Federal Solar Tax Credit in 2026: What Changed and What Still Applies

For homeowners who buy their own solar system, the federal Residential Clean Energy Credit (Section 25D) no longer applies to expenditures made after December 31, 2025, under legislation enacted in July 2025 (commonly called the One Big Beautiful Bill Act). If your system was installed and paid for in 2025 or earlier, you may still be able to claim the credit on your tax return for that year. For 2026 purchases, you should assume no 25D credit and budget accordingly, then confirm the current law with the IRS or a tax professional, since details such as third-party-owned systems and storage can differ.

This guide explains how the credit worked, what changed and how to avoid common errors. It is general information, not tax advice.

How the credit worked

The Residential Clean Energy Credit allowed a homeowner to claim a percentage of the cost of qualified solar electric property, including solar panels, inverters, mounting equipment, wiring and, for some years, installation labor and related costs. Battery storage with a capacity of at least 3 kWh became eligible beginning in 2023. The credit rate was 30% for property placed in service through 2032 under the Inflation Reduction Act of 2022, before the 2025 law cut the program short.

It was a nonrefundable tax credit, meaning it reduced the federal income tax you owed but did not produce a refund beyond that. If the credit exceeded your tax liability, the unused amount generally carried forward to later tax years. You claimed it on IRS Form 5695 and carried the result to Form 1040.

What the 2025 law changed

The 2025 legislation terminated the 25D credit for qualified expenditures made after December 31, 2025. In practical terms:

Paid and installed in 2025 or earlier: the credit rules in effect for that year generally apply, and you claim it when you file for that tax year.
Contract signed in 2025, installed in 2026: be careful. The IRS treats the expenditure as made when installation is complete, not when you sign or pay a deposit, for solar electric property. Confirm timing with a tax professional.
Paid for in 2026 or later: the homeowner credit does not apply under current law, so treat any such credit in a proposal as a red flag and ask for the legal basis in writing.

Always verify with the IRS website, since Congress can change the rules again and the IRS issues guidance on how to apply them.

Leases, PPAs and the business credit

The homeowner credit applied only if you owned the system. When a company owns the panels on your roof under a lease or power purchase agreement (PPA), the company may be eligible for a different, business-oriented federal credit, and any savings are reflected in the pricing it offers you. Under the 2025 legislation, the rules for those business credits for residential leasing arrangements were also modified, with restrictions and deadlines that differ from the homeowner credit. Because these rules are technical, a lease or PPA that advertises a lower payment because of a federal credit should be checked against current IRS and Treasury guidance. See our guide on leases, PPAs and buying.

Worked example for an earlier installation

This example uses historical rules and illustrative numbers.

You installed an 8 kW system in 2025 for $24,000 and paid in full that year. The credit at 30% = 0.30 x 24,000 = $7,200. Suppose your 2025 federal income tax liability is $5,000. You use $5,000 of the credit that year, and the remaining $2,200 carries forward to your 2026 return, to be used against that year's tax liability. Your effective net cost is $24,000 - $7,200 = $16,800, though you receive the benefit over two tax years. The payback calculator lets you enter the net cost to see the effect.

Now consider a 2026 purchase at the same price. Without the credit, the net cost remains $24,000 before any state or utility incentives, and the payback period lengthens. Using the calculator, you can compare scenarios with $0 and other incentives in the subsidy box.

Common mistakes

Assuming the credit still exists because an old website says so. Many pages were not updated after 2025.
Confusing payment date with installation date. Eligibility is tied to when the expenditure is treated as made, so ask a tax professional about timing.
Counting on a refund. The credit was nonrefundable, so it only helped to the extent of your tax liability, with carryforward.
Claiming costs that do not qualify. Roof replacement is generally not part of the solar property, unless the roof itself is a solar roof product, so ask about it.
Forgetting the basis reduction. Reported costs and the credit can affect your home's cost basis; consult a tax professional.
Relying on a salesperson's tax claims. Installers are not tax advisers.

What may still reduce your cost

Even without the federal homeowner credit, other mechanisms may exist.

State tax credits or deductions in some states.
Utility rebates or performance-based incentives.
Sales tax and property tax exemptions that lower the cost or avoid increasing your tax bill.
Net metering and export credits that set the ongoing value of your system.
Low-interest loans from state programs, green banks or credit unions.

See our guide on state and utility incentive programs and use the DSIRE database to search by state.

Documents to keep

The signed contract and final invoice
Proof of payment, such as bank statements
Equipment specifications and serial numbers
The date the system passed final inspection and received permission to operate
Copies of tax forms you filed

When to consult a professional

Talk to a qualified tax preparer or CPA if you installed near the end of 2025, if you are claiming a carryforward, if you have a lease or PPA, or if your system includes storage. The IRS does not give individual advice by default, but its website publishes forms and instructions.

Frequently asked questions

Can I still claim the solar tax credit in 2026?

For a system you purchased and had treated as paid in 2026, the homeowner credit under Section 25D does not apply under the 2025 legislation. If you completed your purchase in 2025 or earlier, you may claim it for that tax year. Verify with the IRS.

Does the credit carry forward if I owe little tax?

Under the rules that applied, unused credit generally carried forward to future tax years. Check Form 5695 instructions for the year you claim.

Do state incentives still exist?

Many do, and they vary by state and utility. Search DSIRE and your state energy office.

Does a lease still get federal support?

The company that owns the system may qualify for business credits under specific rules and deadlines. Confirm details with the company in writing and with Treasury or IRS guidance.

Sources

Internal Revenue Service — Form 5695 instructions and energy credit guidance
U.S. Department of Energy — homeowner solar information
DSIRE — state and local incentives
U.S. Department of the Treasury — guidance on energy credits