Is Solar Worth It in 2026 Without the Federal Tax Credit?

When the federal residential solar tax credit (Section 25D) expired on December 31, 2025, it removed a 30% discount that had driven solar adoption for years. Homeowners now face a simple question: is solar still worth it without that credit?

The honest answer is: it depends entirely on where you live, what you pay for electricity, and what you pay for the system. In some states, solar still works. In others, the case is much harder to make.

Let us compare the same 7 kW system in two years:

| Cost factor | 2025 (with 30% ITC) | 2026 (no federal credit) |

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

| Installed cost (national median) | $23,100 | $23,100 |

| Federal tax credit | −$6,930 | $0 |

| Net cost after federal credit | $16,170 | $23,100 |

| Annual bill savings (national avg $0.16/kWh) | ~$1,400 | ~$1,400 |

| Simple payback | ~11.5 years | ~16.5 years |

At the national average, the difference is stark: losing the 30% credit adds about 5 years to payback. This makes solar harder to justify in states with average or below-average electricity rates.

But in high-rate states, the picture changes dramatically:

| State | Avg rate | Annual savings | Payback (no credit) |

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

| California (PG&E) | $0.35/kWh | ~$3,100 | ~7.5 years |

| New York | $0.24/kWh | ~$2,100 | ~11 years |

| Massachusetts | $0.29/kWh | ~$2,550 | ~9 years |

| Texas | $0.14/kWh | ~$1,200 | ~19 years |

| Florida | $0.12/kWh | ~$1,050 | ~22 years |

### 1. Electricity rates keep rising

The EIA 10-year average shows residential electricity rates increasing at 3.5% per year. A system installed today saves more in year 10 than year 1. If rates rise faster than inflation, solar lock-in value increases. In high-rate states like California, New York, and Massachusetts, the utility bill savings alone can produce a competitive return even without a federal credit.

### 2. Hardware costs are falling

Solar panel prices have dropped roughly 15-20% over the past two years. Module oversupply and improved manufacturing efficiency are driving costs down. While soft costs (permitting, labor, sales commissions) have not fallen as fast, the total installed price in competitive markets is trending lower. A $2.50/W system in 2026 has a better chance of payback than a $3.50/W system did in 2023 — even without the credit.

### 3. State incentives still add real value

New York's state tax credit ($5,000), NY-Sun rebates, Massachusetts' SMART payments, and Arizona's income tax credit ($1,000) can each reduce net cost by thousands. While none replaces the full 30% federal credit, combining state and utility incentives can close much of the gap — especially in the Northeast.

### 4. Net metering and export credits provide recurring value

States with strong net metering (or favorable net billing, as in Massachusetts and New York) let you offset retail-rate electricity with solar generation. Each kWh you generate reduces a kWh you would have bought at the retail rate. In high-rate states, this creates $2,000-$3,500 in annual value for a typical system. That is the real economic engine of solar — not the tax credit.

### 5. Solar adds home value and long-term certainty

Zillow and LBNL research consistently shows that owned solar systems increase home resale value by roughly 4% on average. More importantly, solar locks in a portion of your electricity cost for 25+ years. In a world where utility rates rise unpredictably, that certainty has real financial value even if it does not appear on a payback spreadsheet.

Honesty matters here. There are clear scenarios where the numbers no longer work:

- **Low-rate states without incentives**: In Florida ($0.12/kWh), Texas ($0.14/kWh), or other low-rate states without meaningful state incentive programs, payback can exceed 18-22 years. That is longer than most homeowners stay in one home, and a system might not pay for itself before the inverter needs replacement.

- **Short expected occupancy**: If you plan to move within 5-7 years, the upfront cost is unlikely to be recovered through bill savings alone. Solar can still add resale value, but recouping the full investment requires a buyer who values the system at its remaining savings potential — not guaranteed.

- **Lease or PPA without escalator protection**: While lease and PPA can still benefit from Section 48E (commercial ITC), some contracts include 2-3% annual escalators that erode the savings advantage. Read the escalator terms carefully before signing.

- **System priced above $3.50/W**: In a post-ITC market, paying above-market pricing is financially punishing. If a quote exceeds $3.50/W installed, the lost federal credit makes payback much harder. Shop for multiple quotes and compare on a per-watt basis.

If you are considering solar in 2026, follow this order:

1. **Check your electricity rate.** If you pay below $0.18/kWh, solar economics are marginal without strong state incentives.

2. **Check your state incentives.** Go to DSIRE or your state energy office. Calculate the net cost after state credits, rebates, and exemptions — not after a federal credit you no longer have.

3. **Get multiple quotes.** The difference between a $2.80/W and $3.50/W quote can mean 3-5 years of payback difference.

4. **Run the numbers.** Use the Solar ROI Calculator with project-year set to 2026 and your actual electricity rate. The calculator handles state defaults and shows the real payback without assuming a federal credit.

5. **Consider a lease or PPA.** If you cannot justify the upfront cost, a lease or PPA can still provide savings through the commercial ITC — but review the escalator and buyout terms carefully.

Solar without the 30% federal credit is a harder decision, but not a wrong one — if you are in the right state with the right pricing. The days of automatic 5-7 year payback are mostly over, but 8-12 year payback with 25 years of reduced bills is still a sound financial move in many markets. The difference is that in 2026, solar must earn its keep through utility bill savings, not through a tax credit.

Use the [Solar ROI Calculator](/en/calculators/solar-roi) with 2026 settings and your state's data to see the real numbers.