Solar Tax Credit 2026: What Changed and What Still Works

The federal residential solar investment tax credit (ITC), known as Section 25D, expired on December 31, 2025. Prior law had set a gradual step-down schedule (30% credit, then 26%, then 22%, then zero), but the credit was allowed to lapse without extension. The result is the same: no federal residential credit for 2026 installations.

This means: if you buy solar panels for your home in 2026, there is no federal tax credit to claim. None. No reduced rate, no phase-out number. It is gone.

For a typical 7 kW system costing $23,100, the lost 30% credit means:

- **Higher net cost**: $23,100 instead of $16,170 (if the credit were still available)

- **Longer payback**: roughly 5 additional years at national average electricity rates

- **Changed decision frame**: solar must now earn its keep through bill savings alone, not tax benefits

This is not just a marginal change. It is structural. Every financial projection for residential solar in 2026 must start from the assumption of a zero-dollar federal residential credit.

The commercial clean energy investment tax credit, Section 48E, remains in effect through 2027. This credit covers solar installations owned by businesses — which includes systems financed through leases and power purchase agreements (PPAs).

Here is how it works in practice:

| Scenario | Who claims the credit | How you benefit |

|---|---|---|

| You buy the system (cash or loan) | No one (25D expired) | No federal tax benefit in 2026 |

| You lease the system | The leasing company (via 48E) | Lower monthly lease payments |

| You sign a PPA | The PPA provider (via 48E) | Lower per-kWh rate |

| You own a business and install solar | You (via 48E) | Direct business tax credit |

This is why lease and PPA offers in 2026 may look more competitive than cash purchases in some markets. The 30% credit still exists — it just flows to the system owner, not the homeowner.

### State tax credits

Several states offer income tax credits that partially offset solar costs:

- **New York**: Up to $5,000 state tax credit

- **Arizona**: Up to $1,000 state income tax credit

- **Massachusetts**: Up to $1,000 state income tax credit

- **Maryland**: Up to $1,000 (varies by year)

- **Oregon**: Up to $2,500 (subject to availability)

These credits are not automatic — they depend on tax liability, state budget allocations, and in some cases, first-come-first-served funding caps.

### Property tax exemptions

| State | What is exempted |

|---|---|

| California | Solar system value exempt from property tax assessment |

| Texas | 100% property tax exemption for solar |

| Florida | 100% property tax exemption for solar |

| New York | 100% property tax exemption |

| Arizona | 100% property tax exemption |

| Colorado | Varies by county |

| New Jersey | 100% property tax exemption |

### Sales tax exemptions

At least 28 states offer full or partial sales tax exemptions on solar equipment. Florida, New York, New Jersey, Texas, and Massachusetts are among them. A 6-8% sales tax exemption on a $23,100 system saves $1,400-$1,850.

### Performance-based incentives

- **Massachusetts SMART**: Per-kWh payments for qualifying solar installations (declining step value)

- **New Jersey SuSI**: Per-kWh payments through the Successor Solar Incentive program

- **California SGIP**: Storage-focused rebates, not solar generation

- **New York NY-Sun**: Per-watt upfront rebate, declining with program milestones

### 1. Potential federal extension

Trade groups and some legislators are pushing for an extension of Section 25D. As of mid-2026, no bill has passed. The Inflation Reduction Act was the vehicle that set the step-down schedule, and a separate legislative act would be needed to reverse the expiration. Do not plan around a potential extension — evaluate solar based on current law.

### 2. State program funding blocks

Many state incentive programs operate on fixed budgets. NY-Sun, SMART, and SuSI have declining payment rates as capacity targets are met. A program that offers $0.20/W today may offer $0.15/W next year. Check the current program phase before budgeting.

### 3. Utility rate design changes

Net metering policies are under review in multiple states. California's transition to NEM 3.0 (net billing at lower export rates) is the most visible example. Lower export rates reduce the value of solar generation sent to the grid, which matters in a post-ITC market where every dollar of bill savings counts.

Before signing a solar contract in 2026, verify each line item:

1. **Does the quote include a 30% federal tax credit?** If yes, ask for the legal basis. For a residential cash purchase in 2026, there is none. Remove it from the proposal.

2. **Does the lease or PPA disclose who claims the commercial ITC?** If the installer does not pass 48E savings to your rate, you are paying retail for a system that cost them 30% less.

3. **Have you checked your state incentive programs?** Go to DSIRE or your state energy office. Confirm program status, funding availability, and eligibility.

4. **Is your net metering or export rate favorable?** If you export at wholesale or avoided-cost rates (below $0.04/kWh in some states), solar payback extends further. Model the export value separately.

5. **Are you comparing multiple quotes on $/W?** In a post-ITC market, price discipline matters more than ever. Get at least 3 quotes and compare on a per-watt-installed basis.

Use the [Solar ROI Calculator](/en/calculators/solar-roi) with your state and project-year set to 2026 to see the real numbers. The calculator does not assume a 30% federal credit — only what actually applies.