduced net metering (like California's NEM 3.0), batteries let you store excess solar and use it yourself rather than exporting at low rates. This dramatically improves the economics of solar-plus-storage.
VPP Income
Virtual power plant programs pay battery owners $50-$300 per year for allowing the utility to dispatch stored energy during grid emergencies. This emerging income stream helps offset battery costs over time.
Battery prices continue to decline, with Bloomberg NEF reporting average cell-level costs of $108/kWh in early 2026. For a comprehensive comparison of battery options, see our Best Solar Batteries 2026 guide.
FEOC Rules and Commercial Credits
While the residential credit is gone, the commercial Investment Tax Credit (Section 48) remains in effect. This is relevant for homeowners using TPO arrangements and for understanding the broader market dynamics. However, the commercial ITC now comes with Foreign Entity of Concern (FEOC) restrictions that affect which equipment qualifies.
Beginning in 2025, battery components manufactured by or containing critical minerals sourced from foreign entities of concern -- primarily China, Russia, North Korea, and Iran -- are ineligible for the commercial clean energy tax credits. Starting in 2026, this restriction extends to solar panel components as well. This means that TPO companies must use FEOC-compliant equipment to claim the commercial ITC, which directly affects the equipment they install on your roof.
What this means for you: If you are going the TPO route (lease or PPA), your installer will likely offer equipment from FEOC-compliant manufacturers such as Maxeon (panels made in Malaysia/Mexico), Qcells (US/South Korea), Silfab (US/Canada), and batteries like the Tesla Powerwall 3 (US-made). For a complete breakdown, see our FEOC Solar Panels Guide.
If you are purchasing solar equipment outright (not through TPO), FEOC rules do not directly affect you since you are not claiming a commercial tax credit. You are free to choose any equipment that meets your performance and budget requirements, including panels from Chinese manufacturers like LONGi, Trina, JinkoSolar, and JA Solar, which often offer the best price-to-performance ratio.
Why Solar Is Still Worth It in 2026
The loss of the federal tax credit is significant, but it does not erase the fundamental economics that make solar a smart investment. Here are the factors that continue to drive solar adoption in 2026:
Rising Electricity Costs
The US Energy Information Administration reports that average residential electricity rates have increased from $0.14/kWh in 2021 to over $0.18/kWh nationally in 2026, with rates exceeding $0.30/kWh in states like California, Connecticut, Massachusetts, and Hawaii. Every year you delay solar installation, you pay more for grid electricity. Solar locks in your energy cost for 25-40 years at today's equipment prices, creating a hedge against future rate increases that no utility plan can match.
Declining Equipment Costs
Solar panel efficiency has reached record levels -- the Maxeon 7 achieves 22.8% efficiency, and the Risen Hyper-ion HJT reaches 23% -- while prices per watt continue to decline. Higher efficiency means fewer panels to generate the same energy, reducing installation costs. Battery prices have fallen to approximately $108/kWh at the cell level, making storage more accessible than ever.
Energy Independence
Solar-plus-storage systems provide energy independence from the grid. With battery systems like the Tesla Powerwall 3 offering 11.5 kW continuous power and 13.5 kWh of storage, homeowners can maintain normal household operations during extended grid outages. As extreme weather events become more frequent, energy resilience has a value that goes beyond dollars and cents.
Property Value Increase
Research from Zillow and the Lawrence Berkeley National Laboratory consistently shows that homes with owned solar systems sell for 4-6% more than comparable homes without solar. For a $400,000 home, that translates to $16,000-$24,000 in added value -- often exceeding the remaining balance on the solar investment. This benefit applies to owned systems, not leased systems.
Environmental Impact
A typical residential solar system offsets 3-5 tons of CO2 emissions per year -- equivalent to planting 60-100 trees or taking one car off the road. Over a 25-year system lifetime, that is 75-125 tons of avoided emissions. For environmentally conscious homeowners, the tax credit was never the primary motivation, and the environmental case for solar is as strong as ever.
The Bottom Line
The loss of the 30% federal tax credit extends the payback period for solar by approximately 1.5-3 years in most markets. However, with modern panel efficiencies above 22%, equipment warranties of 25-40 years, and electricity rates that continue to climb, solar remains one of the best long-term investments a homeowner can make. The math still works -- it just takes a bit longer to break even. And once you do, every kilowatt-hour of solar energy is effectively free for the remaining life of the system.
Frequently Asked Questions
Is the federal solar tax credit still available in 2026?
No. The Section 25D residential clean energy credit, which provided a 30% tax credit for solar panels, batteries, and other clean energy equipment installed on homes, was repealed as part of the One Big Beautiful Bill Act signed in early 2026. Homeowners who installed solar before the repeal date can still claim the credit for the tax year in which their system was placed in service, but new residential installations no longer qualify for the federal ITC.
Can I still get state-level solar incentives in 2026?
Yes. Many states continue to offer their own solar incentives independently of the federal government. California has the SGIP program for battery storage, New York offers NY-Sun incentives, Massachusetts provides SMART program credits, and many other states have active rebate or SREC programs. Check your state page on Solar Spec Hub for the latest details on incentives available in your area.
Do solar leases and PPAs still offer savings in 2026?
Yes. Third-party ownership (TPO) models like solar leases and power purchase agreements (PPAs) remain viable because the commercial Investment Tax Credit (Section 48) was not repealed. Solar leasing companies can still claim the commercial ITC on equipment they own and install on your roof, passing a portion of those savings through to you in the form of lower monthly payments or per-kWh rates. Many homeowners are finding TPO options more attractive now that the residential credit is gone.
Is solar still worth it without the tax credit?
For most homeowners, yes. Electricity prices have risen 25-40% over the past five years in many markets, and solar panel costs have continued to decline. A typical 8 kW residential system can pay for itself in 6-9 years through electricity savings alone, even without the federal credit. In states with high electricity rates (California, Connecticut, Massachusetts, Hawaii), payback periods can be as short as 4-6 years. Solar also increases property value by an average of 4.1% according to Zillow research.
What happened to the battery storage tax credit?
The standalone battery storage credit, which was part of Section 25D, has also been repealed for residential installations. However, commercial battery installations may still qualify under Section 48 if they meet FEOC (Foreign Entity of Concern) compliance requirements. This means solar leasing companies installing batteries on your home through a PPA or lease may still be able to pass through some tax credit savings. Contact local installers about TPO battery options in your area.
Should I wait to go solar or install now?
There is generally no financial benefit to waiting. Solar equipment prices are not expected to drop significantly in 2026, and electricity rates continue to climb. Every month you delay installation is a month of higher electricity bills you could be offsetting with solar production. If you are considering a solar lease or PPA, companies are actively adjusting their offerings to remain competitive post-ITC repeal, making current deals quite competitive. State-level incentives also have limited funding and may expire.
Last updated: February 2026. This guide is for informational purposes only and does not constitute tax or legal advice. Consult a qualified tax professional for advice specific to your situation.