US Federal Solar Tax Credit in 2026: What Changed

The Section 25D residential 30% credit was terminated for owned systems after 31 December 2025. Here is what still works in 2026 — and how the buy-vs-lease math changes.

For twenty years, the federal residential solar tax credit was the anchor of every US solar quote. That era is over. The One Big Beautiful Bill Act, signed in July 2025, terminated the Section 25D residential credit for owned systems after 31 December 2025. If you buy a system in 2026, there is no federal 30% credit on your purchase. But the story is more nuanced than the headlines suggest: leases and PPAs can still capture a federal credit indirectly, earlier installations keep their credits, and several strong state incentives survive untouched. This guide walks through what actually changed, with the numbers.

What the law actually did

Section 25D of the tax code gave homeowners a credit worth 30% of qualified solar (and battery) expenditures on systems they owned. Under the Inflation Reduction Act it was scheduled to run at 30% through 2032. The One Big Beautiful Bill Act of 2025 cut that timeline short: the credit is terminated for expenditures after 31 December 2025. There is no phase-down, no step to 26% — it goes from 30% to zero at the year boundary.

• Systems completed and paid for in 2025 or earlier: still eligible. You claim the credit on the tax return for the year the system was placed in service (2025 installs go on the return filed in early 2026, using IRS Form 5695).
• Owned systems installed in 2026 onward: no federal residential credit. Cash and loan purchases get 0% from the federal government.
• Carryforward: if you earned a credit in 2025 or earlier but could not use all of it against that year’s tax liability, the unused portion still carries forward to future returns. The termination did not claw back credits already earned.

Interpretive details — for example, exactly how the IRS treats expenditures paid in 2025 for installs finishing in 2026 — are the kind of edge case where you should read the current IRS guidance or ask a tax professional rather than trust a blog, including this one.

The commercial credit lives on — and reaches homeowners through leases

Here is the part most 2026 coverage skips. The Section 48E clean electricity investment credit — the commercial-side credit — was not terminated on the same date. For solar and wind it now carries deadlines of its own (broadly: projects that began construction by mid-2026, or are placed in service by around the end of 2027, with details that are still being worked through in Treasury guidance), but in 2026 it is very much alive.

Why does that matter to a homeowner? Because when a solar company owns the panels on your roof — a lease or a power purchase agreement (PPA) — the company is a commercial taxpayer and can claim the roughly 30% credit under Section 48E. Competitive providers pass much of that value through as lower monthly payments. So in 2026, the only common way for a household to benefit from a federal solar credit is indirectly, via third-party ownership.

That does not automatically make leasing the better deal. It changes the comparison, which is exactly why you should run your own numbers.

Buy vs lease in 2026: how the math shifts

Before 2026, buying beat leasing in almost every case because the owner captured the 30% credit directly. Now the gap has narrowed — but for most people in high-rate states, owning still wins over the system’s life. The core arithmetic:

A worked comparison for a typical 7 kW system producing about 9,000 kWh per year in a $0.25/kWh state:

Losing the credit typically adds two to three years to a purchase payback. Painful, but in states with retail rates of 20–40¢/kWh, an owned system still returns several times its cost over 25 years. Leases cap your upside: the provider keeps the asset, payments often escalate 1–3% per year, and a lease can complicate a home sale. Where leases now genuinely compete is for households with low or no tax appetite — who could not have used the old credit fully anyway — and in states where pass-through pricing is aggressive. Compare total 25-year cost, not month-one payments, with our solar savings calculator.

Battery storage: same cliff

Standalone and solar-attached home batteries (3 kWh and larger) qualified for the same 25D credit — and lost it on the same date. A battery bought with an owned system in 2026 gets no federal credit. Batteries in leased or PPA systems can still ride along under the provider’s 48E claim, and some state programs (California’s SGIP, various utility rebates) still help. Expect battery paybacks on purchases to lengthen accordingly.

State incentives that survive

Nothing in the federal bill touched state programs, and in high-cost states these remain substantial:

• New York: a state income tax credit of 25% of system cost (capped, historically at $5,000), plus NY-Sun rebates in many territories. See our New York calculator.
• Massachusetts: a 15% state credit (historically capped at $1,000) plus the SMART program’s production-based payments. Run the Massachusetts calculator.
• New Jersey: the SuSI / SREC-II program pays a fixed amount per megawatt-hour generated for 15 years — an income stream that materially shortens payback. Model it with the New Jersey calculator.
• Elsewhere: property-tax and sales-tax exemptions, net metering rules, and utility rebates vary widely and are unaffected by the federal change.

Caps and program budgets change; confirm current figures with the state program itself before signing.

Common mistakes

• Trusting calculators that still apply 30% to purchases. Many online tools have not been updated for 2026. If a payback estimate for an owned system includes a federal credit, the answer is wrong by thousands of dollars.
• Assuming the credit was merely reduced. It was terminated for purchases, not stepped down to 26%.
• Forgetting carryforward. If you installed in 2025 and could not use the whole credit, you have not lost the remainder.
• Signing a lease without comparing 25-year totals. A pass-through of the 48E credit helps, but escalators and lost ownership often cost more than the credit is worth.
• Ignoring state incentives. In NY, MA, and NJ especially, state programs alone can restore much of the lost federal value.
• Treating any guide as tax advice. Rules around placed-in-service dates and 48E deadlines have genuine edge cases. This article is general information, not tax advice — confirm your situation with a qualified tax professional and current IRS guidance.

The bottom line for 2026: solar purchases lost their biggest subsidy, but the underlying economics — high retail rates, falling hardware prices, durable state incentives — still favor ownership in most of the country. The projects that no longer pencil are the marginal ones, which is precisely why honest, credit-free math matters more than ever.

Frequently asked questions

Is there still a federal solar tax credit in 2026?

Not for systems you buy. The Section 25D residential credit was terminated for expenditures after 31 December 2025 under the One Big Beautiful Bill Act. The commercial Section 48E credit continues for now, so leased and PPA systems can still carry a federal credit claimed by the provider, some of which may be passed through to you in pricing.

I installed solar in 2025 — can I still claim the 30% credit?

Yes. Systems placed in service by 31 December 2025 claim the credit on that year’s tax return (Form 5695), and any unused portion carries forward to later years. The termination applies to new expenditures, not to credits already earned.

Does the change affect home batteries?

Yes. Batteries qualified under the same Section 25D credit and lost it on the same date for purchased systems. Batteries within leased or PPA systems may still benefit via the provider’s Section 48E claim, and state programs like California’s SGIP continue separately.

Is buying solar still worth it without the federal credit?

Usually yes in high-rate states, where payback typically lengthens by roughly two to three years but the system still returns several times its cost over 25 years. In low-rate states the case is more marginal — run the numbers with current, credit-free assumptions before deciding. This is general information, not tax advice.